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The Wall Street Journal: BP’s CEO Browne Will Give Up Job Early

Wall Street Journal BP problems

Departure From Energy Giant
Comes Amid U.S. Inquiries
Into Oil Spills, Refinery Blast
By BHUSHAN BAHREE and CHIP CUMMINS
January 13, 2007; Page A3

John Browne, who built BP PLC into a global oil power, will step down this summer, 17 months ahead of schedule, handing the reins to one of his longest-serving executives amid a series of politically damaging scandals in the U.S.

The surprise move to name BP veteran Tony Hayward as chief executive in August comes at a time when BP has been trying, with mixed success, to bounce back from oil spills in Alaska, a deadly accident at a Texas refinery and allegations of trading shenanigans in energy markets, which it has denied.
 
The change, said people close to the situation, is an attempt by the board to stave off a potentially crippling period of drift at BP — which until two years ago was among the most highly regarded companies in the $3-trillion-a-year global oil industry.

A longtime front-runner for the post, Mr. Hayward has been a top lieutenant of Lord Browne’s since 1995, when the CEO began turning BP from being a sluggish also-ran into a profit-gushing giant. Mr. Hayward has run BP’s finance department and headed its exploration and production division, the heart and profit center of BP.

But he faces a steep road ahead. On Tuesday, a commission led by former Secretary of State James Baker is to issue a report on a 2005 explosion at a BP refinery in Texas that claimed 15 lives.

People familiar with the situation said the timing of Lord Browne’s departure was unrelated to the various probes facing BP. BP’s board had rushed a succession plan late last year, including designating Mr. Hayward as heir apparent, and that left Lord Browne feeling he risked becoming a lame duck amid drift, these people said. “An 18-month transition is not sustainable,” said a person close to the matter.

Investors cheered the move Friday. BP’s American depositary receipts closed at $64.64, up $3.05, or 5%. That was more than the gain of 4.5% recorded for all of last year. BP is one of the largest producers of oil and natural gas in the U.S., and is the nation’s largest supplier of natural gas.

“Tony Hayward is the perfect choice,” said Fadel Gheit, senior energy analyst at Oppenheimer & Co. “He is 10 years younger than Browne, and for 10 years he has basically shadowed Browne’s ascension to the top.”

Lord Browne will be joining Apax Partners, a large London-based private-equity firm, said a person informed of his plans. He initially will be chairman of Apax’s supervisory board, as a prelude to wider involvement after he leaves BP, this person said.

Lord Browne’s departure will mark the end of an era for the industry. He is one of three men who reshaped the business during the 1990s, along with Exxon Mobil Corp. CEO Lee Raymond, who retired last year, and Thierry Desmarest of France’s Total SA, who is giving up his position as CEO next month. In a rash of deals set off by Lord Browne with BP’s $62 billion takeover of Amoco Corp. in 1998, the three created the largest publicly traded oil companies.

“John Browne really was the leader in transforming the industry,” said J. Robinson West, chairman of PFC Energy, an industry consulting firm based in Washington, D.C. “When he took over, BP was nearly bankrupt and adrift. He transformed the company and the industry.” BP said that since Lord Browne became CEO in 1995, its market capitalization had increased fivefold and its earnings per share more than 600%, while its share price recorded gains totaling 250%.

Lord Browne in some ways is a victim of the rapid growth of his company. By 2003, after four major deals, BP had recognized that it needed to bring order to its sprawling operations. But it proved unable to master the operational complexities of its far-flung oil-pumping and -refining businesses, a failing at the root of the mishaps that have plagued it in the U.S. in recent years.

Charles Hamel, who has served as ombudsman for disgruntled BP workers in Alaska for many years, says Mr. Browne is paying the price for excessive cost cutting. He cites the company’s giant Prudhoe Bay field in Alaska, where corrosion problems resulted in a series of oil spills last year. The company partially shuttered the field last summer, drawing federal scrutiny.

“The problems at Prudhoe Bay have been caused by Lord John Browne’s cost-cutting policies,” said Mr. Hamel, who lives in Alexandria, Va. A criminal investigation by the Environmental Protection Agency into BP’s corrosion-control program at Prudhoe Bay is continuing; BP says it is cooperating.

Separately last summer, federal officials said they were pursuing allegations that BP traders manipulated the propane market in 2004, and they were also investigating BP gasoline- and oil-market trading.

But the company’s biggest problem was the March 2005 explosion at its Texas City, Texas, refinery that killed 15 and injured scores more. Federal officials are still investigating the blast, and Mr. Baker’s report, due out this coming week, is expected to be the latest in a series of reports critical of the company’s safety and management.

BP has made changes in its American operations, naming a new America chief, Bob Malone, last year. Three of BP’s top executives in Alaska — including one who oversaw Prudhoe Bay — have been reassigned jobs at BP outside of the state in recent months.

Despite the problems, Lord Browne seemed to be maintaining support from his nonexecutive board, headed by Irish politician Peter Sutherland. Yet behind the scenes tensions were stirring. Mr. Sutherland and Lord Browne clashed last summer over the uncertainty surrounding the CEO’s retirement plans, according to people familiar with the situation.

BP had long maintained Lord Browne would stay on until he turned 60 years old in 2008. But people close to the situation said he sought to extend his stay, and even floated the prospect of succeeding Mr. Sutherland as chairman. Mr. Sutherland resisted and insisted on more clarity about Lord Browne’s plans. In the end, BP’s board agreed to a modest extension and Lord Browne announced that he planned to step down on Dec. 31, 2008.

The board immediately started searching for a successor, and in late December contemplated creating a new position — a chief operating officer who would serve under Lord Browne until 2008. Mr. Hayward was tapped for the role, these people say.

Meanwhile, Lord Browne and directors began questioning whether the likely transition period was too long, according to two people familiar with the situation. Over a year-end vacation in Barbados, Lord Browne decided that it was time to go, said a person familiar with the situation. He informed Mr. Sutherland on returning to London this past week.

The scandals have hammered BP in the market. As of Friday’s close, the DJ Wilshire Global Index of oil-exploration and -production companies was up 22.4% since the Texas refinery disaster in 2005; BP’s American depositary shares were down 0.7% in the same span.

In a statement Friday, Mr. Sutherland praised Lord Browne’s record at the company and said it was Lord Browne’s decision to go early. “John decided that it would be in the company’s interest to name a successor now in order to provide an orderly transition,” he said.

Lord Browne, in a statement, said: “It has been a privilege to have had the opportunity to turn BP into an international company at the forefront of the energy industry. We clearly have important issues still to deal with which I am determined to address.” He, Mr. Hayward and Mr. Sutherland declined to comment for this article.

The son of an oil executive at the company that later became the modern BP, Lord Browne joined his father’s firm right after university and rose quickly through the ranks.

After attaining the top job in the mid-1990s, he convinced his board at the time that BP had to grow through acquisitions. In rapid succession in the late 1990s and early 2000s, he engineered the acquisition of Amoco and then Atlantic Richfield, two large U.S. rivals. In 2003, he won new admiration in the industry by forging a one-of-a-kind joint venture with a Russian oil producer, TNK-BP, giving BP access to that country’s vast reserves.

Lord Browne’s mergers set off copycat moves by Exxon and other rivals that led to a transforming consolidation of the industry. He also cut an unusual figure in the industry as an opera buff, wine enthusiast and avid collector of art, including modern photographs and the prints of John James Audubon. When entertaining at home, Lord Browne is known to play opera recordings on state-of-the-art sound systems.

Mr. Hayward, 50, is a geologist by training who joined BP in 1982. After a series of posts in Scotland, France and China, he became BP’s exploration manager in Colombia in 1992 and president of the BP Group in Venezuela in 1995.

Mr. Hayward was among the first of the so-called turtles — a company nickname for promising leaders who prepared for top leadership by being at Lord Browne’s elbow nearly all the time for a year. Mr. Hayward shared in BP’s rapid expansion under Lord Browne. After BP’s merger with Amoco, Mr. Hayward became a group vice president and in 2000 he was appointed group treasurer, a position that included mergers and acquisitions at a time when BP was very active in such transactions. In 2002, Mr. Hayward became chief operating officer of BP’s key exploration and production operations, a position that Lord Browne had held before becoming chief executive.

MORE ON HAYWARD
 
Born in 1957, married with two children. Joined BP in 1982. In 1995, became president of BP in Venezuela, returning to London as a director of BP Exploration in 1997. He became group vice president of BP Amoco Exploration and Production as well as a member of the group’s upstream executive committee in 1999. He became CEO, exploration and production, in January 2003. Named CEO in January 2007. That era is over now. The world’s most influential energy companies today are owned or dominated by states such as Saudi Arabia and Russia as an industry once dominated by Americans and Europeans becomes much more global. BP has slipped from the No. 2 spot in terms of market capitalization to No. 5 — trailing such newcomers as OAO Gazprom of Russia and Beijing-based PetroChina Corp.

–Jim Carlton, Ann Davis and Steve LeVine contributed to this article.

Write to Bhushan Bahree at [email protected] and Chip Cummins at [email protected]

BP Statement on CEO Change

January 12, 2007 2:05 p.m.

BP announced today that after more than a decade in the CEO role Lord Browne has decided to retire as chief executive at the end of July 2007.

The board is pleased to announce that Tony Hayward, currently BP’s head of exploration and production, will succeed Lord Browne following his retirement as group chief executive.

Peter Sutherland, BP’s chairman, said: “John Browne is the greatest British businessman of his generation and has transformed BP into one of the biggest energy groups in the world. His performance over the past 12 years has been extraordinary, which is no doubt why he has constantly been named by his fellow CEOs as the most impressive businessman in Britain. His vision, intellect, leadership and skill have been a wonder to behold and he will be a difficult act to follow.

“It is a testament to John’s managerial skill that BP is blessed with having such an impressive managerial top bench to choose from and John and I are delighted to be able to announce that Tony Hayward will be succeeding him from August 1, 2007. Tony has an excellent track record and extensive knowledge of the sector and will be able to draw on John’s wealth of knowledge over the next six months.”

During Lord Browne’s tenure as the chief executive of BP he has presided over a fivefold increase in the company’s market capitalisation to £104.6 billion and profits to $22.3 billion; while the share price has gone up around 250 per cent to 532 pence and earnings per share have gone up over 600 per cent.

Lord Browne said: “It has been a privilege to have had the opportunity to turn BP into an international company at the forefront of the energy industry. We clearly have important issues still to deal with which I am determined to address. I am pleased that Peter and I have been able to work together to develop a successor in Tony in whom I have every confidence.”

Source: BP

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