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Financial Times: BP

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Published: March 11 2007 19:05 | Last updated: March 11 2007 19:05

BP’s reputation has plunged in the past two years as a result of a string of problems in the US. Those included investigations of its oil and gas trading activities, oil leaks in Alaska caused by pipeline corrosion, long delays in Thunder Horse, one of its most ambitious projects, and above all the explosion at its Texas City refinery in 2005 that killed 15 people.

The investigations and law suits that followed those deaths, in what was the worst industrial accident in the US for a decade, hang over the company, and will continue to do so for a long time to come.

They have contributed to the decision by Lord Browne, BP’s charismatic chief executive, to step down at the end of July, almost 18 months sooner than he had previously planned. It is a sad end to what has been one of the most admired performances by any British business leader.

Lord Browne built the company into a global business with a series of well-timed acquisitions around the turn of the decade. He also set it up well in the first years of the 21st century with the best deal any international oil company has been able to secure in Russia, forming the 50 per cent-owned joint venture TNK-BP.

But in the wake of the Texas City explosion, concerns have emerged that BP management culture was insufficiently focused on safety, and that poor practices that BP inherited when it made its US acquisitions had not been addressed fast enough. Investments in equipment that could have prevented the explosion were not made.

When it released its results for 2006 in February, BP also indicated that it expected only very slow growth in production out to the end of the decade, raising questions about its strategy.

The steady flow of bad news has taken its toll on the shares, cutting BP’s market value to below that of its UK-listed peer and rival, Royal Dutch Shell, and behind PetroChina, the listed arm of the China National Petroleum Corporation.

Tony Hayward, the former head of exploration and production who is taking over as chief executive, has a fight on his hands to persuade investors that he can put right BP’s operational weaknesses, while delivering the growth in earnings that they will want to see.

Copyright The Financial Times Limited 2007

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