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Daily Telegraph: How sun went down on a corporate star

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Last Updated: 1:17am BST 02/05/2007

The sun has finally set on the Sun King. Lord Browne of Madingley earned the soubriquet after 10 frenetic years in which he transformed BP into one of the most successful and admired companies in the world. But the past two years have witnessed a rapid fall from grace – both for BP and for Browne himself.
 
His supporters say that 10 years of success should not be overshadowed by two years of grief. Critics, though, believe the root of BP’s recent problems – including a fatal explosion, oil spillages, allegations of market manipulation – lay in the company’s rapid dash for growth.

When Browne replaced David Simon as chief executive in 1995, he inherited a company that had been restored to financial health but which lagged behind much larger rivals. Browne’s view was that BP was too “small to prosper”, something that could only be remedied by mergers and acquisitions.

An attempted deal with Mobil failed, but Browne was not deterred. In 1998, BP merged with America’s Amoco, offering a $60bn (£30bn) all-share deal that created a company with a combined market value of $120bn. At the time it was the world’s biggest industrial merger.

The next year saw the $27bn all-share takeover of Arco, taking BP’s value to $190bn. They were transformational deals, giving BP the sort of scale needed to compete globally with Exxon and Shell and confirming Browne as a corporate superstar. The takeovers also triggered wider consolidation in the industry, most notably Exxon’s acquisition of Mobil.
 
Other BP deals followed, including the takeovers of Burmah Castrol in 2000 and Veba in 2001. Browne was voted regularly as one of the greatest businessmen of his generation. These accolades were was not just in recognition of his thirst for deal-making, but for his vision.

In 1998, long before it was fashionable, Browne started making BP “green” by promising to cut emissions and look beyond petroleum. He also took BP into Russia with a ground-breaking joint venture, TNK-BP. It was a deal many people warned could turn sour, and given Moscow’s desire to take back control of its energy assets, this could still prove to be the case.

But oil and gas exploration is all about taking risks, and with BP needing to replace reserves, Browne knew that getting a foothold in an energy superpower like Russia was worth the gamble. Russian oilfields now represent about 20pc of BP’s production.

Along the way, Browne added Russia’s president Vladimir Putin as one of his confidantes, which include Tony Blair, Gordon Brown and other leaders on the world stage.

But Browne’s halo started to slip about two years ago, starting with the explosion at its Texas City refinery, where 15 people were killed and 180 seriously injured. In August last year, BP shut down half the production at its Prudhoe Bay field after the discovery of severe corrosion on pipelines.

The official inquiries into Texas City pointed to cost-cutting and mis-management as laying behind the explosion. There are claims cutbacks at Prudhoe Bay meant pipelines were not inspected as regularly as they should have been.

There was also a squabble with BP chairman Peter Sutherland over Browne’s retirement date. The chief executive wanted to stay beyond his 60th birthday. Browne won an extension to his contract, announcing that he would leave at the end of December 2008, rather than in February of that year.

The problems continued to mount. BP was forced to admit that production at its Thunder Horse platform in the Gulf of Mexico would have to be delayed again after problems were discovered. BP’s trading operations face criminal and civil investigations into whether the company has purposely manipulated the crude oil, petrol and propane markets. And TNK-BP was hit by huge back-tax claims.

In January this year, Browne announced that he would bring forward his retirement date and leave on August 1. Given the weight of BP’s problems, and perhaps in the knowledge the media were investigating his private life, Browne decided it was best for the company if he go.

It was a sad reflection on his legacy that BP’s share price rose on the resignation. Despite the soaring oil price, the company’s stock has languished behind its peers and investors welcomed news there was someone new to invigorate BP. Earlier this year, Tony Hayward, the new chief executive, acknowledged some of BP’s problems may have been caused by too rapid an expansion. He said that under his tenure, BP would grow at a slower pace. But BP has still been a pretty good investment. For every pound invested in 1995 – and then re-invested – shareholders would have earned a 272pc return. “I hope that, once the dust has settled, this will be the sort of legacy for which John [Browne] will be remembered,” said a BP insider.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/02/ccbrowne02.xml

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