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The Wall Street Journal: BP’s New Chief Enters the Fray

EXTRACT: Late last year, Mr. Putin forced BP rival Royal Dutch Shell PLC to cede its controlling stake in an oil and natural-gas project in the Russian Far East to state-controlled OAO Gazprom, and take junior-partner status.

THE ARTICLE

First Among Hayward’s Challenges:
Move Beyond the Browne Fallout

By BENOÎT FAUCON, CHIP CUMMINS and GUY CHAZAN
May 3, 2007; Page A12

Hastily installed as BP PLC’s new chief executive Tuesday after his famed predecessor resigned amid a personal scandal, Tony Hayward faces a host of immediate challenges that will determine how fast the U.K. oil giant can regain direction and repair its battered reputation.

Among the toughest items on Mr. Hayward’s agenda: living down the scandal surrounding former CEO John Browne, negotiating with an increasingly assertive Kremlin over the future of BP’s lucrative joint venture in Russia, and navigating a series of regulatory and criminal inquiries into BP in the U.S.

•  Abrupt Change: New BP chief Tony Hayward must help the oil giant regain its balance after scandal.
 
•  Home, Abroad: Mr. Hayward faces fallout from his predecessor’s departure, political pressure in Russia and investigations in the U.S.
 
•  Action Plan: Mr. Hayward has signaled he plans to focus on safety and improving existing assets.
 
In January, BP’s board chose Mr. Hayward, 49 years old, to succeed Lord Browne, 59. Mr. Hayward was to take over at the end of July, but his transition period was cut short Tuesday, when Lord Browne stepped down following a controversy over his attempt to silence a British tabloid’s account of his relationship with a 27-year-old man.

The long-serving BP boss admitted he lied to a British court about details of the relationship, a misstep that led the court to end his legal fight to keep the affair out of the public domain. He apologized and said Tuesday he would step down immediately. A spokeswoman for Lord Browne declined to comment further yesterday on his view on the possible perjury issue or on his career plans.

On Tuesday, the company said Lord Browne would lose his entitlement to a bonus of as much as 1.3 times his annual salary, valued at more than £3.5 million ($7 million). He also will forgo inclusion in BP’s long-term performance share plan for 2007-2009, with a maximum potential value of some £12 million.
 
Lord Browne’s professional prospects are unclear. Apax Partners, a giant European private-equity fund whose advisory board is headed by Lord Browne, said yesterday that he would stay on in that role. A spokesman for Goldman Sachs Group Inc., on whose board of directors Lord Browne sits, declined to comment.

Lord Browne may also face legal fallout for misleading the British court. But in a ruling, London High Court Judge David Eady said he didn’t favor referring the matter to the attorney general because he considered the disclosure of Lord Browne’s private life to be sufficient punishment.

On Tuesday, a BP spokesman said Mr. Hayward had been effectively running the company for the past month. A BP spokesman yesterday declined to say when Mr. Hayward, who hasn’t commented publicly since Lord Browne’s departure, would lay out his strategy as CEO.

Lord Browne leaves BP reeling from a series of operational problems and facing new challenges.

In the past, Mr. Hayward has said he plans to focus BP’s personnel more closely on safety after a string of environmental and operational blunders. Mr. Hayward signaled in February that he would work to improve BP’s existing assets rather than resuming the deal frenzy led by Lord Browne in the 1990s. “My priority is simple and clear: It is to implement our strategy, by focusing like a laser on safe and reliable operations,” he said.

BP, which has seen its share performance trail that of rivals in recent months, has pared back its once-ambitious oil and natural-gas production-growth targets. And it had recently taken a series of large charges to earnings to bolster safety, maintenance and to settle a series of civil suits related to the biggest recent safety shortfall at the company, the March 2005 explosion at a Texas City, Texas, refinery that killed 15.
 
A number of regulators have castigated BP publicly for its poor record of refinery safety in the U.S., and top BP officials and employees face possible criminal charges stemming from the accident. The Justice Department is investigating BP’s operations at its huge Prudhoe Bay oil field in Alaska. The field sustained two oil spills last year and a string of corrosion problems, triggering a partial shutdown of the field, sending oil prices soaring and prompting Congressional inquiries, which still continue.

Mr. Hayward also inherits several government investigations into BP’s trading activities. A U.S. commodities-trading regulator and the Justice Department have alleged that BP traders manipulated the propane-gas market in parts of the U.S. in early 2004. BP has said it will contest the allegations in court, if necessary. Authorities are also investigating crude-oil and gasoline-market trading in the U.S., BP has confirmed. The company says it is cooperating with all probes.

Mr. Hayward, who most recently made his mark at the company as head of its core exploration-and-production division, also faces a political challenge: negotiations with the Kremlin over BP’s lucrative joint venture in Russia, TNK-BP. Lord Browne surprised the energy world by forging a one-of-a-kind deal with the Kremlin in 2003, allowing BP to partner with a big Russian oil-production company. The deal has been a cash cow for BP and has bolstered the company’s otherwise lackluster production growth in recent quarters.

But after Lord Browne signed his deal, President Vladimir Putin significantly tightened the Kremlin’s control of Russia’s vast petroleum industry, and other Western companies have been so far unsuccessful reaching similar deals. Late last year, Mr. Putin forced BP rival Royal Dutch Shell PLC to cede its controlling stake in an oil and natural-gas project in the Russian Far East to state-controlled OAO Gazprom, and take junior-partner status.

–Anousha Sakoui contributed to this article.

Write to Benoît Faucon at [email protected], Chip Cummins at [email protected] and Guy Chazan at [email protected]

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