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The Business: Whatever happened to Lord Browne?

19 July 2007

EXTRACT: But there is still the prospect of a true surprise. It has been suggested that BP is discussing a friendly merger with Shell, creating a £250bn company that would leapfrog ExxonMobil to become the world’s biggest oil group.

THE ARTICLE

Whatever happened to Lord Browne? Less than three months after BP’s long-serving chief executive bowed out in an oil-gusher of a scandal, Browne has already been largely forgotten. Considering the circumstances of his departure, that probably suits him just fine.

Yet Browne’s shadow continues to dog Tony Hayward, the BP executive given the unenviable task of cranking up the engines at the oil supertanker.

It was intended that Hayward, 50, would work with Browne for six months before taking over as chief executive in August, coinciding with the summer lull.

Instead, Hayward – who has been with BP for 25 years – was forced to step up early, putting him in the difficult position of seeking to stamp his authority while at the same time making apologies for his predecessor. His personal life aside, Browne’s legacy at BP – Texas refinery explosions, pipeline spillages and an arrogant top-down culture – would be a handicap to anyone.

Hayward has his first real public test – and grilling from the City – on 24 July, when he unveils BP’s second-quarter results.

The markets will be looking for progress on the first quarter, when lower oil prices and a squeeze on production left earnings down 17% on the same period in 2006 at $4.4bn (£2.2bn, E3.2bn).

Investors will also be looking, even at this early stage, for evidence of Hayward already making his mark on BP as chief executive. He has won early plaudits for introducing a more relaxed and informal style to the company, for example streamlining BP’s head office to strip out bureaucracy and complexity.

Hayward is seeking to engineer a cultural shift in which executives feel able to convey bad news up the ranks; he has said that caught early enough, it can be turned into good news.

Browne was notorious for surrounding himself with people who only told him what he wanted to hear.

Along with this sea-change, Hayward is eager to refocus BP on profits and operations. Browne’s insistence on overly ambitious production targets has been blamed for the cost-cutting which laid the conditions for disasters such as the Texas City oil refinery blast in 2005, in which 15 people died.

John Manzoni, the board member responsible for refining and marketing at the time of the Texas explosion, is leaving BP in September to become chief executive of Talisman Energy, a Canadian oil & gas producer.

Hayward wrote in a memo to staff on 1 May about restoring BP’s “winning ways”. He believes that this can be achieved by focusing on a few key issues – such as more efficient operations. There is a suggestion that job cuts may follow.

Much of Hayward’s attention has been focused on Russia. TNK-BP, the joint venture company created by Browne in 2003, is of huge importance to BP. Russia accounts for a quarter of BP’s global oil & gas production, a 10th of its profits and a fifth of group reserves.

Last month, TNK-BP sold its controlling stake in the Kovykta gas field to Gazprom, the Soviet natural gas monopoly, in a forced sale worth between $700m and $900m. Under a side agreement, TNK-BP and Gazprom agreed to swap assets and invest jointly in long-term projects. Hayward said that the companies would initially look at projects of at least $3bn.

There had been threats that TNK-BP could be stripped of its Kovykta operating licence without compensation, so the agreement was hailed as ending uncertainty at a time of growing nervousness among Western companies operating in Russia. This is only likely to increase as the political row between the UK and Russia continues.

Across the group, Hayward is intent on bringing BP’s refineries up to capacity and bringing new oil fields on stream. Two new fields in the Gulf of Mexico are due to begin production in 2008, three years behind schedule, producing about 340,000 barrels a day, or 9% of BP’s current output. BP has sold off half-a-million barrels per day in production capacity in recent years and is playing catch-up.

Hayward has been quick to appear more responsive to the needs of investors. In March, with the Browne-Hayward handover still under way, BP introduced weekly online updates on trading conditions, including refining margins and key oil and gas prices; it previously released the updates quarterly.

In further fine-tuning, Cynthia Carroll, newly installed chief executive of Anglo American, the mining giant, was appointed a non-executive director last month.
BP’s share price has shown a slow recovery since March, rising from 507p to 606p, although it continues to sharply underperform the European oil and gas sector. Also currently working in Haywood’s favour is the price of crude oil, which has hit fresh records of around $78 a barrel.

In this new era of high oil prices, that was a fairly predictable development. But there is still the prospect of a true surprise. It has been suggested that BP is discussing a friendly merger with Shell, creating a £250bn company that would leapfrog ExxonMobil to become the world’s biggest oil group.

Either way, Hayward’s maiden results presentation promises to be anything but dull.

http://www.thebusiness.co.uk/the-business/news/global-briefing/51824/brownes-shadow-dogs-hayward-as-he-tries-to-put-his-mark-on-bp.thtml

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