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Daily Telegraph: Tony Hayward steps up to the BP plate: ‘increasing speculation that BP is once again examining.. a merger with rival oil giant Shell’

BP CEO Tony Hayward: Daily Telegraph image

(Tony Hayward has begun to stamp his mark on BP but he will have to address production problems)

By Russell Hotten, Industry Editor
Last Updated: 12:40am BST 23/07/2007

When Tony Hayward steps up to deliver BP’s second-quarter figures tomorrow, there will be as much interest in the person as the profits.

Lord Browne of Madingley’s replacement as chief executive of the energy giant has been making subtle changes in tone and culture as he tries to stamp his mark on the company and position BP for a new era.  

Tomorrow will be the first big chance for the City and the media to give BP’s new frontman a public grilling about what it all means for strategy and the restoration of investor confidence in a company whose reputation has been hammered by a string of problems.

The results come amid increasing speculation that BP is once again examining if a merger with rival oil giant Shell could work.

Hayward has already pointed to the management style and approach that he wants to filter down to the grass roots. Less politics and cult of personality, and more focus on profits and operations. In a now celebrated private email, leaked last year, Hayward wrote of BP’s failure to “listen enough to what the bottom of the organisation is saying” and of a “leadership style that probably is too directive”. The word “collegiate” crops up a lot in conversations with BP personnel about the management approach that Hayward aims to cultivate.

He has already begun tackling bureaucracy, a symptom of a company that had grown fat on rising oil prices. There has been no mass cull or eradication of layers of bureaucracy, but then Hayward has barely got his feet under the table.

Among the changes, though, was the decision to turn Lord Browne’s office suite at BP’s central London HQ into a meeting room, and move chairman Peter Sutherland from the sixth to the fifth floor, to be opposite Mr Hayward’s office. They are small but symbolic shifts, designed to underline a back-to-basics mood that many analysts feel is needed to revive BP’s fortunes.

It would be unfair to call all this cosmetic, but what investors and analysts really want to know is how all this informs future strategy. Above all they want to know how Hayward will resolve BP’s two fundamental problems: profits and production.

According to a poll of energy analysts, BP is expected tomorrow to report underlying profits averaging $5bn (£2.43bn) for the three months ended June 30, down 18pc from $6.11bn for the same period last year (underlying profit excludes exceptional items and the impact of inventory changes).

The fall in profits reflects lower crude output because of disposals and maintenance of facilities. Of particular concern will be an expected 22pc fall in profits from refining and marketing following disruptions at BP’s huge Whiting refinery in Indiana. The 410,000-barrel-a-day plant has been running at reduced rates since March because of operational problems.

Contrast this with resurgent Anglo-Dutch Shell, which on Thursday is expected to report an underlying second-quarter profit of $6.76bn, up 7pc against $6.31bn last year. Shell’s refineries suffered none of the problems seen at BP, and the increased profits are expected to have more than offset a likely fall in Shell’s lower crude and gas output.

There is an expectation that Hayward will use tomorrow’s profits announcement to spell out a few home truths: that he is not satisfied with BP’s performance and that he is not satisfied with the share price languishing so far behind the company’s peers.

According to one analyst: “It [the announcement] will be a good opportunity to signal a break with the past; a new beginning of sorts. I don’t expect Tony to put it so crudely, but that’s the message he needs to get over to his audience.”

Hayward does, perhaps, take over at an opportune time. The trauma of the fatal Texas City refinery explosion and massive oil spill in Alaska still hangs over the company, but these issues are being resolved, albeit painfully. New production opportunities in Egypt and Libya are under way. And refineries are being brought up to capacity.

Two new fields in the Gulf of Mexico should begin production in 2008, three years behind schedule, producing about 340,000 barrels a day, or 9pc of BP’s current output. This will enable BP to catch up with its rivals. The signs are that BP has reached its nadir.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/07/23/cnbp123.xml

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