Guardian Unlimited: BP ‘to take axe to management’

Graeme Wearden
Tuesday September 25, 2007

BP is poised to axe swathes of management in response to a “dreadful” financial performance, according to reports.

The Financial Times claimed this morning that chief executive Tony Hayward has warned US staff that he is planning a major reorganisation, with the oil giant’s performance at its worst for 15 years.

“There is massive duplication and a lack of clarity of who does what,” said Mr Hayward at a gathering of staff in Houston.

He said he planned to cut the number of layers from the workers to the CEO “from 11 to about seven”, saying the company’s structure was too complicated and did not encourage well-judged risk-taking.

BP should have benefited from the buoyant price of oil, which touched an all-time high last week. Mr Hayward, though, warned staff that operational problems and falling US reserves of natural gas meant its third-quarter results – which will be published next month – would be “dreadful”.

The company’s refineries in Whiting, Indiana and Texas City are both running below capacity, and are not expected to reach full output until next year. Fifteen people were killed at an accident at Texas City in 2005, while a fire in April damaged the refinery at Whiting.

Mr Hayward took over in May, after the early departure of Lord Browne. It appears that his comments were circulated to other staff by one BP manager who attended the meeting.

They echo a warning he gave in July, when he said BP’s performance was “not good enough” and warned that its organisation was too complex.

Shares in BP dropped by nearly 3% this morning, falling 16p to 573p.

A BP spokesman declined to comment on what may have been said at an internal company meeting.

Richard Griffith, analyst at Evolution Securities, was encouraged that Mr Hayward was planning major changes. He compared it to BP’s restructuring of 1992-93, when it also cut its dividend, and rival Royal Dutch Shell’s shake-ups in 1998 and 2004.

“These turning points were all characterised by corporate failures that resulted in organisational changes. Subsequent periods witnessed strong share price recoveries. [Mr Hayward’s] address to staff in Houston could mark another one for BP just as Mark Moody Stuart’s strategy update at the end of 1998 did for Royal Dutch Shell,” he said.

“Look beyond the Q3 results and it could be good news.”.

http://business.guardian.co.uk/story/0,,2176680,00.html

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