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Financial Times: Hayward unveils radical shake-up at BP

By Ed Crooks, Energy Editor
Published: October 11 2007 13:37 | Last updated: October 11 2007 13:37

BP, Europe’s second-biggest oil company, on Thursday announced a wide-ranging restructuring designed to close the gap with its competitors.

The company’s operations are to be reorganised to reduce organisational complexity and improve consistency.

Thousands of jobs could go over the next two years as the restructuring takes effect. Tony Hayward, who took over as chief executive in May, described the company’s overhead costs as ”unacceptably high”.

However, BP said the ”major benefit” of the changes would come from ”the revenue boost expected from greatly improved operational efficiency over the longer term.”

BP has suffered a series of problems in recent years, particularly in the US, including delays to important projects in the Gulf of Mexico, oil spills in Alaska and the explosion at the Texas City refinery in 2005 that killed 15 people.

BP’s third-quarter results, due on October 23, are expected to show it lagging well behind its rival Royal Dutch Shell in terms of profitability. Its share price performance relative to its peers has been the worst since BP was forced to cut its dividend in 1992.

However, analysts believe the third quarter may mark a nadir in BP’s fortunes, with revenues set to pick up thanks to big projects coming on stream such as Greater Plutonio in Angola, which is already in production, and Atlantis in the Gulf of Mexico, which is currently starting up. The US refineries at Texas City and at Whiting, which suffered a fire this year, are expected to return to full capacity next year.

BP shares rose 11p or 1.9 per cent to 591p in early afternoon trading

Mr Hayward said the aim of the restructuring was to sustain that recovery in revenues into the longer term.

He said: ”BP’s performance has materially lagged our peer group in the last three years. It has been poor because we are not consistent and our organisation has grown too complex. At the root of all this is a need to change our behaviours.”

The restructuring is intended to foster that change in behaviour. Some central functions will be cut back, and in some parts of the company four layers of management will be shed. The gas, power and renewables division is to be broken up, and its businesses distributed around other parts of the group.

BP’s operations will also be subject to much greater standardisation, to spread best practice throughout the group.

The restructuring follows a six-month review of BP’s performance, and advice from McKinsey and Bain, the consultancies.

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