The Wall Street Journal: BP Readies for a Shake-Up

New CEO Hayward
Plans to Eliminate
Duplicated Efforts
By GUY CHAZAN
October 11, 2007; Page A14

LONDON — Five months into the job, BP PLC’s new boss, Tony Hayward, will attempt to put his stamp on the London-based oil company today with a restructuring intended to streamline management.

The move comes as BP attempts to recover from a string of mishaps and problems that some have blamed on an excessively complex organizational structure. Mr. Hayward told a staff meeting in Houston last month that BP’s operational performance in the third quarter was “dreadful.”

Details of the expected revamp aren’t clear. A person familiar with the matter said the overhaul won’t offer targets for cost savings or staff reductions.

The changes show Mr. Hayward coming out from under the shadow of John Browne, BP’s former chief executive, who was largely responsible for the company’s current structure. Mr. Hayward jumped in to succeed Lord Browne when he resigned in May amid revelations he had lied to a judge about his relationship with a former lover.

A person familiar with Mr. Hayward’s proposals said they are aimed at “eliminating complexity and duplication at every level,” streamlining management and standardizing procedures across the company. “It’ll be like the Exxon model,” this person said, referring to Exxon Mobil Corp., the world’s largest nongovernment-controlled oil company by market value. Under the old system, “there were so many interfaces that it was grossly inefficient,” the person said.

Exxon Mobil is much more centralized than BP, with the company divided according to global functions such as refining, exploration and transportation. BP’s structure, in contrast, is dominated by individual business units that operate big oil fields or other assets and enjoy a large degree of autonomy. That often led to waste, analysts say, with business-unit leaders sometimes duplicating each others’ initiatives.

The BP overhaul is designed to revive a company whose reputation has plummeted in recent years, especially after the explosion and fire at a Texas refinery in 2005 that killed 15 people and an oil spill in Alaska the same year.

More recently, BP has been hit by big delays in commissioning its most ambitious exploration projects, such as Atlantis and Thunder Horse in the Gulf of Mexico, and by outages at its two biggest refineries, Texas City, in Texas and Whiting, in Indiana, which will return to full capacity next year.

Underperformance at its refineries and lower production meant BP saw a 1% drop in second-quarter profit this year after factoring out one-time gains, while profit at competitor Royal Dutch Shell PLC rose 20% in the period. Shell, which, unlike BP, saw no serious refinery outages, was able to take full advantage of near-record crude-processing margins.

Analysts say it is crucial for BP to improve management at a time of rising costs and a lack of spare capacity in the oil industry.

“The future of these oil companies rests on their ability” to carry out big projects, and effective execution is critical, said J. Robinson West, head of PFC Energy, a consultancy. “That’s the goal” of the BP management shake-up, Mr. West said.

Write to Guy Chazan at [email protected]

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