The Guardian: Thousands of jobs at risk in BP shakeup

· CEO denies strategy is ‘cost reduction and cull’
· ExxonMobil structure to provide model for oil firm

Terry Macalister
Friday October 12, 2007

BP is to make thousands of employees redundant, sell off some assets and implement a far-reaching organisational shake-up. The plans aim to cut overheads and re-energise the oil and gas company which the City believes has suffered a 20% slump in third-quarter profits despite soaring crude prices.

Tony Hayward, the chief executive, insisted the overall strategy was not about “cost reduction and cull”, but all about a radical change in culture – with some ideas taken from US rival ExxonMobil. It comes after a dismal three years when BP was hit by refinery failures such as Texas City and delayed projects in the Gulf.

“We have learned from the experience of the last three years that BP has been lacking in consistency and suffering from over-complexity. If we had our refineries running at 95% capacity instead of 75% and had projects like Atlantis up and running our performance would have been different,” he said.

There were no specific numbers on how many staff will be redeployed or made redundant but Mr Hayward said it “could be thousands over several years.” No major sales were planned but an asset base of $100bn (£49bn) would see a certain percentage of the business hived off, he said.

The BP boss, who took over in May from John Browne, sent a message to his 100,000 staff outlining other plans to streamline the business into two basic units: exploration and production on one side and refining and marketing, similar to the type of structure at Exxon. The third segment, gas, power and renewables, is to be incorporated mainly into the other two. A separate division, alternative energy, will handle BP’s low carbon business and future growth outside oil and gas.

Shares in BP rose 2% last night as the City reacted positively to the shake-up. Fadel Gheit, oil analyst with Oppenheimer & Co brokerage in New York, said: “I think it is really good. This is copying the Exxon model of keeping things simple and ensuring unit managers are given responsibility but held accountable too. If there are no further distractions and BP gets its refineries and upstream projects back on track it could add $2.5bn to $3.5bn to earnings in 2009.”

Earlier this week, oil analysts at Citigroup put out a research note on BP which predicted the oil company was about to reveal third quarter “clean” replacement cost net income – the standard way of measuring oil company profits – of $3.98bn, down 19% year on year and 23% lower than the second quarter of 2007.

Mr Hayward promised that in future, corporate infrastructure would be “rigorously” reviewed and up to four layers of management would be shed. He insisted that BP’s strategy remained robust with the company holding good positions in many of the major hydrocarbon basins of the world. “Our problem is not about the strategy itself but about our execution of it. 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.”

Mr Hayward said the bulk of the competitive shortfall resulted from revenues lost from impaired US refining capacity and delays to new production in the Gulf of Mexico but the remainder arose from BP’s higher cost base relative to its rivals.

“Managers will be listening more acutely, particularly to frontline staff. We will make sure individuals are fully accountable for things they control.

“We will respect professionalism and excellence as key to the success of our businesses – something we have not always done.

http://business.guardian.co.uk/story/0,,2189354,00.html

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