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The Wall Street Journal: BP Shake-Up Takes Aim at Bureaucracy

Management Layers,
Jobs to Be Eliminated;
‘Step-by-Step’ Recovery
By GUY CHAZAN
October 12, 2007; Page A10

LONDON — BP PLC’s new chief executive said the British energy company is set for a “step-by-step” recovery after years of underperformance, as he launched a broad restructuring that he said will include big job losses in some parts of the business.

In an interview, Tony Hayward said BP’s revenue, which has lagged behind that of its competitors, should surge toward the end of the year as large-scale production projects come onstream and the company’s two big U.S. refineries return to full capacity.

“There’s a big revenue uptick coming through,” he said in his office in central London. “We’ll see a lot of momentum…going from the third to the fourth quarter.”

Mr. Hayward, who took over as chief executive in May when John Browne abruptly resigned, said there will be big job losses in some parts of BP, though he didn’t disclose specifics. BP will also hire a lot more engineers to work in the field, he said. “We’ll continue to build up the organizational capability on the front line at the same time as we get rid of some office roles,” Mr. Hayward said in the interview.

He acknowledged that the company is unlikely to see a sudden change in its fortunes. “The road to recovery will be incremental, step-by-step,” he said. “We’re not suddenly going to be back to where we were four or five years ago. That’s unrealistic.”

The restructuring plan is designed to turn around a company that has suffered a string of misfortunes and operational problems in recent years. Mr. Hayward last month told a staff meeting in Houston that BP’s operational performance in the third quarter had been “dreadful.”

In a statement, the BP chief said the shake-up was designed to reduce the company’s “unacceptably high overhead costs” and free operating managers from “corporate bureaucracy and the burden of unnecessary overheads.” He said the company will cut the number of its business segments to two from three, and that in parts of BP, as many as four layers of management will be shed. Meanwhile, safety and other procedures will be standardized across the company.

Analysts have been critical of the buildup of bureaucracy at BP in recent years. The company has 60,000 employees, excluding those working at its retail sites — and 10,000 of them work in its finance department as accountants, planners and performance analysts.

BP shares closed up 2.3% at 593.5 pence ($12.12) on the London Stock Exchange. BP’s American depositary receipts rose 47 cents to $71.82 in 4 p.m. New York Stock Exchange composite trading.

While avoiding any direct criticism of his predecessor, Mr. Hayward said BP’s organizational shortcomings developed when Lord Browne headed the company. Lord Browne had been widely praised for engineering a string of daring acquisitions that transformed BP from a small player into an energy giant.

But Mr. Hayward said the assets BP acquired had in some cases not been properly absorbed into the company. “The original core was very small and quite diversified, so there’s never been a foundation to consolidate onto,” he said. “With the benefit of hindsight, we didn’t do enough early on” to consolidate the companies BP acquired, he said.

TIGHTER SHIP?
 
•  Trim Effort: BP CEO Tony Hayward said some parts of the oil giant will see job losses under a restructuring, though he didn’t issue specifics.

•  Late Surge: Revenue is expected to rise at the end of the year as new projects come online, he said.

•  Slow Change: Hayward said the company’s recovery will come in incremental steps.

Write to Guy Chazan at [email protected]

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