International Herald Tribune: Tony Hayward is making headway at BP

By Julia Werdigier
Thursday, October 25, 2007  
 
LONDON: Ever since he took over the top job at BP in May, Tony Hayward has presented himself as a leader who can move the company beyond its somewhat troubled recent past.

Even though he was already part of the management team under which the British oil giant suffered a series of accidents at refineries, was investigated for allegedly favoring cost-cutting over safety and saw its shares lag behind those of competitors, many analysts think Hayward is up to the challenge to fix those problems.

Hayward, who joined BP as a geologist in 1982, has already impressed investors with plans to streamline operations, cut costs and use more local expertise to catch up with competitors such as Royal Dutch Shell and Exxon Mobil.

Shares of BP closed at 546.6 pence on the announcement of his appointment and have risen 12.1 percent since, to close Thursday at 612.5 pence, or $12.60.

On Thursday, BP said that it had agreed to pay a record $303 million in fines and restitution to settle claims that it had manipulated the U.S. propane market in 2004. The U.S. Justice Department said that it would seek indictments against traders who previously worked at BP. The company said it also would pay $50 million to end a probe into violations at its refinery in Texas City, Texas.

The settlements will help Hayward move BP beyond its troubled recent history, which culminated in a 2005 refinery explosion in Texas City that killed 15 workers and injured hundreds more.

Hayward had said he would centralize the command, get rid of some management layers, slim down bureaucracy and generally change the culture by making the top management listen more to staff on the ground. He wants to have fewer accountants and more engineers and promised to focus on the safety and reliability of operations to avoid repetition of tragedies like Texas City or an oil spill in Alaska that forced the shutdown of the nation’s biggest oil field – as well as improve the dented morale among BP staff.

“Hayward has made a good impression so far,” said Fadel Gheit, an analyst at Oppenheimer & Company in New York. “He is more of a technocrat and a hands-on guy. He’s worked all over the place, so he knows.”

After joining BP at age 25, Hayward worked in a series of positions in France, Scotland, Papua New Guinea and China before becoming exploration manager in Colombia in 1992 and president of BP Group in Venezuela three years later. He was promoted to chief executive BP’s exploration and production operations in 2002.

Hayward’s performance was noticed by John Browne, the then-BP chief executive who resigned earlier this year after revelations about his personal life that had prompted him to lie to a high court. Hayward was dubbed a “turtle,” BP’s title for any promising talent whom it planned to groom for top leadership. As a turtle, Hayward followed Browne around, witnessing an expansion strategy that has been blamed for some of BP’s current problems.

“There’s nothing wrong with the business as such but things had gone a bit lax under the old Browne reign and the management needs tightening up and focusing,” said Alan Beaney, a fund manager with Principal Investment Management, based in Britain. “It’s Hayward’s job to see if he can change that around.”

His chances are quite good, Beaney said. For a start, Hayward has experience working on an oil rig and counts the discovery of the Miller field he witnessed on Christmas morning in 1982 among his most memorable experiences, helping him relate more easily to the workers. That sets him apart from his predecessor, who was known for his expensive taste in wine and cigars and for mingling with politicians – a lifestyle that earned him the nickname “sun king.”

The different approaches became even more evident when, during a speech to BP’s U.S. staff months before taking on the top job, Hayward suggested that top management needed to listen more to what those further down the organizational ladder had to say.

Once he took over, this was exactly what he did.

All that helped Hayward to be perceived, both internally and externally, as “less aloof” than Browne, said Neill Morton, an analyst at MF Global in London.

Hayward said he planned to pool expertise and centralize global resources, such as human resources and information technology. This would mean that some BP groups would no longer enjoy the freedom they had in the past when, as a result of rapid growth, BP became an accumulation of groups that enjoyed a large amount of autonomy as long as they met their financial targets.

Under Browne, BP had turned into one of the biggest publicly traded oil producers in the world and the biggest oil and gas producer in the United States. But a series of transformational takeover deals in the 1990s, which included the takeover of Amoco, had weighed on BP’s management structure. The system showed cracks when Browne was forced to cut BP’s production target three times in two months in 2002, illustrating how little management understood company performance.

Some investors and analysts applauded Hayward’s emphasis on tackling these problems and his pledge to bring order to BP’s far-flung operations.

“He’s getting rid of some duplication that has erupted over the past years,” Morton said. “Reporting lines have become numerous and blurred. Hayward is removing management layers to make the line of sight clearer.”

Job cutes were inevitable. BP said Thursday it would trim 350 jobs from North Sea operations.

Hayward’s plans have been well received by analysts and investors but some have said there also was an element of luck in his timing. “A lot of things have been cleared up or are in the process and it’s quite an opportune time for him to come in,” said Beaney.

BP said Tuesday that refineries in Texas City and Whiting, Indiana, were expected to return to full capacity in the first half of 2008.

Yet, like other oil companies, BP is struggling with rising industry costs, higher taxes – as governments are keen to profit from rising oil prices – and increasing competition from state-controlled companies in Russia and Saudi Arabia.

With oil prices rising, BP is not short of cash to finance growth but instead is confronted with a shortage of exploitable oil and gas reserves.

Hayward has given himself between 18 months and two years to repair BP.

“The question is will they be able to arrive at a workable organization and does the structure really work as intended,” said Colin Smith, oil analyst at Dresdner Kleinwort in London.

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