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The New York Times: BP, Under New Chief, to Pay a Big Settlement

Published: October 26, 2007

LONDON, Oct. 25 — The chief executive of BP, Tony Hayward, presented himself when he took over in May as a leader who could move the company away from its troubled recent past.

On Thursday, Mr. Hayward and BP took a big step forward in doing that.

At a news conference in Washington, the Justice Department announced that BP and its subsidiaries had agreed to pay $373 million in fines and restitution to settle accusations of environmental violations that had led to a fatal explosion at a Texas refinery in 2005 and to leaks of crude oil from pipelines in Alaska.

The settlement also covers fraud allegations related to conspiring to corner the market and manipulate the price of propane.

As part of the plea agreement, BP will pay $50 million in criminal fines for the 2005 explosion and $20 million in fines, restitution and other payments for the pipeline leaks. In addition, BP said it would pay $303 million in penalties and restitution to settle the energy trading violations.

“The actions that we are taking today reflect that there were some very serious problems at the company,” said the acting attorney general, Peter D. Keisler.

The settlement included the largest criminal fines ever imposed for violations of the Clean Air Act, as well as the largest fine for a violation of the Commodity Exchange Act.

Mr. Hayward has moved to change BP’s culture, despite some initial skepticism. He was a part of the management team during BP’s recent troubles, including the leaks in Alaska, the refinery explosion that killed 15 workers in Texas City, Tex., and problems at a refinery in Indiana.

Mr. Hayward has already impressed investors with plans to streamline operations, cut costs and use more local expertise to catch up with rivals like Royal Dutch Shell and Exxon Mobil.

“Hayward has made a good impression so far,” said Fadel Gheit, an analyst at Oppenheimer & Company. “He is more of a technocrat and a hands-on guy.”

BP still faces a shareholder lawsuit over the leaks in Alaska and more than 2,000 claims involving the Texas explosion. Its refineries in Texas and Indiana are expected to return to full capacity in early 2008.

Mr. Hayward joined BP in 1982 at age 25 as a geologist on an oil rig. After working in several jobs, he became exploration manager in Colombia in 1992 and president of BP Group in Venezuela in 1995. He became chief operating officer of BP’s exploration and production operations in 2002.

Mr. Hayward’s performance was noticed by John Browne, the BP chief executive who resigned abruptly this year after losing a court battle with a London tabloid over disclosure of his relationship with a man.

As he rose through the company, Mr. Hayward was named a “turtle,” BP’s title for a talent being groomed for leadership. As such, he saw firsthand the expansion that has been blamed for some of BP’s 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. “It’s Hayward’s job to see if he can change that around.”

His chances are good, Mr. Beaney said. For a start, Mr. Hayward has worked on an oil rig, which helps him relate more easily to the workers. That sets him apart from his predecessor, who was known for his expensive taste and for mingling with politicians, a lifestyle that had earned him the nickname “the sun king.”

A different approach has helped Mr. Hayward to be perceived as less aloof than Mr. Browne, said Neill Morton, an analyst at MF Global in London. That reputation could help him push through the cultural changes he envisions.

Under Mr. Browne, BP was transformed by a series of takeover deals in the 1990s, including the $62 billion purchase of Amoco, all of which weighed on BP’s management structure. The system showed its cracks when Mr. Browne was forced to cut BP’s 2005 production target three times in two months.

Some investors and analysts applauded Mr. Hayward’s emphasis on addressing problems.

“Reporting lines have become numerous and blurred,” said the analyst Mr. Morton. “Hayward is removing management layers to make the line of sight clearer.”

Mr. Hayward has given himself 18 months to two years to fix 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, an oil analyst at Dresdner Kleinwort.

At the news conference in Washington, Mr. Keisler also announced that a federal grand jury in Chicago had indicted four former BP energy traders, accusing them of conspiring to manipulate and corner the propane market three years ago. The four former traders are Mark D. Radley, James W. Summers, Cody D. Claborn and Carrie Kienenberger.

Julia Werdigier reported from London and Stephen Labaton from Washington. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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