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Daily Telegraph: Dynamic Hayward must do even more to rescue BP

By Damian Reece, Head of Business
Last Updated: 3:07am GMT 06/02/2008

When BP was suffering its darkest hours in 2006 and 2007, there were people, me included, who argued the oil giant’s problems were deep-seated enough to warrant a new chief executive coming in from outside the company to change it.

Instead, an insider was appointed in the shape of Tony Hayward. He had to address severe operational difficulties, including a culture that had left a hollowed-out shell (excuse the pun) where safety fatally collapsed, and a boardroom at war. Further, he also needed to persuade shareholders he was his own man and that the baggage of the Lord Browne years would be left outside the chief executive’s suite. Hayward is still an unknown quantity to most people outside the higher echelons of the industry. But yesterday’s results announcement gave us more distant observers some valuable clues. Hayward is certainly dynamic, adopting shareholder-friendly practices from the start, be it a material 5,000 job cuts to save money and a 31pc dividend hike. He’s restructuring BP’s US service station business while promising production growth. And he’s still discovering more oil than BP is pumping, unlike rivals.

Hayward has said he plans to use BP’s people differently, taking resources out of offices and putting them into the outdoors – a move that should improve BP’s culture immeasurably. But while Hayward appears to be the force for change BP so desperately needed, he still faces problems.

BP’s US refineries, for instance, were a significant contributor to a poor final quarter, with profits falling 24pc. Let’s not forget, either, that BP’s share price is down about 17pc in the past two years and has woefully underperformed Shell. It trades on a fairly anaemic nine times earnings as investors have given the company the thumbs-down. This business needs to get its act together and fast. Shareholders will lose patience before too long. But it’s a difficult balancing act. Too much talk of margin-improving cost cuts, and regulators will start worrying about safety being compromised.

Hayward is doing more than fiddling at the margins but BP is still fundamentally the same, integrated production and refining business it always was. Unless results are radically better two years from now, shareholders will demand drastic surgery or be put out of their misery by a rival.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/06/ccom106.xml

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