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BP ‘bureaucratic and overburden by costs’

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Daily Telegraph: BP ‘bureaucratic and overburden by costs’

By Russell Hotten
Last Updated: 2:18am BST 18/04/2008

BP chief executive Tony Hayward has told shareholders that the restructuring of the oil major should begin feeding into higher profits this year.

Speaking at BP’s annual general meeting yesterday, he said the company was too bureaucratic and burdened by a higher cost base than many rivals. But he assured investors BP was moving in the right direction. “There is forward momentum,” he said.

BP is battling to win back investor confidence after a string of problems, including fatalities at refinery explosion, oil spillages in Alaska, and allegations of market manipulation by BP traders.

Mr Hayward said: “What we have to do is make BP perform. That is what my team and I intend to do.”.

Operational improvements that began last year “have continued” into the first quarter of 2008, and will feed into the second half of 2008, he said. But in an era of $100-plus barrels of oil, “our competitors were more successful at exploiting this environment than we were… Our way of doing business is too complex, we are overly bureaucratic, not consistent enough and our costs are too high,” Mr Hayward said.

He added that no decision had been made on whether to invest in war-torn Iraq. Kazakhstan, which holds more than 3pc of the world’s oil reserves, is imposing a tax on crude exports.

The government has assured Western companies that existing projects will not be subject to the tax, but the move is still likely to raise concern among Kazakh investors like America’s Chevron and Britain’s BG Group.

From May 18 an oil export duty of $109.91 per tonne (about 7.6 barrels) will be imposed on exports from new fields as the country seeks to capitalise on soaring crude prices, which topped $115 a barrel yesterday. Under existing production contracts Western companies pay a set rate of tax, but there have been rumours the government wants the agreements renegotiated.

The Caspian nation produced 67.5m tonnes of crude in 2007 and exported just over 60m tonnes. This year’s production is seen at 70m tonnes. The duty will apply to 27m tonnes of oil exports, or about 40pc of last year’s production.

The export tax was not due to be imposed until next year, but the government of President Nursultan Nazarbayev wants to raise money for social spending without tapping tightening global credit markets. The government also wants to tame inflation, and also yesterday said that it was banning grain exports in a bid to control higher bread and other food prices.

KazMunaiGas Exploration & Production, part of the state oil and gas company, said earlier this month that it may revise its investment plans if an export tax was introduced. It estimated the duty could reduce pretax profit by about $800m (£400m) a year.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/18/cnbp118.xml

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