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Do not rest on your laurels, Hayward tells BP’s reformers

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Financial Times: Do not rest on your laurels, Hayward tells BP’s reformers

By Ed Crooks
Published: April 30 2008 03:00 | Last updated: April 30 2008 03:00

Rarely can there have been such a clear case of the embarrassment of riches.

Not many companies reporting a near-50 per cent rise in profits would immediately explain away much of the growth and warn of more challenging times ahead but that is what BP did yesterday.

Cazenove calculated that it was the biggest positive quarterly earnings surprise BP had ever given investors, with replacement cost earnings more than $1.4bn (£705m) higher than the consensus of analysts’ forecasts.

Yet Byron Grote, BP’s chief financial officer, gave a determinedly stolid declaration about BP’s progress to analysts yesterday.

“We recognise that there is much left to do and that it will take several years to complete. We gave you a number of milestones and metrics to track our progress in the strategy review in February.

“Nothing has changed in the last 60 days, and we remain on track to deliver them,” he said.

The concern for BP is not just the usual political issue of sparking public outrage at a time when oil is close to $120 a barrel, and petrol is £1.10 a litre in the UK and $3.65 a gallon in the US.

There is also the problem for Tony Hayward, the new chief executive who took over last May, that he does not want to appear to be turning round the company too quickly.

Emphasising the depth of BP’s predicament has been an important weapon in his battle to change the organisation and culture of BP, going back to the tough messages about “too directive” leadership and a culture of “making do” that he delivered while still head of the exploration and production business in 2006.

In a message to staff yesterday, he described the results as “a good start”, but only a start.

The organisational reforms he set out last year have mostly been put into place, but their full implementation is still shaking down.

“We need to increase the pace and up the intensity” of the cultural change at BP, Mr Hayward told staff.

He also urged staff to keep up the pressure on costs, saying: “We need to spend every dollar as if it were our own.”

The 5,000 job cuts announced last year have begun to take effect, but will not be complete until the middle of next year.

Mr Hayward repeated yesterday that he would not expect the financial benefits of the changes he is making to show through in BP’s results until the second half of this year and into next year.

There is no sign at the moment that the environment is turning against BP. The oil price has risen even higher since the first quarter, and natural gas prices have been strong.

New production is coming on stream on schedule, and the troubled US refineries are improving.

Analysts can be expected to be upgrading their forecasts of full-year profits.

On the other hand, however, BP’s traders will not always have such a good quarter, a more usual cost pattern will emerge, and Russian taxes will catch up with TNK-BP, the 50 per cent-owned Russian joint venture.

The next few quarters may not be quite so stellar.

There may come a time when it will be possible to say that Mr Hayward has turned round BP, but that time is not yet.

Gas powers rise in Shell output

For Royal Dutch Shell, which has been dogged by concerns about falling production, the rise in its first-quarter output reported yesterday, though small, was particularly welcome. The reason was the growth in its gas business.

Shell has 164,000 barrels per day of production shut-in as a result of the violence in Nigeria, and its total crude oil production was 6 per cent lower in the first quarter of this year than the equivalent period of 2007, but gas production was up 9 per cent.

Peter Voser, chief financial officer, said: “We are becoming a more gas-driven company.”

Shell is also highlighting the contribution of its Canadian oil sands division, publishing the results separately. Sales volumes from the oil sands rose only 1 per cent, but Shell has a big expansion project under way in the area.

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