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BP’s Tony Hayward: the right man in the right place at the wrong time?

Daily Telegraph

When BP became a sponsor of the US Olympics team for London’s 2012 games in February, Tony Hayward could have been forgiven for thinking he deserved a pat on the back, if not quite a medal.

By Richard Blackden
Published: 6:00AM BST 30 Sep 2010

Tony Hayward’s fate was sealed as the scale of the disaster emerged, though the public-relations gaffes did not help Photo: Getty Images

Five years on from the explosion at its Texas City refinery, the company had recovered its position in the country where people consume more oil than anywhere else.

The chief executive of Britain’s biggest energy company had made the Gulf of Mexico central to hitting BP’s aggressive production targets. The Tiber discovery in September 2009 had seen the drilling of a well to a record 35,000 feet, and the Gulf’s deep waters were a stage for BP to do what the company had long believed distinguished it from rivals: find oil and gas in places no one else could. Hayward also liked the US, describing to an audience in Houston the special American traits of being “can-do, adventurous and optimistic”.

Shareholders and analysts disagreed – these qualities weren’t exclusively American. By April 2010, Hayward, who had been in the company’s ranks since the age of 22 after briefly flirting with a career at Mobil, was winning applause in the City. “BP was almost firing on all cylinders,” said Jason Kenny, an analyst at ING. “It was very well-respected and delivering the goods.”

Profits climbed to $21.2bn in 2008 from $20.8bn in 2007, though fell to $16.8bn last year as recession took hold of the world economy. BP’s dividend-hungry shareholders were happy, too, with the payout climbing to 36.4p in 2009 from 29.4p in 2008. And BP’s shares had trounced those of rival Royal Dutch Shell, climbing 12pc between when Hayward started in August 2007 and April 19, 2010, the day before the spill, compared with a 1.6pc decline for Shell.

Led by then chairman Peter Sutherland, BP had billed former geologist Hayward as the man who would bring some operational efficiency and greater focus to a sprawling company that had swelled dramatically under his predecessor, Lord Browne. After a string of deals, including the merger with US rival Amoco in 1998, BP’s staff has almost doubled to 98,200 by the time Lord Browne was forced from his the chief executive’s role in the spring of 2007. “With Hayward it was about getting BP back to basics, back to exploration and production,” according to Dougie Youngson, an analyst at Arbuthnot Group.

Informed by management consultants that BP’s structure was “pretty ugly”, Hayward simplified it. Taking senior executives away for a few days from BP’s headquarters near London’s Liverpool Street at the end of August 2007, the group returned with a simpler model.

BP was essentially divided in two: Exploration and Production, or getting the stuff out of the ground, and then the business of selling it, an operation that was called Refining and Marketing. The structure helped BP fuel its exploration and production drive under the now departed Andy Inglis, analysts say. This included Russia, where its long-standing joint venture TNK-BP, would prove a valuable but hugely problematic asset during Hayward’s tenure. But also a push into Iraq, where last year the company won licences with a Chinese partner to develop the oil fields at Rumaila in the north of the country.

BP appeared to be, as Hayward boasted in the company’s annual report last year, setting itself apart by “operating and succeeding at the frontiers of the energy industry.”

That same report mentioned the word safety 150 times, and repairing BP’s battered reputation was central to Hayward’s remit from the start. A broken pipeline in Alaska’s Prudhoe Bay oil field in 2006 had added corrosion to the damage caused by the Texas refinery explosion that took 15 lives a year earlier. Hayward himself said that safety was instilled in him as the priority after early in his career in Venezuela he was confronted by the mother of a young man who had died at its operations there. And there was evidence that the company was taking steps to improve its record. A new “operating management system” that set uniform safety standards across the company had been implemented in 70 operations by the end of last year.

“We believed he was addressing the culture and safety issues, but with the benefit of hindsight that had not gone far enough or fast enough,” said Robert Talbut of Royal London Asset Management (RLAM), which owns shares in BP.

If Hayward had set out to improve efficiency and safety, last year’s global recession offered him a chance to cut costs. In his last major strategy statement before the spill, Hayward outlined in March plans to cut a further $3bn in costs and lauded the fact that the company’s exploration and development costs were at a five-year low of $12 a barrel.

The BP chief executive has always insisted that cost-cutting played no role in the fatal explosion at the Deepwater Horizon rig on April 20, something many critics take issue with. In a widely criticised performance he told the House of Representatives committee on energy and commerce in June that “there’s nothing I’ve seen in the evidence so far that suggests that anyone put costs ahead of safety”. Hayward’s fate was sealed as the scale of the disaster emerged, though the public-relations gaffes did not help.

“We don’t take the view that he was an appalling chief executive,” said Talbut of RLAM. “The appalling tragedy would likely have destroyed any chief executive.”

Right up until the spill Hayward was winning praise from the City for his running of BP, much as many bank bosses were before the financial crisis. As he heads off to TNK-BP and Bob Dudley takes over, the question of whether BP can both profitably and safely hunt down oil and gas at the planet’s frontiers remains unanswered.


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