BP hopes to turn page with new CEO, leaner company
NEW ORLEANS (AP) – Battered BP began reinventing itself in the shadow of the Gulf of Mexico oil spill Tuesday, naming its first American CEO as it reported a record $17 billion quarterly loss. Its outgoing chief miffed the White House anew with his parting comments.
Robert Dudley, who will replace Tony Hayward on Oct. 1, promised changes in light of the environmental disaster. “There’s no question we are going to learn things from this investigation of the incident,” he told reporters by phone from London after the announcement was made.
One certain change is that BP will become smaller. It announced it will sell $30 billion in assets and has set aside $32.2 billion to cover costs from the largest offshore oil spill in U.S. history.
Dudley, BP’s managing director and current point man on oil spill recovery, defended his company’s record and that of the embattled chief executive he will replace.
Hayward, whose verbal miscues intensified the anger Gulf Coast residents already felt, will leave BP with benefits valued at more than $18 million. He told reporters he had been “demonized and vilified” but had no major regrets about his leadership.
“Life isn’t fair,” he said, but he conceded that wasn’t the point. “BP cannot move on in the U.S. with me as its leader.”
The White House was not impressed with Hayward’s comments.
“What’s not fair is what’s happened on the Gulf,” press secretary Robert Gibbs said. “What’s not fair is the actions of some have caused the greatest environmental disaster that our country has ever seen.”
BP PLC announced the move Tuesday with an air of making a fresh start, nearly 100 days into a catastrophic mile-deep blowout that killed 11 workers, spewed 94 million to 184 million gallons of oil and sapped 35 percent, or $60 billion, of BP’s market value.
“We are taking a hard look at ourselves, what we do and how we do it,” BP Chairman Carl-Henric Svanberg said during a webcast presentation on the company’s earnings.
Svanberg said the company’s priority was to stop the Gulf leak permanently, clean up the spill and compensate people whose livelihoods have been lost. But he added that the company was determined to restore value to shareholders, whose dividends were axed by BP under U.S. political pressure.
Company shares dropped 65 cents, or about 1.7 percent, to close at $38 in Tuesday trading in New York.
BP said it would become a leaner, higher-quality business through its planned sale of $30 billion in assets. The company has already made a start with the $7 billion sale of gas assets in the United States, Canada and Egypt to Apache Corp.
Svanberg said the planned asset sales did not necessarily reflect a fear that spill costs could soar above the $32.2 billion set aside by the company.
Analysts were disappointed that BP intended to sell so many assets.
Oppenheimer & Co. analyst Fadel Gheit said BP should be a 10 percent smaller company after its planned sales but that BP should remain the top oil and gas producer in the U.S., unless it sells off a large portion of its Alaska assets. The company was reportedly considering the sale of its stake in the Prudhoe Bay oil field to Apache Corp., but instead sold Apache properties in Texas and New Mexico, as well as Egypt and western Canada. The U.S. is home to 40 percent of BP’s assets and one-third of its worldwide oil and gas reserves.
Prior to the Gulf incident, BP said its exploration activities were focused around Angola, Egypt, the deepwater Gulf of Mexico, Libya, the North Sea, Oman and onshore U.S.
Analysts also said BP’s estimate of spill costs was on the conservative side. Gheit predicts BP will eventually pay between $30 billion and $60 billion.
Based on the upper estimate of oil spilled so far, BP could be fined up to $4.8 billion under the Clean Water Act, or up to $18.8 billion if it is found to have committed gross negligence or willful misconduct. BP’s estimate assumes it would not get the harsher penalties.
Any fines would be on top of the compensation BP has agreed to pay to thousands of people harmed by the spill. Under U.S. government pressure, it set up a $20 billion escrow fund to pay all claims, including environmental damages and state and local response costs.
But the company is also claiming a $9.88 billion tax credit in the second quarter based on the $32.2 billion charge it booked for the cleanup.
BP executives were asked in a conference call whether they had discussed the tax credit with U.S. authorities. “We have followed the IRS regulations as they are currently written,” Hayward said.
Dudley pledged that his company will remain committed to the Gulf region even after the busted well is sealed for good – something that may happen soon. A temporary cap has held back the oil for nearly two weeks, a “static kill” effort to plug the well from above is to begin Monday and the permanent fix – a relief well – could begin sealing the well from the bottom for good with mud and cement days after that.
Dudley was brought in to oversee the spill response after Hayward was vilified for a series of gaffes, including minimizing the spill’s impact, saying that he would like his life back and attending a yacht race off the coast of England as Gulf residents struggled to cope with the spill.
In a mark of faith in its outgoing leader, the company said it planned to recommend Hayward for a non-executive board position at its Russian joint venture, TNK-BP.
The British CEO remains well-regarded in Europe and his appointment would be a benefit for Dudley, who, as the former head of TNK-BP, was forced to flee Russia and run the company in absentia after a flap with shareholders in 2008.
Hayward has some sympathy in his native Britain, where many pensions rely on BP stock and some consider U.S. outrage at the company to be over the top. A recurring theme in newspaper editorials and discussions among many Britons is that there simply wasn’t much one man could do in the face of relentless American wrath.
“BP sends Tony Hayward to Siberia to appease US,” read a headline in the Guardian.
Hayward, who will stay on BP’s board until Nov. 30, will receive a year’s salary of 1.045 million pounds (US$1.6 million) as part of his severance package. His pension benefits are valued at about 11 million pounds (US$16.8 million), and he retains his rights to shares under a long-term performance program that could eventually be worth several million pounds if BP’s share price recovers.
Hayward said it was right that BP embark on its next phase under new leadership, and expressed his condolences for the families of the workers killed in the explosion.
“The Gulf of Mexico explosion was a terrible tragedy for which – as the man in charge of BP when it happened – I will always feel a deep responsibility, regardless of where blame is ultimately found to lie,” he said.
Some Gulf Coast residents didn’t expect the change in leadership to affect BP’s response. Bob Boudet, 68, of Myrtle Grove, said he expects the same “deceptive attitudes that BP has had from the beginning.”
Asked about Hayward’s new job in Russia, Boudet quipped: “Oh, I think that’s a wonderful job for him.”
Plaquemines Parish President Billy Nungesser said he has faith in Dudley, noting “he seemed to have passion” for the region. As for Hayward heading to Russia, Nungesser said, “Anywhere far away from here.”
President Barack Obama, who once said he would fire Hayward if he could, discussed the change in BP’s leadership with Svanberg on Monday, Gibbs said Tuesday. No details about the conversation were released.
“Our concern is not who heads BP,” Gibbs said. “Mr. Hayward is leaving. The key is that BP can’t leave and should not leave the Gulf. … They have obligations and responsibilities as the responsible party in this instance that have to be met regardless of who the CEO is.”
Dudley, who will be based in London, will hand over spill response coordination to Lamar McKay, the chairman and president of BP America.
Dudley spent some of his childhood in Mississippi and worked for 20 years at Amoco Corp., which merged with BP in 1998. He lost out to Hayward on the CEO slot three years ago.
“I think you will find I listen hard and carefully to people and have worked with restructuring organizations to achieve change,” he said. “I did not seek out this job. I was asked to step into these shoes, and I firmly and deeply believe that BP is a company made up of great people and great businesses.”
Plugging the oil well for good will be a major milestone in the oil-spill fight. BP and the federal government differ slightly on when the relief well needed to accomplish that will be completed.
The government’s oil spill chief, retired Coast Guard Adm. Thad Allen, said Monday that the well could be completed as early as Aug. 7, but Kent Wells, a BP senior vice president, said Tuesday he expected it would take until Aug. 10. Both agree that it would take several days to several weeks to permanently seal the well after that.
Meanwhile, a barge slammed into an abandoned well near a Louisiana bay already fouled by the Gulf spill, sending natural gas and oil spewing into the air. Officials said the breach created a mile-long slick but that it was minimal compared with the gusher in the Gulf.