BP officials say they are beginning to reinvent a company that reported a record $17 billion quarterly loss and is navigating the politically fraught task of restoring the Gulf of Mexico.
The company named its first American CEO on Tuesday during its quarterly earnings call, while its outgoing chief, who has been repeatedly criticized for other verbal miscues, miffed the White House anew on his way out.
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 said.
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.
Mr. Dudley, BP’s managing director and current point man on oil spill recovery, defended the record of his company and his predecessor.
Mr. Hayward 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, says Tony Hayward
“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 Mr. 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 nearly 100 days into a catastrophic mile—deep blowout that killed 11 workers, spewed 94 million gallons (356 million litres) to 184 million gallons (697 million litres) 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.
Mr. 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.
Higher-quality business vision
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.
Mr. 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.
Spill costs estimate on conservative side
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, referring to U.S. tax agency the Internal Revenue Service.
BP committed to the Gulf region
Mr. Dudley pledged that his company will remain committed to the Gulf region even after the 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 on Monday and a relief well could begin sealing the well from the bottom for good with mud and cement days after that.
Mr. Dudley was brought in to oversee the spill response after Mr. 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 weekend 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 Mr. 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 Mr. 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.
Mr. 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.
Mr. 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 programme that could eventually be worth several million pounds if BP’s share price recovers.
Mr. 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.
A terrible tragedy
“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.
President Barack Obama, who once said he would fire Mr. Hayward if he could, discussed the change in BP’s leadership with Mr. Svanberg on Monday, Mr. Gibbs said Tuesday. No details about the conversation were released.
“Our concern is not who heads BP,” Mr. 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.”
Mr. Dudley, who will be based in London, will hand over spill response coordination to Lamar McKay, the chairman and president of BP America.
Mr. 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 Mr. Hayward on the CEO slot three years ago.