Analysis: New BP boss should boost safety, asset sales

By Tom Bergin

LONDON (BestGrowthStock) – Bob Dudley, who is expected to be named BP’s next CEO in the coming 24 hours, must move quickly to restore the oil giant’s battered image in its most important market, improve safety and make BP a leaner company.

BP’s board is meeting on Monday to discuss a plan for Tony Hayward to step down as Chief Executive following criticism of his handling of the Gulf of Mexico oil spill, and be replaced by Dudley, who is heading the spill response effort.

Investors hope Dudley will help repair BP’s image in the U.S, which has been damaged by a clumsy public relations strategy and a series of gaffes by Hayward. “As an American he (Dudley) may well be more acceptable to the U.S. political machine than the other alternatives for the role, which could serve to better protect value in the U.S. for BP long term,” said Jason Kenney, oil analyst at ING in Edinburgh.

The U.S. is home to 40 percent of BP’s assets and much of its growth but the public and political anger over the oil spill has led to fears BP may no longer be able to operate effectively in the U.S.

Dudley benefits from experience of navigating fractious disputes, having led BP’s Russian joint venture, TNK-BP, through a dispute between BP and its oligarchs partners over control of the company.

He will also need to improve BP’s safety record to recover the respect of U.S. lawmakers.

This could require a change to BP’s buccaneering approach, where division managers have had greater freedom than their peers in other big oil companies and top management has been willing to take greater commercial risks.

“A total change in the culture of this company is necessary,” Democratic Representative Ed Markey, chairman of the House Select Committee on Energy Independence and Global Warming, said on CBS’s “The Early Show.”

EXPENSIVE MISTAKES

In the past five years, BP has endured three of the industry’s most expensive and reputationally damaging safety and environmental lapses.

An explosion of a Texas refinery in 2005 killed 15 workers and cost the company billions, while an oil spill in Alaska in 2006 led to millions of dollars of fines and helped cement BP’s reputation in the U.S. as a reckless operator.

Regulators blamed both incidents on cost-cutting under Hayward’s predecessor John Browne.

Investors, once charmed by BP cost cutting, may now be more focused on a safer approach too from the group that pumped more oil and gas than any other non-state controlled oil concern last year.

“The company’s strategy will need to be fundamentally changed in order to rebuild future confidence in the company. Clearly, safety will need to become the centerpiece,” said Dougie Youngson, oil analyst at Arbuthnot.

Investors and analysts also predict strategic changes.

As part of a peace deal with the White House, which had been putting massive pressure on the oil giant, BP agreed to establish a $20 billion fund to compensate those affected by the spill.

It plans to sell $10 billion of none-core assets in the coming year to help finance that.

Last week the company said it had agreed the sale of $7 billion of assets and invited offers for another $1.7 billion worth of gas fields in Asia.

The company is likely to announce at its second-quarter results on Tuesday that it will increase it asset sales target, analysts at Morgan Stanley said.

The sales will hit BP’s plans to grow production, but investors and analysts said they will create a leaner, more profitable company.

“(We expect) significant asset sales and bizarrely that might prove to be the right business model for all oil majors,” said a top-15 shareholder, who asked not to be named.

“There is much greater value in the asset base of these businesses, whether it is BP or Shell, than in share prices. Actually they should think very hard at shrinking themselves down.”

However, some analysts doubt oil companies could recycle assets more quickly. The reason they are not quicker to sell off older fields, and replace them with new fields, is because they have such difficulty in making new discoveries.

BP has said its asset sale effort is focused on upstream, oil and gas production assets, but Arbuthnot’s Youngson said the oil major should also consider selling downstream assets.

“Refining is a relatively low contributor in terms of overall income and disposing of it would make a huge amount of sense, as well as generating a substantial cash injection for BP,” he said.

BP has sold refineries in recent years, but those it retains help it operate an aggressive oil trading operation that in a good year can generate over a $1 billion in profits.

(Additional reporting by Cecilia Valente in London and Eric Beech in Washington)

Analysis: New BP boss should boost safety, asset sales