Robert Dudley, new BP CEO, says Gulf oil spill is wake-up call for industry
Robert Dudley will become the first non-British chief executive of BP, replacing the embattled Tony Hayward.
AP Photo/Dmitry Lovetsky
American Robert Dudley will become BP PLC's first ever non-British chief executive, the company said Tuesday as it reported a record quarterly loss and set aside $32.2 billion to cover costs of the devastating Gulf of Mexico oil spill.
Ending weeks of speculation, BP confirmed that gaffe-prone Tony Hayward will step down Oct. 1 as the London-based company seeks to reassure both the public and investors that it is learning lessons from the spill.
"BP will change as a result of this accident," BP Chairman Carl-Henric Svanberg told investors during a webcast presentation on the company's second quarter results, which revealed a record $17 billion loss.
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"We are taking a hard look at ourselves, what we do and how we do it. What we learn will have implications for our ways of working, our strategy and our governance."
Dudley told reporters Tuesday that he recognizes the complexity of what BP has to do to restore its financial strength and its reputation.
The oil spill, he said, has been a "wake-up call not only for BP, but the oil and gas industry overall, and we will be looking deeply at our review of operational safety and what we have learned from this spill."
Svanberg said the company's priority was to stop the Gulf leak permanently and then to clean up miles of spoiled waters and beaches and compensate people whose livelihoods have been lost because of the accident.
But he added that the company was determined to restore value to shareholders, after a 35 percent, or $60 billion, drop in market value to around $116 billion since the April 20 explosion of the Macondo well on the Deepwater Horizon platform. Under U.S. political pressure, the company also axed dividends to shareholders this year.
The stock started out marginally higher on Tuesday, but dropped 3 percent to 404.2 pence in afternoon trade on the London Stock Exchange.
"They have seen enormous loss of capital and of the dividend and the board is committed to creating value to shareholders and believes that we can deliver a stronger BP for them over time," Svanberg said.
BP kicked off the revamp by announcing the sale of $30 billion in assets to streamline the company into a smaller, higher quality business. It said assets on the block will come primarily from its $250 billion Exploration and Production portfolio and will be selected "on the basis that they are worth more to other companies than to BP."
The sell-off will help the company achieve an aim of reducing net debt to a range between $10 billion and $15 billion within the next 18 months, compared to net debt of $23 billion at the end of June, to ensure that BP has the flexibility to meet its future financial obligations.
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. That charge includes the $20 billion compensation fund the company set up following pressure from President Barack Obama as well as costs to date of $2.9 billion.
Dudley said that BP had no intention of exiting the U.S., despite a likely rocky road ahead with costly fines and lawsuits expected after government investigations into the spill.
"I think we have a lot to offer in the United States to the oil and gas industry and getting this right, working in the U.S., meeting those commitments and cooperating with officials is vital to BP's future success in America," he said.
Currently BP's managing director, Dudley grew up partly in Hattiesburg, Mississippi, and has so far avoided any public missteps. He spent 20 years at Amoco Corp., which merged with BP in 1998, and lost out to Hayward on the CEO slot three years ago.
Dudley will return to London when he takes up his appointment and will hand over his present duties coordinating the spill response to Lamar McKay, the chairman and president of BP America.
Executives stressed BP's strong financial position despite a $17 billion net loss for the April to June quarter â€” its first in 18 years â€” compared with a profit of $4.39 billion a year earlier.
Revenue for the quarter was up 34 percent at $75.8 billion, and underlying replacement cost profit â€” the measure most closely watched by analysts â€” was $5 billion when adjusted for one-off items and accounting effects. That compared favorably with a $2.9 billion profit for the second quarter of 2009.
Hayward, who will stay on BP's board until Nov. 30, said the company had reached a "significant milestone" with the capping of the leaking well 12 days ago.
Over the next few weeks, BP will move ahead in parallel with so-called static kill and bottom-kill operations â€” blasting in mud and cement from the top of the well and from deep underground â€” and the company said it anticipates the first relief well will be completed during August, subject to weather delays.
Charles Stanley analyst Tony Shepard, who has a "hold" recommendation on the stock, said the successful permanent blocking of the leak and some good asset disposals could give more relief to the share price.
"But the longer term effects of the disaster are still unclear and when BP returns to paying dividends, we do not anticipate such a high payout," he added.
Svanberg said the board was "deeply saddened" to lose Hayward, 53, who spent almost 30 years at the company, praising his success in streamlining and boosting profits at the bloated company he inherited as CEO three years ago.
In a mark of faith in its outgoing leader, the company said it planned to recommend him for a non-executive board position at its Russian joint venture, TNK-BP.
Hayward 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 in 2008, running the company in absentia until that became untenable, after a row with Russian shareholders.
Hayward, who paid the price for a series of gaffes, including the comment "I'd like my life back," will receive a year's salary of 1.045 million pounds ($1.6 million) as part of his severance package. He will also be entitled to draw an annual pension of 600,000 pounds from a pension pot valued at around 11 million pounds and retains his rights to shares under a long-term performance program which 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 11 workers who were killed in the explosion.
"The Gulf of Mexico explosion was a terrible tragedy for which â€” as the man in charge of BP when it happened â€” I will always feel a deep responsibility, regardless of where blame is ultimately found to lie," he said.
In London, Greenpeace protesters closed more than 50 service stations in a protest timed to coincide with the company's earnings update. The environmental action group is calling on Dudley to focus the company on greener and renewable sources of energy.
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