BP, lagging its peers, restructures

Tony Hayward outlines plan to simplify its structure, increase safety and accountability, listen more closely to front-line staff

The Associated Press

BP outlined a plan to streamline its structure, cutting the number of business units and stripping out management layers, as it acknowledged Oct. 11 that its poor financial performance and safety record had left it lagging behind its oil industry peers.

The massive restructuring is the linchpin of new Chief Executive Tony Hayward’s attempt to restore BP’s advantage against its competitors after a host of safety and operational problems.

Analysts have blamed BP’s complex organizational layout for many of those woes, which have included a deadly Texas refinery accident, an oil spill in Alaska and delays at its Gulf of Mexico oil and gas projects.

“BP’s performance has materially lagged our peer group in the last three years,” Hayward said in a worldwide message to staff that was also issued to the London Stock Exchange. “It has been poor because we are not consistent and our organization has grown too complex. At the root of all this is a need to change our behaviors.”

Under Hayward’s plan, that will start with cutting the number of BP’s main business segments from three to two. The company will incorporate its existing gas, power and renewables business into the two remaining units — exploration and production, and refining and marketing.

It will also create a smaller division for alternative energy to handle the company’s low-carbon business and future growth options outside oil and gas.

Hayward, who took over from controversial former CEO John Browne in May, said that BP’s corporate infrastructure would be “rigorously reviewed,” with the result that up to four layers of management will be shed in some parts of the company.

Making progress on safety, accountability

Addressing what he described as his “three priorities,” safety, people and performance, Hayward said BP was making good progress on safety, telling staff that a focus on people would ensure that the company deployed the “right skills in the right places” and allowed staff to exercise professional judgment without “unnecessary interference.”

He said redundancies would be inevitable in some parts of the company but stressed that front-line operations would continue to be strengthened. He did not anticipate major disposals but would not rule out small-scale asset sales.

“What we are doing represents a fundamental shift in how BP works,” Hayward said. “Managers will be listening more acutely, particularly to front-line staff. We will make sure individuals are fully accountable for things they control. We will respect professionalism and excellence as key to the success of our businesses — something we have not always done. Continuous improvement is what will drive performance, as opposed to short-term, unsustainable initiatives.”

Hayward said that the bulk of BP’s competitive shortfall represented revenues lost from impaired U.S. refining capacity and delays to new production in the Gulf of Mexico. The remainder arose from BP’s “unacceptably high” cost base relative to its rivals.

“We expect the revenue gap to narrow as major new production comes on stream in the fourth quarter and refinery throughputs rise at Texas City and Whiting over the coming months,” he said, adding that the structural changes would reduce the company’s overhead costs.

Hayward said that some of the changes announced Oct. 11 are already under way and the others would be introduced immediately.

Following the announcement BP shares rose 2.4 percent to 594 pence ($12.12) in London. l

—Petroleum News contributed to this story