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Monday, July 26, 2010

BP Preparing to Replace Hayward

Bloomberg News


BP Plc plans to appoint Robert Dudley to succeed Tony Hayward as chief executive officer as the board looks to recover the company’s position in the U.S., two people with knowledge of the matter said.

Dudley, the director of BP’s oil spill response unit, is ready to be announced as the company’s first American chief on July 27 and to take the helm Oct. 1, one of the people said, asking not to be identified because a final decision hasn’t yet been made. The decision was reached in discussions with board members about how best to take BP forward and rebuild its U.S. position, the person said. The BP board meets tomorrow to “rubber stamp” the plan, the second person said.

“The fact he is American should help to keep things a little more straightforward in his dealings with the U.S. administration,” Ted Harper, who helps manage $6.8 billion at Frost Investment Advisors in Houston, said today. He doesn’t hold BP stock. “Dudley’s most important task will continue to be making sure that the well is capped.”

Hayward has faced public anger in the U.S. and criticism from lawmakers over his handling of the spill that was triggered by an April 20 explosion on the Deepwater Horizon rig, which killed 11 people. Dudley, 54, was born in New York and grew up in Mississippi, part of the Gulf Coast region suffering environmental and economic damage from the spill. BP on June 23 appointed him to manage its response to the leak.

BP is preparing an announcement for tomorrow that will note press speculation, confirming a board meeting will be held and announcements to be made as needed.

Lost Value

The company, which announces second-quarter earnings on July 27, has seen its market value fall by about 50 billion pounds ($77 billion) as it battled to stop the spill. The well has now been sealed, and BP plans to permanently plug it with cement next month.

Hayward “has the support of the board,” BP spokesman Mark Salt said by mobile phone today in London.

Dudley spent about 30 years in the oil industry, including a stint as CEO of BP’s Russian joint venture, TNK-BP, starting in 2003. That job ended after disputes with Russian partners led to Dudley fleeing Russia in 2008, citing “sustained harassment” amid court battles and labor and tax inspections.

While seeking to contain public outrage over the environmental damage, Hayward made several gaffes, including saying he wanted his “life back” and calling the spill “relatively tiny” in a “very big ocean.” The well spewed 35,000 to 60,000 barrels of oil a day from a mile deep in the water, according to a U.S. government-led panel of scientists.

‘Most Hated’

The New York Daily News said he was “the most hated -- and clueless -- man in America.” U.S. President Barack Obama said he would have fired Hayward, while White House Chief of Staff Rahm Emanuel said on ABC in June that “Tony Hayward isn’t going to have a second career in PR consulting,” while criticizing the CEO for taking a yachting trip.

“Hayward turned the heat up on himself, and some of his misstatements served to boost the move for him to be replaced,” Harper said.

“The new leaders of BP will have an uphill climb to correct the legacy left by Hayward,” U.S. Representative Edward Markey of Massachusetts said in a statement today. Markey, a Democrat, is chairman of the Select Committee on Energy Independence and Global Warming.

The company’s success capping the runaway well after three months will keep its final liability for the spill to $33 billion, according to analysts.

Well Cap

The 40-foot stack of valves halted the flow a week before Tropical Storm Bonnie blew through and forced a temporary halt to drilling of a relief well that will seal the leak for good. Worst-case forecasts for the crisis had pegged the bill as high as $100 billion.

“The doomsday scenarios are looking very remote,” said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, who expects BP’s final bill to reach $28 billion. “The biggest estimates were based on massive criminal negligence and the worst-case of the well not being stopped at all.”

BP will probably say net income before extraordinary items rose to $5 billion from $4.4 billion a year earlier because of higher oil prices and better refinery earnings, according to the median of 12 estimates in a Bloomberg News survey. The $4 billion the company has spent on the spill so far won’t be included in that figure. The increase in underlying profit will help BP in its campaign to bolster its financial position.

Second-Quarter Results

“In terms of second-quarter performance, they’ll be quite strong aside from the spill,” said Alastair Syme, an analyst at Nomura Holdings Inc. in London who predicts the bill will rise to about $17 billion. “The market will try to press them on future costs.”

The median estimate of the total costs is $33 billion, a Bloomberg News survey of 11 analysts shows, with predictions ranging from $17 billion to $60 billion. Louisiana Treasurer John Kennedy has said the total cost of the spill may reach $100 billion.

Tropical storm Bonnie stopped BP’s drilling operation near the Macondo well, setting back a permanent solution by about two weeks. Without the week-old cap holding back the flow, the spill would have worsened.

Exxon Mobil Corp., the biggest publicly traded oil company, and Royal Dutch Shell Group Plc, Europe’s largest, will report earnings July 29.

Stock Plunges

The spill has wiped about 40 percent of BP’s market value since the Deepwater Horizon blowout. That’s more than double the median estimate among analysts for the cost of the spill, suggesting investors are taking a dimmer view of BP’s future. The stock dropped 2.1 percent last week.

Before the spill, Hayward led BP to become the biggest non- state producer of oil and gas last year and aimed to increase output by as much as 2 percent a year through 2015. The company now plans to sell assets, reduce investments and suspend the $10 billion annual dividend for three quarters to pay for the spill.

BP Chairman Carl-Henric Svanberg agreed with president Obama last month to set aside $20 billion for spill victims and cleanup. The payments into the fund will take place over several quarters, starting with $3 billion in the third quarter and $2 billion in the fourth.

BP said last week that it sold $7 billion of assets in the U.S., Canada and Egypt to Apache Corp. It has also said it plans to sell holdings in Pakistan and Vietnam. BP may revive the sale of fields in Alaska after they failed to make it into the Apache deal, two people with knowledge of the matter said last week.

Refining Margins

The 61 percent increase in oil prices since the beginning of 2009 may bolster BP’s revenue across the world. In the first quarter, BP profit more than doubled from a year earlier. In March, BP agreed to buy $7 billion of assets from Devon Energy Corp. in the Gulf of Mexico, Brazil and Azerbaijan.

Refining margins are also picking up after averaging $5.49 a barrel in the second quarter from $3.08 in the first three months of the year, according to BP.

BP’s own survey of analysts showed a mean estimate of $5 billion for so-called replacement cost profit, with a range of $4.83 billion to $5.29 billion. Chief Financial Officer Byron Grote told investors on June 4 that the company will treat spill costs as a non-operating, identified item and that it will create a separate area on the income statement for it.

None of the analysts in the Bloomberg Survey had changed their cost estimates since BP stopped the flow of oil from the Macondo well this month. Politics will determine BP’s eventual bill, and the U.S. will ultimately want to keep BP alive, said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo.

“There has to be some limitation on the costs,” said Isfeldt. “If BP can go bankrupt, who will want to drill in the U.S. anymore?”