The Wall Street Journal
Acting to restore BP PLC's reputation in the wake of the Gulf of Mexico oil spill, incoming Chief Executive Robert Dudley unveiled big changes designed to improve safety and announced the departure of the senior executive who oversaw drilling operations.
Two days before officially taking over as CEO, Mr. Dudley also said Wednesday that he will split BP's exploration-and-production division into three parts and order a review of how the company manages third-party contractors.
The overhaul creates a safety unit that will have sweeping powers to challenge management decisions if it considers them too risky. It will be headed by Mark Bly, currently BP's top safety executive and author of the company's inquiry into the Deepwater Horizon disaster.
BP also will review how it rewards its managers, following criticism that employees have incentives to increase earnings and boost production but not to improve safety. Some U.S. legislators have said the gulf spill happened because BP cut corners on safety, which BP denies.
The moves show how Mr. Dudley plans to resuscitate BP after it plunged into the worst crisis in its 102-year history. The London-based company has lost more than a third of its stock-market value since April 20, when one of its gulf wells blew out, destroying the Deepwater Horizon drilling rig, killing 11 men and triggering the worst offshore oil spill in U.S. history. BP finally killed the well earlier this month.
The restructuring moves mark the "first and most urgent steps" in a plan to rebuild trust in BP, Mr. Dudley said in a written statement. The changes are in areas "where I believe we most clearly need to act, with safety and risk management our most urgent priority."
"BP realizes it has to change," said Peter Hitchens, an oil analyst at Panmure Gordon. "Another disaster like this and it will be stripped of its U.S. operations and may even go bankrupt."
The restructuring is one of the most far-reaching in BP's recent history. But BP critics on the Gulf Coast and Capitol Hill have pointed to similar promises to improve safety after the blast at its Texas City refinery in 2005, which killed 15 people and injured 170. Departing CEO Tony Hayward took charge two years later promising to focus "like a laser" on safety. Yet the new procedures he put in place failed to prevent the Deepwater Horizon disaster.
The main casualty of the latest restructuring is Andy Inglis, head of BP's exploration-and-production arm and essentially the company's No. 2 executive. He was close to Mr. Hayward, who announced in July he was stepping down in the wake of criticism over BP's handling of the spill.
Mr. Inglis's departure was seen as inevitable by people in the industry, since he oversaw drilling operations in the gulf. BP said that "by mutual agreement," he would step down from the board Oct. 31 and quit the company at year-end.
The restructuring creates a division on safety and operational risk that will embed its staff in BP's operating units. Directly accountable to Mr. Bly, the division's staff will be responsible for ensuring that BP's activities are executed to common standards.
"If they find something that's not in line with those standards, they can go straight to Mark Bly who has the operational authority to stop it," a spokesman said. BP says such procedures would have prevented the Deepwater Horizon accident because safety specialists would have been able to veto the decisions taken on the rig that combined to cause the disaster.
"This has to be a positive development, but it needs to be properly supported in terms of management focus, manpower and the allocation of resources," said Nigel Bowker, a former BP safety manager who now runs Blackhall Consulting, which advises the oil industry.
BP's exploration-and-production, or upstream, division will be split into exploration, development and production, with each function run by a senior executive reporting directly to Mr. Dudley. BP's upstream operations until now have had a single boss, currently Mr. Inglis, who was a member of the board, had wide powers and was often seen as the heir apparent to the CEO. Both Mr. Hayward and his predecessor, John Browne, were former upstream chiefs.
"E&P was just too large to be managed by one person," the BP spokesman said. "The changes give the CEO a much clearer line of sight across the piece."
BP's review of third-party contractors follows Mr. Bly's report into the gulf accident. The company accepted some responsibility but also laid substantial blame on its contractors: Halliburton Co., which did the cement job on the well, and Transocean Ltd., which owned and operated the Deepwater Horizon rig.
Two days before officially taking over as CEO, Mr. Dudley also said Wednesday that he will split BP's exploration-and-production division into three parts and order a review of how the company manages third-party contractors.
The overhaul creates a safety unit that will have sweeping powers to challenge management decisions if it considers them too risky. It will be headed by Mark Bly, currently BP's top safety executive and author of the company's inquiry into the Deepwater Horizon disaster.
BP also will review how it rewards its managers, following criticism that employees have incentives to increase earnings and boost production but not to improve safety. Some U.S. legislators have said the gulf spill happened because BP cut corners on safety, which BP denies.
The moves show how Mr. Dudley plans to resuscitate BP after it plunged into the worst crisis in its 102-year history. The London-based company has lost more than a third of its stock-market value since April 20, when one of its gulf wells blew out, destroying the Deepwater Horizon drilling rig, killing 11 men and triggering the worst offshore oil spill in U.S. history. BP finally killed the well earlier this month.
The restructuring moves mark the "first and most urgent steps" in a plan to rebuild trust in BP, Mr. Dudley said in a written statement. The changes are in areas "where I believe we most clearly need to act, with safety and risk management our most urgent priority."
"BP realizes it has to change," said Peter Hitchens, an oil analyst at Panmure Gordon. "Another disaster like this and it will be stripped of its U.S. operations and may even go bankrupt."
The restructuring is one of the most far-reaching in BP's recent history. But BP critics on the Gulf Coast and Capitol Hill have pointed to similar promises to improve safety after the blast at its Texas City refinery in 2005, which killed 15 people and injured 170. Departing CEO Tony Hayward took charge two years later promising to focus "like a laser" on safety. Yet the new procedures he put in place failed to prevent the Deepwater Horizon disaster.
The main casualty of the latest restructuring is Andy Inglis, head of BP's exploration-and-production arm and essentially the company's No. 2 executive. He was close to Mr. Hayward, who announced in July he was stepping down in the wake of criticism over BP's handling of the spill.
Mr. Inglis's departure was seen as inevitable by people in the industry, since he oversaw drilling operations in the gulf. BP said that "by mutual agreement," he would step down from the board Oct. 31 and quit the company at year-end.
The restructuring creates a division on safety and operational risk that will embed its staff in BP's operating units. Directly accountable to Mr. Bly, the division's staff will be responsible for ensuring that BP's activities are executed to common standards.
"If they find something that's not in line with those standards, they can go straight to Mark Bly who has the operational authority to stop it," a spokesman said. BP says such procedures would have prevented the Deepwater Horizon accident because safety specialists would have been able to veto the decisions taken on the rig that combined to cause the disaster.
"This has to be a positive development, but it needs to be properly supported in terms of management focus, manpower and the allocation of resources," said Nigel Bowker, a former BP safety manager who now runs Blackhall Consulting, which advises the oil industry.
BP's exploration-and-production, or upstream, division will be split into exploration, development and production, with each function run by a senior executive reporting directly to Mr. Dudley. BP's upstream operations until now have had a single boss, currently Mr. Inglis, who was a member of the board, had wide powers and was often seen as the heir apparent to the CEO. Both Mr. Hayward and his predecessor, John Browne, were former upstream chiefs.
"E&P was just too large to be managed by one person," the BP spokesman said. "The changes give the CEO a much clearer line of sight across the piece."
BP's review of third-party contractors follows Mr. Bly's report into the gulf accident. The company accepted some responsibility but also laid substantial blame on its contractors: Halliburton Co., which did the cement job on the well, and Transocean Ltd., which owned and operated the Deepwater Horizon rig.
