Sunday, July 25, 2010

New Leadership for BP Coming Soon


P Plc Chief Executive Tony Hayward is discussing his departure from the company after a leak at one of its Gulf of Mexico wells caused the largest oil spill in U.S. history, two people familiar with the matter said today.
Robert Dudley, director of BP’s oil spill response unit, is the person most likely to succeed Hayward after a handover period, one of the people said. An announcement most probably will be made July 27, when the company releases its second- quarter results, the person said. Both people declined to be identified by name because final decisions haven’t been taken.
The board of London-based BP will meet tomorrow to discuss the future of Hayward, 53, one of the people said.
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. The well has now been sealed, and BP plans to permanently plug it with cement next month. The company’s market value has fallen by about 50 billion pounds ($77 billion) as it has battled to stop the spill.
Hayward “has the confidence of the board,” BP spokesman Toby Odone said by mobile phone today in London.
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 Man’
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 StaffRahm Emanuel said on ABC in June that “Tony Hayward isn’t going to have a second career in PR consulting” and criticized the CEO for taking a yachting trip.
BP on June 23 appointed Dudley, 54, a Mississippian, to manage its response to the Gulf leak.
The company’s success capping the runaway Gulf of Mexico oil well after three months will keep its final liability for the spill to $33 billion, according to analysts.
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.”
Second-Quarter Results
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.
“In terms of second-quarter performance, they’ll be quite strong aside from the spill,” saidAlastair 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.
Capping Well
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.
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 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.
Asset Sales
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.
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
Refining margins are also picking up after averaging $5.49 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?”

No comments: