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Oil-spill bill US$32b

Published:Wednesday | July 28, 2010 | 12:00 AM

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 US$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 October 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 US$17 billion loss.

"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 recognises 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 per cent, or US$60 billion, drop in market value to around US$116 billion since the April 20 explosion of the Macondo well on the Deepwater Horizon platform.

Under US political pressure, the company also axed dividends to shareholders this year.

"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 US$30 billion in assets to streamline the company into a smaller, higher-quality business.

Smaller operation

It said assets on the block will come primarily from its US$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 US$10 and US$15 billion within the next 18 months, compared to net debt of US$23 billion at the end of June, to ensure that BP has the flexibility to meet its future financial obligations.

The company has already made a start with the US$7 billion sale of gas assets in the United States, Canada and Egypt to Apache Corp.

Svanberg said the planned asset sales did not necessarily reflect a fear that spill costs could soar above the US$32.2 billion set aside by the company.

That charge includes the US$20 billion compensation fund the company set up following pressure from President Barack Obama as well as costs to date of US$2.9 billion.

Dudley said that BP had no intention of exiting the US, despite a likely rocky road ahead with costly fines and lawsuits expected after government investigations into the spill.

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 US$17 billion net loss for the April to June quarter - its first in 18 years - compared with a profit of US$4.39 billion a year earlier.

Revenue for the quarter was up 34 per cent at US$75.8 billion, and underlying replacement cost profit - the measure most closely watched by analysts - was US$5 billion when adjusted for one-off items and accounting effects.

That compared favourably with a US$2.9 billion profit for the second quarter of 2009.

Hayward, will stay on BP's board until November 30.

In a mark of faith in its outgoing leader, the company said it planned to recommend Hayward for a non-executive board position at its Russian joint venture, TNK-BP.

- AP