BP PLC (NYSE ADR: BP) plans to oust Chief Executive Officer Tony Hayward from the top spot and to appoint Robert Dudley – an American and an insider – in an attempt to regain U.S. trust after a highly criticized, ineffective response to the Gulf oil spill.
BP is expected to announce the change today (Tuesday) when it releases its second-quarter financial report and Hayward addresses shareholders. The official appointment would be effective Oct. 1 – following a transition period that would give BP time to permanently seal the massive oil leak and to clean up most of the five million barrels of oil that have polluted the Gulf region as a result of the worst environmental disaster in U.S. history.
Dudley would be the first American to run the London-based company, which has been excoriated by the Obama administration, Wall Street, environmentalists, Gulf-region businesses and residents of affected areas. It's essential for BP to regain that U.S. trust: Roughly 30% of its business interests located in the United States and 40% of its shareholders are American.
"It's a wise choice to pick an American," Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo, told Bloomberg News. "This will take off some of the pressure, but not all of it. For the first time, they can start looking ahead to the future of BP."
Dudley has worked for BP for more than 10 years, serving in a number of managerial and lead roles, including as president and CEO of BP's Russian joint venture, TNK-BP, from 2003 to 2008.
BP is expected to offer Hayward a position at TNK-BP, leaving Dudley to take on the challenge of improving BP's tarnished image in the United States. That includes trying to convince a protective U.S. government that BP should continue its drilling projects in the Gulf of Mexico, which it has targeted for 25 of its 40 future production operations over the next five years.
"The fact [Dudley] is American should help to keep things a little more straightforward in his dealings with the U.S. administration," Ted Harper, an asset manager at Frost Investment Advisors in Houston, told Bloomberg. "Dudley's most important task will continue to be making sure that the well is capped."
Dudley's resume includes 30 years of oil industry experience, a role as the head of BP's oil spill disaster management team since June, and a Mississippi upbringing filled with "summers fishing and swimming on the Gulf."
His lead position in managing the oil-spill-response efforts has helped him develop a better rapport with U.S. officials than Hayward has, a key reason for the move.
"This change of face will remove a lot of the vitriol that's been directed at Tony Hayward," Nick McGregor, an investment manager with Redmayne Bentley Stockbrokers in London, told Bloomberg Television. "It looks like an effort to get all the bad news out of the way in one go so the successor will have a clean sheet."
Hayward's highly publicized missteps have angered critics and nabbed him the title of "the most hated – and clueless – man in America" according to the New York Daily News.
Meanwhile, Dudley's actions in handling the spill have been praised and admired.
"He is cool, calm, collected," Kenneth Feinberg, who oversees the $20 billion claims fund BP set up under U.S. government pressure, told The Times. "He is proactive. He reached out to me and expressed the desire for BP to be as responsive and cooperative as possible."
Dudley also has managed to keep his name and reputation unscathed in an industry – and in a company – plagued with operating problems. His handling of a political entanglement when he led TNK-BP earned him a spot on BP's board.
"In Russia, he was working in a high-pressure environment, and he demonstrated his ability to stay focused," said Daniel Yergin of IHS Cambridge Energy Research Associates. "He's very steady and he knows how to work with a wide range of people to get the job done."
Dudley was previously considered for the CEO job in 2007 when it was instead given to Hayward, who vowed to make safety his No. 1 priority.
Analysts expect Moscow to accept Hayward's role in BP's Russia business. Rumors swirled last month that Igor Sechin, Russia's powerful deputy prime minister, may have already discussed a role for Hayward in the Russian oil industry.
Dudley would need to immediately start improving BP employee morale and to redesign a business model that is focused on safety. Experts say Dudley can begin by reining in reckless managers.
A 2005 explosion at a BP refinery in Texas killed 15 workers, and a 2006 oil spill in Alaska led to millions of dollars in fines. Regulators blamed the accidents on cost-cutting measures undertaken by former CEO John Browne.
While investors previously supported efforts to trim expenses, the cuts came at the price of safety and have now cost BP billions.
BP has lost 40% of its market capitalization since the April 20 Deepwater Horizon rig explosion. Analysts estimate that the company's spill-related costs will exceed $30 billion and will likely be accompanied by criminal charges.
In its second-quarter financial report today, BP is expected to announce it will set aside $25 billion to $30 billion for the spill, making it one of the biggest losses in British corporate history and one that far exceeds an expected 77% jump in underlying profit.
"In order to give the new CEO a fighting chance, we expect BP to write down the clean-up costs this quarter. We therefore anticipate that the company will post a loss in the order of $15 billion this quarter," Dougie Youngson, an oil analyst at Arbuthnot said in a note to clients.
[Editors' Note: The BP disaster has dominated the energy sector's headlines for months. And that's overshadowed the very real – and very dramatic – profit opportunities that investors can reap… if they know where to look.
Frequent Money Morning contributor Dr. Kent Moors is an advisor to six of the world's Top 10 oil companies and a consultant to some of the world's largest oil-producing nations. Dr. Moors just launched the Energy Advantage, a private advisory service that gives subscribers the benefit of his long experience and platinum Rolodex. For more information, please click here.]
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