BP, a company with a split personality

It is six years since a prominent newspaper dubbed BP’s chief executive the “most hated and clueless man in America” and in that time the company has paid $62 billion in fines and compensation for its role in the Macondo Gulf of Mexico oil spill.

Perhaps surprisingly, much of the top leadership that visited the White House in 2010 to brief President Barack Obama remains in charge of the company. Among them are Bob Dudley, the then-director for Asia and the Americas and now CEO, together with Lamar McKay, head of BP America at the time and now Dudley’s deputy.

More striking is the extent to which BP is catching up with its competitors, but questions remain about the company’s future direction.
When Dudley took up the chief executive’s role in 2010 some saw him as a short-term crisis manager, called in to appease angry US authorities. Six years on, whether and how BP sustains its dual role, as a globe-trotting buccaneer, searching out resources, and as a responsible manager of legacy assets, remains one of the industry’s more intriguing questions.

BP has something of a split personality. On the one hand there is a focus on doing what it does best—drill, mainly for oil, in stable, preferably free-market locations such as the US and North Sea—and a resistance to “non-core” activities such as renewables.

Its investment in gas has been more limited than its competitors’, especially Shell. Dudley, visiting Istanbul last week, reiterated plans to increase the share of gas in BP’s production, but as with other majors, that share has actually fallen during the price crash. Oil accounted for 55% of BP’s upstream production last year, compared with 52% a year earlier.

Maintaining a tight focus has served BP well since the Macondo debacle and the nine-month suspension of dividend payments that followed. The company won praise for the speed with which it sold off swaths of non-core businesses.

Despite slashing its asset base, BP’s US oil production is now a third higher than Shell’s, at over 400,000 b/d, and far outstrips Total’s. Its global oil and gas production, at 2.1 million b/d of oil equivalent, is also not too shabby. Its debt gearing—25% at the end of June— is nothing to boast of, but similar to Total’s and lower than Shell’s.

BP’s troubles in the Gulf of Mexico also encouraged a retrenchment and efficiency drive in its UK heartland in the North Sea, which has paid off in higher production. It has used financial innovation to limit some of the risk of offshore operations—an example is its recent decision to spin off its Norwegian assets into a joint venture with Det Norske. The need to focus was a message Dudley drove home in Istanbul, saying that “for all oil companies right now in general we’re all short of capital. We have to use it extremely carefully.”

An appetite for risk part of BP’s heritage

But there is another side to BP’s personality, one that is more buccaneering and relies on personal relationships with senior politicians, evident in its immersion in the politics of the Middle East and former Soviet Union.

It is an approach, exemplified in the figure of one-time chief executive John Browne, that is led more by geopolitics and contrasts with the business school ethos that helped form Dudley and McKay. It has made BP synonymous with the oil industry of one country, Azerbaijan, and has meant maximum engagement with Russia, oil giant Rosneft and its chief executive Igor Sechin, unlike ExxonMobil and Shell’s more discreet presence in the Russian far east at Sakhalin.

However there have also been missed opportunities and failures in such politically riskier climes.

One has been BP’s failure to renew its ADCO concession in the UAE. Total, by comparison, gained over 150,000 b/d of production when it signed a new ADCO contract last year. And the contortions BP went through to extricate itself from joint venture TNK-BP, just after Macondo, were for a time an embarrassment.

In Iraq, some have been surprised at BP’s success in developing the Rumaila field, but again the risks still associated with Iraq, spanning politics, corruption, violence and pollution, are obvious. Whether the company will be willing to take on those kind of relationship risks in the future is unclear.

Recent plans by BP to help transfer the shale revolution to Argentina, reminiscent perhaps of a similar failed effort by Shell in China, could prove a niche opportunity, or a dangerous distraction.

platts