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UK: Chief's Departure Ignites Criticism of BP's Structure and Environmental Policies

by Heather TimmonsNew York Times
January 16th, 2007

 Is the oil and gas giant BP that John Browne built fundamentally flawed?

That is the question that analysts and investors are starting to ask as they re-examine BP and the legacy of Mr. Browne, who announced Friday that he was stepping down sooner than expected. Mr. Browne was widely lauded by investors and analysts as one of Britain's and the oil industry's best executives, but a series of problems at BP and the timing of his departure is rapidly feeding criticism of the company's underlying structure and practices.

Perhaps most damning, some have started to question whether BP under Mr. Browne was actually the environmentally friendly company that he said it was. BP, which started using the phrase ''Beyond Petroleum'' in advertising in 2000, may have been so cost-focused that it created environmental problems, they say.

''There was a disconnect between the public emphasis on environmental sustainability'' and the company's high emphasis on keeping costs down, said Amy Jaffe, the associate director of Rice University's energy program, who has monitored the company since the 1980s.

BP had a ''fundamental management problem'' in communicating which value was the more important one, Ms. Jaffe said. It rewarded managers for cutting costs but did not find any way to reward them for protecting the environment, she said.

BP's rivals in the oil and gas industry were embittered by the amount of publicity BP sought for its attention to the environment when its rivals had better operational practices, Ms. Jaffe said. In August, BP shut its pipeline in Alaska after corrosion caused it to leak.

Others are critical of the structure of the company, which has a market value of nearly $209 billion. A ''radical rethink'' of the business model that Mr. Browne set up in the 1990s may be necessary, analysts for Sanford Bernstein & Company said Monday. Unlike its better-performing peer Exxon Mobil, BP has a decentralized management structure, which gives heads of units independence in their decision-making, and is organized around groups of assets or fields broken down geographically. Exxon, in contrast, is organized around themes like exploration, development and production.

BP's structure ''which had been fit for the purpose of cost-cutting and for merger activities during the 1990s is no longer fit for the purpose of growth implementation and the delivery of the current strategy today'' and should be changed, Sanford Bernstein analysts said.

Mr. Brown's successor, Tony Hayward, should realign the company, with strong heads of operations that have responsibility for setting strategy and targets worldwide in certain themes, the analysts said.

Merrill Lynch analysts said Monday that they ''would not rule out'' a larger reshuffling of BP's top team, in light of the recent operational issues in major parts of the business.

BP declined to comment on the criticism. More is certainly on the way.

On Tuesday, James Baker, the former United States secretary of state, will release the results of a detailed investigation into the company that began after an explosion at BP's Texas refinery killed 15 people in 2005. The investigation, which includes interviews with BP's top executives, including Mr. Browne, is expected to be critical of the way that BP dealt with health and safety issues.

Another investigation touched off by the Texas refinery explosion is due in March, from the United States Chemical Safety Board. Already the board found that BP knew about problems before the explosion but did not fix them.

BP's market value has grown fivefold under Mr. Browne through a series of acquisitions that helped jump-start a consolidation boom in the oil industry. While the deal-making was a good strategy, sometimes the deals themselves were not properly executed, Ms. Jaffe said.

BP bought Amoco in 1998, taking on one of the ''most efficient and effective producers in the business,'' Ms. Jaffe said. But it failed to obtain all the benefits from the deal that it could, she said. ''The problem with the implementation is they fired all Amoco people,'' she said.




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