BP Replaces Hayward, Quickens Asset Sales on Loss

BP Posts Record Loss as Hayward Quits After Oil Spill
Robert Dudley, attends the Boao Forum for Asia. Photographer: Nelson Ching/Bloomberg

BP Plc appointed U.S.-born Robert Dudley as chief executive officer and pledged to accelerate asset sales to as much as $30 billion after the Gulf of Mexico oil spill led to a record loss.

The second-quarter net loss of $17.2 billion compared with a profit of $4.39 billion in the year-earlier period. Dudley will take over from Tony Hayward on Oct. 1, the London-based company said in a statement today.

Dudley’s challenge will be to overcome cleanup costs and liabilities after the company booked a pre-tax charge of $32.2 billion related to the leak. BP is selling assets over the next 18 months, reducing investment and cutting the dividend to pay the bills after the spill wiped 45 billion pounds ($70 billion) off the company’s market value.

“Dudley is seen as a safe pair of hands,” said Colin McLean, who helps manage about $950 million at SVM Asset Management Ltd. in Edinburgh and sold all of his BP shares during the spill. “What I’ve been more reassured by is that they’re selling into quite a good market. BP is looking more attractive with that.”

Hayward faced public anger in the U.S. and criticism from lawmakers over his handling of the leak that was triggered by an April 20 explosion on the Deepwater Horizon rig, which killed 11 people. Dudley, 54, was born in New York and grew up in Mississippi, part of the Gulf Coast region suffering environmental and economic damage from the spill. BP on June 23 appointed him to manage its response to the leak.

Stock Performance

BP fell 2.6 percent to close at 406 pence in London. The stock is down 38 percent since the spill started.

“For the good of BP, especially in the U.S., it’s the right thing to step down,” Hayward said in a conference call with reporters today. He said BP mounted the world’s largest ever response to a spill and capping the well proved no small engineering feat.

“Whether we dealt with the politics appropriately I’ll leave others to judge,” he said.

BP returned to work on permanently plugging the well after a storm threat eliminated an opportunity to seal the gusher more securely by the end of this month. The so-called static kill will pump mud from the top of the Macondo well next week, National Incident Commander Thad Allen said July 25. That will be followed by mud and cement injections from the bottom using a relief well.

Slimmed Down

The three-month long spill has cast a cloud over the oil company’s future, with some analysts speculating BP could be broken up or taken over. At the very least, it’s likely to result in a slimmed down company following the asset sales.

The company is reducing its debt to as little as $10 billion in the next 18 months after cutting it by $5 billion to $23.2 billion last quarter from a year earlier. BP’s capital expenditure will be about $18 billion this year and next, it said today, sticking to the lower target laid out last month.

Chairman Carl-Henric Svanberg said that BP isn’t the sole responsible party for the accident in an interview with Bloomberg Television today. The company will “vigorously” pursue its partners on the well for costs, Hayward said in a conference call with journalists. The partners include Anadarko Petroleum Corp. and Mitsui Oil Exploration Co.

Asset Sales

Svanberg agreed with President Barack Obama on June 16 to set up a $20 billion fund to pay for cleanup and liabilities.

BP said last week that it sold $7 billion of assets in the U.S., Canada and Egypt to Apache Corp. It also 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.

“Asset sales of $30 billion won’t fundamentally change the company,” said Svanberg. BP estimates the value of all its assets at about $250 billion, and the sale of the assets may “give us a chance to come back quickly to dividends,” he said.

Still, the company won’t be in a hurry to resume paying its $10 billion annual dividend, which it suspended for the first three quarters of this year.

“No one’s saying we’re going to rush back into the same dividend philosophy or character of the company,” said Dudley on a conference call with investors. “That’s what we’ll do over time.”

New York oil futures averaged $78.05 a barrel in the second quarter, an increase of 31 percent from a year earlier, boosting revenue for oil producers.

Underlying Profit

In the first quarter, BP’s profit more than doubled from a year earlier. In March, the company agreed to buy $7 billion of assets from Devon Energy Corp. in the Gulf of Mexico, Brazil and Azerbaijan.

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.

“The underlying performance should be quite okay in a commodity price environment that’s been supportive in the quarter and refining margins that held up well,” Dirk Hoozemans, who helps manage the equivalent of $19.4 billion at Rotterdam-based Robeco Group and doesn’t hold BP shares, said before the report was released.

Even if most of BP’s global operations are profitable, Dudley, who will be the first American head of the former U.K. state oil company, will need to convince politicians BP should be allowed to keep drilling in the U.S. The Gulf is home to about 25 of the 40 production projects BP plans by 2015.

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