Tony Hayward Gets a Life Post-BP as Investors Write Blank Check
Hayward says he was aboard a freezing oil platform in the middle of the North Sea as the rig’s drill struck oil. The Miller field was the first major find for Hayward, then a 25- year-old geology Ph.D. from the University of Edinburgh. It became one of BP’s most productive North Sea assets, yielding 345 million barrels of oil over its lifetime, Bloomberg Markets magazine reports in its October issue.
The worst moments of Hayward’s BP career are far better known. On April 20, 2010, BP’s Macondo well in the Gulf of Mexico exploded, killing 11 workers on the Deepwater Horizon oil platform and unleashing the worst offshore oil spill in U.S. history.
The disaster erased more than $100 billion from BP’s market value in two months, and the company took a $41 billion charge against income to cover fines, cleanup costs and compensation to Gulf fishermen and property owners.
Macondo also cost Hayward his job as BP’s chief executive officer following a string of public relations fiascoes that included his saying “I would like my life back” to a group of reporters while touring an oil-slicked beach in Louisiana.
While Hayward’s reputation in the U.S. is as fouled as some Gulf Coast beaches were after the spill, he still is welcome in the oil patch. “People know he was the scapegoat, he was the sacrificial lamb,” says Fadel Gheit, an oil and gas analyst at Oppenheimer & Co.
Now, Hayward, 54, is getting his life back. A year after leaving BP, he’s again at the helm of a publicly traded company. He teamed up with financier Nathaniel Rothschild, scion of the banking family, to create Vallares Plc, a shell company that raised 1.33 billion pounds ($2.15 billion) through an initial public offering on the London Stock Exchange on June 17.
Hayward also serves on the board of TNK-BP International Ltd., BP’s fractious Russian joint venture. Glencore International Plc, the mining and commodities-trading company that went public in London and Hong Kong in May, raising $10.3 billion, named him its senior nonexecutive director.
And Hayward advises AEA Investors LLC, a New York-based private-equity firm that manages $5 billion in investments, and Numis Securities Ltd., a London investment bank, on energy companies.
The International Energy Agency forecasts an average price of $103 per barrel during the next five years compared with $79 per barrel for the past five, and experienced executives such as Hayward are in demand.
Hayward says he hopes to re-create the excitement he felt in the early years of his BP career at Vallares, which is seeking oil industry acquisitions in emerging markets.
“I am a geologist, and that remains very much in my blood,” he says in an interview. “I love the exploration end of the business.”
As he works to restore his reputation, Hayward may be courting new risks. Vallares, the company he founded with Rothschild, 40, is a so-called blank-check company: It had no assets when it went public. Such firms have stirred controversy by allowing less-than-transparent emerging-markets companies to obtain stock exchange listings in London and the U.S.
Given BP’s environmental record, environmentalists are snickering about Hayward’s role at Glencore, whose prospectus included reports of water pollution, hazardous dust and toxic clouds at its mines. Hayward was named to the Glencore board’s health, safety and environment committee.
“It is ironic in many ways,” says Craig Bennett, director of policy and campaigns at Friends of the Earth UK.
Charlie Kronick, senior climate adviser for Greenpeace U.K., says, “These are industries that are increasingly operating at the edge, and when you operate at the edge, there is a good chance you’ll fall off.”
Hayward says Vallares plans to target companies in such places as Russia, Latin America, Africa and the Middle East. He says the most likely candidates are privately owned, family- controlled companies that lack the ability to raise capital or attract talent.
“For an emerging-market company, privately owned, to come to the London market is a three- or four-year process with no guarantee of success,” Hayward says. “So to have the opportunity to merge with the sort of thing we’ve created can be very attractive.”
Joining Hayward and Rothschild are Julian Metherell, 48, former co-head of U.K. investment banking at Goldman Sachs Group Inc. (GS), and Tom Daniel, 46, a fund manager who helped Rothschild start an earlier company. The four partners have committed £100 million of their own money to the project.
In reverse mergers, a shell company uses its stock to buy an operating company. It winds up with the assets, but the target company’s shareholders gain a controlling interest in the former shell company’s shares.
In the U.S., the Securities and Exchange Commission has warned that reverse mergers allow foreign businesses to bypass the usual listing requirements.
“It only makes sense to go the reverse-merger route if there is a reason you could not go the traditional route,” says William Sjostrom, a professor at the University of Arizona’s law school who has written about blank-check companies and reverse mergers. “That means an underwriter looked under the hood and said no, so you are getting less-quality companies.”
Vallares is modeled on Vallar Plc, a blank-check company Rothschild founded with James Campbell, a veteran mining executive, and took public on the London Stock Exchange in the summer of 2010, raising £707 million. In its prospectus, Vallar said only that it intended to acquire a company in base metals, iron ore or coal mining.
“There are not many people in the world who can raise a billion dollars and say, ‘Hey, we’ll tell you what it’s for later,’ but Nat Rothschild is one of them,” says Richard Knights, an analyst at Liberum Capital Ltd. in London, who follows the company.
Bakrie’s Door to Listing
Four months after going public, Vallar acquired stakes in two closely linked Indonesian coal-mining companies in a $3 billion reverse merger. The deal made Bakrie Group, run by the Indonesian family of the same name, Vallar’s largest single shareholder, with a 54.6 percent stake valued at more than $1.8 billion.
PT Bumi Resources, the Bakries’ coal-mining company, thus became the first Indonesian company to in effect obtain a listing on the London Stock Exchange. In July, Vallar changed its name to Bumi Plc.
Investor interest in Hayward’s Vallares was so intense that the company raised £328 million more than planned. For Hayward, it was a heartening vote of confidence after his ignominious departure from BP. “We are quite pleased with the support we’ve received,” he says. Schroders Plc, the British asset management firm, bought 6.5 percent of Vallares shares, while Lloyds Banking Group Plc bought 6 percent, according to company filings.
Investors in London and New York are showing a growing appetite for blank-check companies. Last year, there were seven such IPOs in London, up from none in 2009.
As of mid-August, there have been four this year, including Justice Holdings Ltd., a shell company backed by Pershing Square Capital Management LP’s Bill Ackman, among others. The company raised £900 million in February, without even specifying which industry it would focus on for an acquisition.
In the U.S., 14 such companies have gone public as of mid- August, compared with seven in all of 2010 and just one in 2009, according to SPAC Investments Ltd., a research firm based in Turks and Caicos that specializes in blank-check companies.
With his focus on emerging markets, Hayward risks tying up with a company that isn’t used to Western standards of governance.
Among the companies Vallares has begun discussions with about an acquisition is Genel Enerji AS, a Turkish company with oil fields in northern Iraq, according to a person familiar with the matter.
The British Financial Services Authority fined Genel CEO Mehmet Sepil £967,000 in February 2010 for insider trading involving a previous attempt to sell the company to U.K.-based Heritage Oil Plc. (Sepil admitted making the trades but said he didn’t know doing so was illegal, according to a company statement.) Vallares has also looked at buying stakes in Russian oil companies Bashneft OAO (BANE) and NK RussNeft OAO, both partially owned by AFK Sistema, the company controlled by billionaire Vladimir Evtushenkov. Vallares declined to comment on the potential deals.
Hayward also should be concerned about potential pitfalls at Glencore, says Karina Litvack, head of governance and sustainable investment at F&C Asset Management Ltd. in London.
“The company faces a challenge in gaining the trust of the outside world in terms of its governance and sustainability record,” Litvack says. Conflicts of interest could arise between Vallares and Glencore because both companies are looking for investments in the same sector, she says.
Link to Glencore
In addition, Rothschild is a major Glencore bondholder as well as a friend of Glencore CEO Ivan Glasenberg. “Nat Rothschild is friendly with half the world,” Hayward says with a chuckle. “If there ever was a conflict, I would recuse myself, obviously.” Rothschild declined requests for an interview.
Hayward’s background contrasts with that of his business partner. The eldest of seven children, Hayward was born in Slough, an industrial town just west of London. His father was a midlevel manager in a textile mill; his mother, an administrator at Britain’s National Health Service. He attended state schools and earned his undergraduate degree from Aston University in Birmingham.
Hayward’s big break at BP came in 1990, when John Browne, the company’s head of exploration and production and later its CEO, tapped him to be a Turtle -- a name derived from the cartoon Teenage Mutant Ninja Turtles. Selected in pairs each year, the Turtles served as Browne’s aides-de-camp, standing at his elbow as he negotiated multibillion-dollar deals as well as making sure that his office was stocked with El Rey del Mundo Cuban cigars and bottles of Montrachet.
Fast Track for Turtles
After this apprenticeship, the Turtles were fast-tracked through the BP hierarchy. Hayward was steadily promoted, becoming chief of BP’s exploration and production division, the company’s main profit driver, in 2003.
In 2007, when Browne resigned after becoming embroiled in a scandal involving his personal life, the board unanimously chose Hayward to replace him. Compared with the Cambridge-educated Browne, Hayward was perceived by colleagues as down-to-earth and self-effacing, several people who worked with him said. He turned Browne’s office suite into a conference room and replaced the modern art adorning the hallways with photographs of BP service stations, oil rigs and refineries.
The difference was more than cosmetic.
“He was very focused on doing business and thought BP was too focused on being political and going into the outside world,” Nick Butler, a former group vice president at BP, says of Hayward. “It was a mistake: A company BP’s size has to be political, with a small p.”
Browne had concentrated on megamergers and branding BP with his “beyond petroleum” campaign. Toward the end of his tenure, though, BP was plagued by costly project delays and safety and maintenance flaws. A blast at BP’s refinery in Texas City, Texas, killed 15 people and injured more than 170 in 2005.
That same year, BP’s Thunder Horse production platform in the Gulf of Mexico developed a severe list due to a defective control system. In 2006, BP was forced to stop pumping oil from its Prudhoe Bay field in Alaska after oil leaked from a corroded pipeline.
Hayward closed the separate office Browne had established for BP’s renewable-energy division and pushed BP into Canadian oil sands. He fired 6,500 workers, or about 10 percent of BP’s workforce. In speeches and interviews, Hayward said he wanted to improve BP’s safety record and strive for operational excellence.
BP’s share price on the London Stock Exchange rebounded 16 percent from the time Hayward became CEO through April 20, 2010 -- the day the Deepwater Horizon exploded.
‘Hit by a Bus’
The disaster thrust Hayward into a role for which he was ill prepared, according to a friend who also worked at BP. Hayward was uncomfortable speaking in front of crowds and on camera, says the friend, who asked not to be named. Hayward himself struck a philosophical pose about the disaster.
“Sometimes you step off the pavement and get hit by a bus,” he told reporters while announcing his resignation. Hayward refused to answer questions about his departure for this story.
Whether Vallares is a success will depend on which company it acquires. Oil fields have been garnering sky-high prices as national oil companies from China, India and Russia expand. In October 2010, China Petroleum & Chemical Corp., known as Sinopec, purchased 40 percent of the Brazilian arm of Spanish oil company Repsol YPF SA for $7.1 billion -- more than $2 billion above analysts’ consensus estimate of the stake’s value.
‘Froth in the Market’
“He ought to be very careful what he buys at this point,” says Iain Armstrong, an oil and gas analyst at U.K. investment adviser Brewin Dolphin Holdings Plc. “There’s a little bit of froth in the market.” Even after August’s market declines, he says, emerging-markets oil companies aren’t bargains and slowing world economies mean that they’re riskier than before.
Hayward says he’s confident that Vallares will find an acquisition at a fair price. “We are not going to get involved in cash auctions,” he says.
Hayward isn’t the first oil executive to try using an investment vehicle to remake a battered reputation. Walter van de Vijver resigned as head of exploration and production at Royal Dutch Shell Plc (RDSA) in 2004 after the company admitted to lying about its reserves. A London-based energy investment fund that van de Vijver then founded flopped.
A second company, Delta Hydrocarbons BV, secured private- equity backing and bought into oil fields in the North Sea, Hungary and Argentina before van de Vijver was forced out in a boardroom coup in 2009.
The ghost of Macondo still dogs Hayward. In May, travelers muttered about the disaster as they watched Hayward being escorted through an immigration line at New York’s Kennedy Airport, according to a Bloomberg Markets reporter who saw the incident.
He’s a defendant in two consolidated class-action lawsuits in the U.S. resulting from Macondo, which could cost BP $6 billion, according to a Citigroup Inc. estimate. U.S. Representative Michael Burgess, a Texas Republican who ripped into Hayward on June 17, 2010, during Hayward’s Congressional testimony on the spill, says, “I don’t think the time is right for rehabilitation.”
Yet the demand for experienced oil and gas hands is such that reincarnation is always possible. In 2009, Indian energy company Reliance Industries hired van de Vijver to run its overseas exploration and production business. So, win or lose with Vallares, Hayward is likely to have plenty more chances to get his life back.
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