Deepwater Horizon Update July 27, 2010
Hayward steps down, BP released the following statement today:
BP today announced that, by mutual agreement with the BP board, Tony Hayward is to step down as group chief executive with effect from October 1, 2010. He will be succeeded as of that date by fellow executive director Robert Dudley.
BP chairman Carl-Henric Svanberg said: "The BP board is deeply saddened to lose a CEO whose success over some three years in driving the performance of the company was so widely and deservedly admired.
"The tragedy of the Macondo well explosion and subsequent environmental damage has been a watershed incident. BP remains a strong business with fine assets, excellent people and a vital role to play in meeting the world's energy needs. But it will be a different company going forward, requiring fresh leadership supported by robust governance and a very engaged board.
"We are highly fortunate to have a successor of the calibre of Bob Dudley who has spent his working life in the oil industry both in the US and overseas and has proved himself a robust operator in the toughest circumstances," Svanberg said.
Bob Dudley (54) is a main board director of BP and currently runs the recently-established unit responsible for clean-up operations and compensation programmes in the Gulf of Mexico. He joined BP from Amoco after the merger of the two companies in 1998. He was president and CEO of BP's Russian joint venture, TNK-BP, until 2008.
"I am honoured to be given the job of rebuilding BP's strengths and reputation but sad at the circumstances. I have the greatest admiration for Tony, both for the job he has done since he became CEO in 2007 and for his unremitting dedication to dealing with the Gulf of Mexico disaster," Dudley said.
"I do not underestimate the nature of the task ahead, but the company is financially robust with an enviable portfolio of assets and professional teams that are among the best in the industry. I believe this combination - allied to clear, strategic direction - will put BP on the road to recovery."
On his appointment, Dudley will be based in London and will hand over his present duties in the US to Lamar McKay, chairman and president of BP America. "In this change of roles, I particularly want the people of the Gulf Coast to know that my commitment to remediation and restitution in the region is not lessened. I gave a promise to make it right and I will keep that promise," he said.
Hayward will remain on the BP board until November 30, 2010. BP also plans to nominate him as a non-executive director of TNK-BP.
Commenting on the decision to step down, Hayward said: "The Gulf of Mexico explosion was a terrible tragedy for which - as the man in charge of BP when it happened - I will always feel a deep responsibility, regardless of where blame is ultimately found to lie.
"From day one I decided that I would personally lead BP's efforts to stem the leak and contain the damage, a logistical operation unprecedented in scale and cost. We have now capped the oil flow and we are doing everything within our power to clean up the spill and to make restitution to everyone with legitimate claims.
"I would like to thank all of the BP people involved in the response and the many thousands of others along the Gulf Coast who have joined us in our efforts.
"I believe the decision I have reached with the board to step down is consistent with the responsibility BP has shown throughout these terrible events. BP will be a changed company as a result of Macondo and it is right that it should embark on its next phase under new leadership," Hayward said.
"I will be working closely with Bob Dudley over the coming months to ensure a smooth transition. It has been a privilege to serve BP for nearly 30 years and to lead it for the last three. I am sad to leave so many fine colleagues and friends who have helped this great company to achieve so much over the years. I am sorry that achievement has been overshadowed by the tragedy in the Gulf of Mexico."
BP said that under the terms of his contract Hayward would receive a year's salary in lieu of notice, amounting to £1.045 million.
BP announced today that it has taken a pre-tax charge of $32.2 billion for the Gulf of Mexico oil spill, including the $20 billion escrow compensation fund previously announced.
The company will also tell analysts later today that it plans to sell assets for up to $30 billion over the next 18 months, primarily in the upstream business, and selected on the basis that they are worth more to other companies than to BP. This portfolio high grading will leave the company with a smaller but higher quality Exploration & Production business.
Meanwhile BP continues to access new business opportunities, with new agreements in Azerbaijan, Egypt, China and Indonesia announced since the end of the first quarter.
The company said it was taking a prudent approach to managing the balance sheet and its financial liquidity, in order to ensure that BP has the flexibility to meet all of its future financial obligations. As a result it plans to reduce its net debt level down to a range of $10-$15 billion within the next 18 months, compared to net debt of $23 billion at the end of June. Group capital spending for 2010 and 2011 will be about $18 billion a year, in line with previous forecasts.
“With the leak now capped we have reached a significant milestone,” said Tony Hayward, group chief executive. “This provides a firm basis for moving forward to reshape the company. By disposing of assets worth more to others than to BP we can better align our strategic footprint with our global strengths.”
In reporting second quarter results, BP revealed that it is taking a charge of $32.2 billion to reflect the impact of the Gulf of Mexico oil spill, including costs to date of $2.9 billion for the response and a charge of $29.3 billion for future costs, including the funding of the $20 billion escrow fund.
“We expect we will pay the substantial majority of the remaining direct spill response costs by the end of the year. Other costs are likely to be spread over a number of years, including any fines and penalties, longer-term remediation, compensation and litigation costs,” Hayward said.
The company revealed the charge as it announced a headline replacement cost loss for the quarter of $17 billion. After adjusting for all non-operating items and fair value accounting effects, second-quarter underlying replacement cost profit was $5 billion compared to $2.9 billion in the second quarter of 2009.
“The costs and charges involved in meeting our commitments in responding to the Gulf of Mexico oil spill are very significant and this $17 billion reported loss reflects that. However outside the Gulf it is very encouraging that BP’s global business has delivered another strong underlying performance, which means that the company is in robust shape to meet its responsibilities in dealing with the human tragedy and oil spill in the Gulf of Mexico,” Hayward said.
Higher prices for oil and gas made up for slightly lower output and a loss in gas marketing and trading in Exploration & Production, while Refining & Marketing reported increased profits as a result of strong performance in the fuels value chains and the lubricants and petrochemicals businesses.
In Refining & Marketing the company continues to expect an annualised pre-tax performance improvement of over $2 billion, to be achieved over the next two to three years. BP’s underlying second quarter downstream result was the strongest since Q2 2006, when refining margins were more than double current levels, with the US business returning to profitability for the first time in over a year.
The company also gave more details of the strong financial position in which it faces its responsibilities. Second-quarter operating cash flow, excluding Gulf of Mexico oil spill costs, was $8.9 billion, up 31 per cent compared with the same quarter last year.
This higher operating cash flow enabled the group to reduce its net debt by $2.9 billion in the first half, despite payments being made in respect of the Gulf of Mexico oil spill. In addition, the company has lined up substantial additional bank borrowing facilities, all of which remain undrawn, has reduced cash outflow in 2010 by reducing capex and by cancelling the payment of further dividends this year, as previously announced.
“We remain confident in our ability to meet our obligations to those on the Gulf Coast of the United States, other impacted parties and all our stakeholders,” said BP Chairman Carl-Henric Svanberg. “Our shareholders have not received any dividends since the spill occurred. As we said last month, the Board remains strongly committed to the payment of future dividends and delivering long term value to shareholders. The Board will consider its position on future dividend payments at the time of issuance of the fourth quarter 2010 results in February 2011.”
Operations Continue: Subsea Source Control and Containment
On July 23, with the guidance and approval of the National Incident Commander (NIC) and the leadership and direction of the federal government, relief well activities at the MC252 well site were temporarily suspended because of potentially adverse weather associated with Tropical Storm Bonnie. Following the passing of the weather system, the DDIII drilling rig returned to the relief well site on July 24 and is taking steps necessary to reconnect with the well and resume drilling operations. These steps are expected to take a number of days.
The DDII drilling rig is moving back into position, and will take steps necessary to reconnect to the second relief well. However, work on the second relief well has been suspended so as not to interfere with the first.
The MC252 well has been successfully shut-in for integrity testing since July 15.
Oil spill legal mess likely one of costliest ever
So far, at least 300 federal lawsuits have been filed in 12 states against BP and the other three main companies involved in the April 20 explosion aboard the Deepwater Horizon drill rig, which triggered the nation's worst-ever offshore oil spill. Virtually every lawsuit names as defendants BP, rig owner Transocean Ltd., well contractor Halliburton Co. and Cameron International, maker of the well's failed blowout preventer.
The plaintiffs make up the entire mosaic of the Gulf Coast: shrimpers and oystermen, charter boat captains, beach resort and condo owners, restaurants and bars, seafood suppliers, bait and tackle shops, even tourist attractions like Key West's Ripley's Believe It or Not museum. Most of the parties claim severe economic losses from the oil spill, ranging from the fish they can no longer catch to tourists who never arrived to rent rooms.
There are also a few wrongful death and injury lawsuits filed, mainly in state courts, by workers who survived the Deepwater Horizon explosion and relatives of some of the 11 men who died. And some BP investors also have sued, claiming the company's mistakes led to a sharp drop in its stock price.
A federal judicial panel is meeting Thursday in Boise, Idaho, to consider whether to consolidate some or all of the lawsuits for pretrial decisions before a single judge, a development that most observers say is a foregone conclusion. BP and the other companies favor federal court in Houston — near their major U.S. operations — while a majority of plaintiffs' attorneys have suggested New Orleans, closer to the broken well and to many of the hardest-hit victims. Courts in Florida, Mississippi and Alabama also are being suggested as venues.
It's difficult to estimate potential damages that BP could be forced to pay, or what shape a settlement might take. But legal experts say BP alone is looking at some $2 billion in costs just to defend itself, with the $20 billion fund set aside to pay oil spill claims and cleanup costs potentially not enough to foot the entire bill.