BP clears decks with big loss, new chief

BP has announced a loss for last quarter of US$17.15 billion (Dh62.99bn), easily the biggest in its history.

BP has announced a loss for last quarter of US$17.15 billion (Dh62.99bn), easily the biggest in its history. The loss was linked to a one-off $32.2bn charge the company took to cover anticipated payments related to its huge oil spill in the Gulf of Mexico, signalling that BP hopes to draw a line under the disaster. Carl-Henric Svanberg, the chairman of BP, said the charge was based on the board's belief the company was not grossly negligent with respect to the spill.

But Mr Svanberg said the "tragedy of the Macondo well explosion and subsequent environmental damage" had 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," he said. "But it will be a different company going forward, requiring fresh leadership supported by robust governance and a very engaged board."

He confirmed reports that Tony Hayward would step down as chief executive. Bob Dudley, the American head of BP's clean-up operations, is to succeed him as of October 1. "Sometimes events like this shake you to the core, the foundation, and you have two responses," Mr Dudley said yesterday. "One is to run away and hide; the other is to respond and really change the culture of the company and make sure all the checks and balances are there, just to make sure this does not happen again. "What's first on my agenda is to make sure we do [permanently] seal that well."

Mr Hayward said his decision to honour the board's request for him to step aside after a 28-year career with BP made yesterday "a very sad day" for him. "I love the company and everything it stands for. I thought long and hard about this course of action," he said. The oil spill would change BP forever, Mr Hayward said. "It's right that it should face the challenges ahead under new leadership." BP said it was "committed" to making a projected $13.9bn of spill-related payments this year.

To cover those costs and pay down debt, it will seek to raise up to $30bn from asset sales over the next 18 months, a threefold increase from its earlier target. "With the leak now capped we have reached a significant milestone," Mr Hayward said. "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.

"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." Meanwhile, the company is moving to reduce any costs unrelated to the spill. That includes cutting up to $15bn from its $30.6bn of long-term debt in the next 18 months.

The plan not only reflects BP's intention to slim down but also a big drop in its corporate credit rating due to the oil spill, which has made debt financing more expensive for the company. BP will emerge with "a somewhat smaller but more focussed exploration and production portfolio" after selling mainly upstream oil and gas assets, Mr Hayward said. BP shareholders have already taken reassurance from the company's recent deal to sell onshore holdings in Texas, New Mexico, western Canada and Egypt to the US oil producer Apache for $7bn, a price that analysts said did not reflect a "fire sale".

The world's second biggest private-sector oil producer is now seeking buyers for its assets in Colombia, Pakistan and Vietnam. Analysts suggest BP's Arctic assets in Alaska and north-west Canada are on the block, as well as its 60 per cent stake in Argentina's Pan American Energy and its interests in Venezuelan oil projects. BP is understood to want $10bn for its Alaskan assets, while analysts have valued its holding in the Argentine unit at about $9bn. China National Offshore Oil Corporation has been tipped as a potential buyer in Argentina.

Unlikely to be sold are BP's stakes in big energy projects in the countries that Mr Hayward recently visited - Russia, Azerbaijan, the UAE and Angola. BP has also signalled plans to hold on to most of its North African assets. It recently signed a $9bn agreement with Egypt and the German energy firm RWE to develop deepwater gas discoveries near the Nile Delta. It also announced it would soon start drilling its first exploration well off the Libyan coast.

BP and China National Petroleum Corporation recently said they would drill up to 150 development wells by the end of next year in Iraq's biggest oilfield. This suggests BP could focus even more of its resources on the MENA region as it disposes of predominantly western-hemisphere assets. It said it planned "organic capital spending", which excludes acquisitions, of $18bn annually this year and next.

BP said it was also committed to completing $4.4bn of acquisition payments to Devon Energy this year. In London yesterday, BP's stock climbed as high as 422 pence, its highest since the spill on April 20. It closed at 404 pence, down 2.9 per cent. tcarlisle@thenational.ae