Road to New Confidence at BP Runs Through U.S.


LONDON — Robert Dudley, who is expected to be appointed as BP’s chief executive at a board meeting here Monday night, faces a long road to restore confidence in the embattled company — particularly in the United States, the biggest part of BP’s business.

Mr. Dudley, an American who has been with BP since it bought Amoco in 1998, faces myriad challenges: repairing damaged relations with federal and state authorities, dealing with the cost and legal consequences of the spill, bolstering morale among BP employees and, perhaps critically, winning back investors.

Ultimately, his job can be summed up simply as ensuring that BP survives its latest crisis and finds a way to move beyond it.

“I can’t think of any new chief executive of an oil company stepping into a more complicated situation,” said Daniel Yergin, the chairman of IHS Cambridge Energy Research Associates. “BP is going to be in a rebuilding mode, and the aftermath of the spill will go on for a long time.”

Mr. Dudley, whose ascension is expected to be announced on Tuesday, succeeds Tony Hayward, who is resigning from the job he has held since 2007. In recent weeks, Mr. Hayward, in conjunction with directors, had concluded he could no longer effectively lead the company after he came under criticism in the United States for his handling of the Deepwater Horizon accident in the Gulf of Mexico.

Few seemed surprised that BP, which was once partly owned by the British government, would pick an American for the first time in its history to lead the London-based company. It was a recognition that dealing with the aftermath of the spill would be the new executive’s top job for the foreseeable future. It is also a recognition of the importance of the United States, especially deepwater wells in the Gulf of Mexico, to BP’s business.

The company is the largest oil and gas producer in the United States, and its global exploration and production business is run from Houston. Americans account for about 40 percent of its employees and shareholders.

BP’s operations in the United States grew out of its initial partnership with Sohio, or Standard Oil of Ohio, when it discovered oil in Alaska in the 1960s. BP eventually acquired Sohio in 1987 and greatly expanded its American presence after it bought Amoco in 1998 and Atlantic Richfield, also known as Arco, in 2000. BP retired the Amoco name after rebranding all its service stations as either BP or Arco.

In the United States, BP operates Alaska’s biggest oil field, Prudhoe Bay, and is the largest shareholder in Alyeska, the company that operates the 800-mile Trans-Alaska Pipeline System. It owns five refineries, including one in Texas City, Tex., that is among the largest in the nation. It is the biggest producer of oil and natural gas in the Gulf of Mexico, where it accounts for about a third of production. The company has also been expanding its shale gas production in the United States through acquisitions and partnerships.

“It’s quite depressing to think that you need an American chief executive to resurrect BP in the U.S., but the sentiment there has just gone too far in one direction,” said Will Riley, a fund manager at Guinness Asset Management in London, which owns BP shares. “The announcement of the sale of non-U.S. assets showed that they seem to believe that they have a future in the United States.”

Mr. Dudley will have to ensure that BP is still allowed to drill new wells in the gulf. Some members of Congress are seeking to limit the sale of new leases to any company with a bad safety record — a provision seen as specifically aiming at BP.

“We hope that Bob Dudley continues to be a hands-on chief executive and that he would potentially resurrect BP’s exposure to deepwater, which is hugely important to BP’s strategy,” Mr. Riley said.

The executive transition is occurring as BP prepares to unveil its second-quarter financial results on Tuesday, including its provisions for the costs of the spill. Analysts’ estimates of the final bill for BP range from $30 billion to $60 billion. Investors expect that BP will provide information on its own estimates of various costs.

“The board must be saying now, ‘We’ve got to start rebuilding the reputation of the company,’ ” said Peter Hitchens, an analyst at Panmure Gordon in London.

Shareholders welcomed the change in management, an early sign perhaps that investors, too, considered Mr. Hayward to be damaged goods.

BP’s shares were up about 5 percent in midday trading Monday in New York. The company has lost about 35 percent of its market value since the April 2o explosion of the Deepwater Horizon, although shares have rebounded from their lows a few weeks ago.

Some investors said the departure of Mr. Hayward would do little to solve the oil company’s immediate problems: shutting the gulf well permanently and limiting the related liabilities. No oil has been gushing into the gulf since BP managed to install a new cap 10 days ago, but the company is still working to drill a relief well to entomb the doomed well, a permanent fix that is still weeks away.

BP must also deal with numerous federal investigations into its responsibility in the explosion of the drilling rig, which killed 11. Thousands of claims from gulf residents and businesses affected by the spill have also been filed, as have scores of lawsuits.

So far, BP has spent about $4 billion on the spill, mainly to cap the gushing well. Under pressure from the White House, it agreed to set up a $20 billion fund to compensate victims of the oil spill. But its liabilities could mount if it were found to be negligent.

“The underlying challenges remain and the big unknown is how long the litigation drags on for,” said Richard Hunter, head of British equities at Hargreaves Lansdown. “Hayward’s departure might be helpful from a press relations and political perspective, but there is no doubt that the new chief will have his work cut out for him.”

Mr. Hayward’s departure was seen as inevitable when he stepped back from the spotlight last month after a series of embarrassing public missteps. BP appointed Mr. Dudley, who grew up in Mississippi, to deal with its spill response operations and serve as the company’s public face in the United States.

Mr. Dudley, who was born in Queens, N.Y., grew up in Hattiesburg, Miss., about 80 miles north of the gulf coast and spent summers in Gulfport and Biloxi. He has said he was shocked by the damage caused by the spill that he saw when he visited the region in June.

Still, Mr. Hayward was well liked by many investors here until the explosion in the gulf. He cut costs at the company and significantly improved its profitability.

Andrew Lynch, a fund manager at Schroders in London, said one priority should be to conduct a “thorough review of procedures within BP to make sure that the message of safety is clear among the people who are out on the drilling rigs.”

“Once all that is done, I don’t see why BP can’t be growing again,” Mr. Lynch said. “Deepwater is definitely the right place for them to be. The future lies in the more complex and technically difficult challenges offshore.”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
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