7/27/2010
By Conley Turner, Research Analyst

More Articles by Conley Turner

Though BP is the world's third largest energy company, its recent history in the U.S. has been punctuated by a series of missteps.  From the 2005 Texas City refinery accident, in which 15 people were killed, to the current crisis in the Gulf of Mexico, the company replaced its CEO, racked up hundreds of safety and other violations and has been hit with millions of dollars in fines.  As a result, the departure of current CEO Tony Hayward's in October would represent the second major management shakeup in the past five years.  His exit would, however, herald a new chapter in BP's history.

As fate would have it, Hayward's ousting parallels his entering CEO role merely two years prior- amid a significant amount of controversy. Then CEO Lord Browne had a falling out with the board's chairman at the time, Peter Sutherland.  The catalyst for the disagreement was the number of accidents that BP had experienced in its operations around the world, the Texas City accident.  Add a declining stock price to the whole fiasco, something had to give.

Lord Browne was subsequently unceremoniously shown the door and replaced by Hayward at BP's helm.  Though having little in the way of time to create a legacy, he was instrumental in increasing the company's bottom line. However, the safety element appeared to take a back seat.  It is unclear whether this was due to Lord Bowne's lasting legacy, but little in the way of progress was made during his tenure.

In his handling of the Gulf spill disaster, Hayward's penchant for gaffes became painfully obvious and ultimately proved to be his undoing.  Neither a politician nor a Mark Anthony style orator, his responses to questions by the media and during live congressional hearings made him come across as aloof and not contrite.

In fact, the coup de grace was his unfortunate utterances that he wanted to "get his life back." Hayward emerged rightly or wrongly as the personification of the oil spill disaster.   The stock price was more than cut in half and reached lows not seen in 20 years.  As with the case of Lord Browne, something had to be done, and the Hayward's exit ballet had begun.

Enter Robert Dudley, a native son of the Gulf region, tapped to be BP's public face for day to day operations of the disaster and responsible for conducting damage control.  With 40 percent of revenues being generated from BP's U.S. operations and public sentiment of the company severely degraded, another management shakeup was in order.  Dudley subsequently preempted Hayward, who in turn had been afforded a golden parachute and a face saving reassignment ... to Siberia.  In a project between BP and the Russia, Hayward will likely be performing functions in a non executive capacity.

This is a likely turning point for BP.  The announced change in leadership represents an opportunity for BP to make things right in this most important market for the company.   While it is certain that there will be an avalanche of litigation ahead, it is also certain that the company has been preparing for this.  To this end, assets have been sold in order to accomplish what will be a very long cleanup process and to fund the claims that has and will be filed against it.  BP will emerge from this crisis.  The Macondo well has already stopped spewing oil into the Gulf and is on the verge of being sealed through relief wells.

The amount of oil being captured by the skimmers has decreased precipitously from even a few weeks ago, and to this end, the Coast Guard and BP could realistically scale back the number of boats and people engaged in the cleanup effort.
One of the key factors determining how this story emerged has been the wall to wall media coverage.   Eventually, the degree of coverage will ebb, and news outlets will find other stories on which to focus.  It always happens. They always move on.
In a recent survey conducted by the Pew Research Center's Project for Excellence in Journalism, the percentage of coverage devoted to the spill has now declined to under 17% of coverage.  While this is still a significant amount, it is way below the 44% attributed to the leak in the middle of June.

All in all, BP desperately wants to get past this incident, and getting Tony Hayward out of the way appears to be a step in the right direction. The company cannot survive in the manner in which it currently operates; as such, there is a strong incentive to get things done.  With the incoming leadership, a new era could be in the making for BP.

Conley Turner
Wall Street Strategies