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New CEO Dudley faces daunting task at BP

BP's incoming CEO Robert Dudley faces the daunting task of fixing a company saddled with huge liabilities, a broken culture, strained government relations and a badly damaged brand.
Image: BP Managing Director Bob Dudley poses for the media outside BP's headquarters in London
BP Managing Director Bob Dudley poses for the media outside BP's headquarters in London July 27, 2010. BP on Tuesday confirmed that chief executive Tony Hayward will quit and said it would take a charge as a result of the Gulf of Mexico oil spill amounting to $32.2 billion. Toby Melville / Reuters

Meet the new boss: a lot like the old boss, except for the accent.

Confirming days of media leaks, to succeed its hapless British chief executive Tony Hayward and begin the long process of rebuilding the oil giant's image after one of the nation's worst environmental disasters.

BP has been here before. Hayward himself was named to succeed a predecessor who oversaw a series of safety lapses that culminated in a blast at a refinery in Texas City, Texas, that killed 15 people in 2005.

Now, Dudley will embark on the clean-up of a company saddled with huge liabilities, a broken corporate culture, strained government relations and a badly damaged brand.

Dudley has already developed a high profile as the most senior American manager involved in the Gulf cleanup. Just hours after being officially named the incoming CEO, Dudley was busy reassuring customers, shareholders, employees and retirees that cleaning up BP’s image is a top priority.

"Strong" brand
“I think the BP brand globally is very strong,” he told CNBC. “There’s no question we’re going to be associated with this incident in the U.S. for a long time. But I think, it’s a bit aspirational, but down the road when people see, you know, what this company actually responded on a massive scale to a tragedy that is quite unusual, then the seeds of rebuilding our reputation and brand may be there. “

With the runaway well apparently capped, BP is now hoping to cap the massive financial liability brought by the spill. Dudley’s appointment as CEO came as the global energy giant posted a $17 billion net loss for the latest quarter, its first in 18 years, compared with a profit of $4.39 billion a year earlier. The company’s stock has lost 35 percent of its value, or about $60 billion, since the April 20 explosion of the Macondo well on the Deepwater Horizon platform.

And pressure from the White House prompted the company to cancel dividends to shareholders this year, angering millions of retirees who rely on the payments. The company's stock has bounced back from its lows a month ago, however.

Tuesday's announcement virtually ends the a 30-year career for Hayward, who will become a non-executive director of BP’s Russian joint venture. He leaves the CEO job with a $1.6 million severance payout on top of a pension valued at $17 million, which will pay him close to $1 million a year.

Hayward, who formally will step down Oct. 1, took over as CEO less than three years ago, succeeding Lord John Browne, who oversaw a period of cost-cutting that coincided with a string of accidents and safety violations, including the Texas City explosion.

Dudley vowed to continue to overhaul BP’s corporate culture. He’s got his work cut out for him. The company’s problems, say industry observers, can be traced partly to a series of acquisitions including Amoco, ARCO and Castrol. The huge company operates with four separate units, each of which has its own board of directors.

“BP never fully integrated its big acquisitions,” said former Shell Oil CEO John Hofmeister. “They had an entrepreneurial, strategic CEO in John Browne. Tony Hayward tried to make some changes. But I think now (Dudley) really has to get down to the boring bits — the structures, the processes, the systems that the company needs to really run like an institution.”

Restructuring assets
The company is already restructuring, selling off pieces of itself to help pay for the estimated $32 billion cost of cleaning up the Gulf, including damage claims to local business and property owners. Though the ultimate price tag could go higher, BP Chairman Carl-Henric Svanberg said Tuesday the company has enough financial might to cover it.

“We have $250 billion of assets, so it corresponds to about 10 percent of our total asset base,” he said. “Any company of our kind will have always some assets that have higher value to others than to us. So although this is a crisis nobody would have liked to happen, it also gives a moment when we can reassess those assets.”

When you skim off the cost of the Gulf spill, BP is one of the world's biggest cash machines. The company operates in 80 countries, with major exploration and production in Angola, Egypt, Libya, the North Sea, Oman, Latin America, the Middle East, Russia, Trinidad, the United Kingdom and the United States. Those wells, along with substantial refining and marketing operations, generated revenues of $75.8 billion in the latest quarter, up 34 percent from a year ago.

With underlying profits of roughly $5 billion a quarter, BP could pay off the estimated cleanup cost in less than two years — without selling a single asset. Those costs could rise, especially if the company is found to be “grossly negligent” in a series of class-actions lawsuits wending through the courts.

But Dudley said he’s confident that won't happen.

“We’ve seen nothing that indicates that we were grossly negligent in any way,” he said Tuesday. “If you look at the Marine Board testimony from last week, you’ll begin to get an idea why we believe that. If we thought we were, we would have put bigger numbers in terms of the ($32 billion in) liabilities. We think it’s a fair estimate.”

Preliminary results of the accident investigation are due next month and may assign responsibility to the various players in the accident, which include TransOcean, the operator of the rig; Halliburton, which performed a critical operation sealing the well; and Cameron, the company that made the device that failed to seal the well blowout.

Other major oil company CEOs have sought to distance themselves from BP’s failures, saying the accident would not have happened if their company had been overseeing the well. But even as he pledged to apply lessons learned from the disaster, Dudley made clear that BP was not a rogue industry player.

"I think the entire Gulf of Mexico energy industry is going to be altered by this accident," he said. "We're going to find it's people, judgment, individuals, multiple equipment failures, of many companies, (were) involved. And we're going to make sure we share all of that as well.”

The results of the investigation could help ease the tense relationship between the company and Congress and the White House, which imposed a moratorium on new drilling until the causes of the accident are better established. As the largest rig operator in the Gulf, BP will be among those most severely affected by tighter regulation and oversight.

Dudley said he’s hopeful relations with the government are improving.

“The rhetoric was very heavy a few months ago, and I think what the president has said -- and what officials now say often -- is that the last thing they want to do is to damage BP,” he said. “A strong and viable BP is in the best interest of the United States; it’s in the best interest of the Gulf coast."

Dudley now takes on the task of righting a company that proved unmanageable for the two most recent predecessors. If he can't, BP will be seeking another CEO to get the job done.