INSIGHT: BP living with Browne's legacy

02 May 2007 16:49  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--It has the elements of a classic tragedy. A character of integrity puts himself above the law and suffers the consequences. A City laments.

To many, now former BP CEO John Browne made only a minor error of judgement. But his “white lie” to the highest court in the UK was intolerable. Revelations by his former partner could yet do more damage.

But BP has lost its most influential leader and one of the most respected businessmen of his generation.

Browne succeeded in areas where others could not. He transformed BP, indeed the oil world, with ground-breaking deals with Amoco, Arco, Burmah Castrol, Veba Oel and Russia’s TNK.

The value of the company rocketed under his tenure. He has been called a businessman of intuition, vision and foresight.

Yet those qualities appeared to leave him in his latter days as BP CEO, although there had been rumours of another big deal in the pipeline.

BP took its eye off the ball in safety and suffered the Texas City disaster. The loss of production in Prudhoe Bay in Alaska also now needs to be put behind it.

In chemicals, BP’s asset footprint was transformed under Browne although its performance was not. The company scooped up all sorts of chemicals assets with its big oil deals. It rose higher in the chemicals rankings but was accused of a “baggage” strategy.

Browne pulled BP up by the bootstraps and did something different but his forte was not operational or functional excellence. Chemicals suffered and struggled to find a focused strategy and direction.

Some will remember that at one stage chemicals all but saved BP. From 1988-1990, huge cashflows meant chemicals paid back big time.

But the culture in chemicals never quite worked once the bigger deal-making began.

To some extent, BP was handed a prize in petrochemicals: new assets, new technologies and a greatly enhanced geographical presence. Yet it never managed to pull off the big chemicals deal in the Middle East and gain a foothold where it could make most money.

Prior to the decision to split the so-called “advantaged” and “other” businesses and spin off olefins and derivatives as Innovene, BP didn’t really know what to do with chemicals.

Group strategy was never resolved in a chemicals sense, the businesses were handed money for a period but were expected pay back the next.

BP was likened to a kit car with an amazing engine. The overriding question was whether it would hold together when the throttle was pushed to the ground.

With Innovene gone in the biggest divestment in BP's history – sold for $9bn to Jim Ratcliffe’s Ineos – chemicals in BP appears a shadow of its former self but that perspective is not quite correct.

BP can still do a great deal more in the sector although it keeps relatively quiet about its acetyls and aromatics businesses and its olefins and polyolefins joint ventures.

The wholly owned operations are included in the downstream refined products segment.

Acetyls are tied to gas and aromatics and purified terephthalic acid (PTA) to the refinery. BP bought with Amoco a strong global market position and technology in PTA.

Divestment of one or more of the remaining joint ventures is always an option.

The Munchmunster cracker in Germany was sold to Basell. The future of the Gelsenkirchen plant, also in Germany, depends largely on the aspirations of BP’s Venezuelan partner Petroleos de Venezuela.

BP has a 15% stake in the cracker and a 60% stake in its polyethylene venture in Malaysia with Petronas.  It has a 50% stake in the apparently successful SECCO joint venture cracker complex in Shanghai with Sinopec.

The end-game for Browne at BP has been bitter but no-one can detract from his enormous contribution to the group and to the fortunes of its shareholders.

His departure may not change strategy, particularly in chemicals, but new CEO Tony Hayward will have to make his mark.

By: Nigel Davis
+44 20 8652 3214

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