BP to streamline divisions, cut overheads – CEO

12 October 2007 08:49  [Source: ICIS news]

SINGAPORE (ICIS news)--BP plans to streamline its structure into two business segments in a bid to improve performance, cut corporate bureaucracy and reduce overheads, the British energy major’s CEO said late on Thursday.

In a worldwide message to staff issued in London, CEO Tony Hayward said BP will in future comprise exploration and production and refining and marketing business units.

The current third segment, gas, power and renewables, would be subsumed into the other two while a separate division, alternative energy, will handle BP’s low-carbon business and future growth options outside oil and gas.

The two segments will be made up of a series of strategic performance units, Hayward said, adding that these will become BP’s main operating entities or profit centres, with closely-defined remits and rigorous business objectives.

He also said that while the process would yield some medium-term cost reductions, the major benefit would be the revenue boost expected from greatly improved operational efficiency over the longer term.

Up to four layers of management will be shed in parts of BP and greater standardisation of processes, including safety, has already been introduced and will be applied consistently across the group, Hayward said.

The moves follow a six-month review of the group’s operational performance which identified wide-ranging duplication, overlaps and excessive organisational complexity.

Addressing what he described as his “three priorities”, safety, people and performance, Hayward said the company was making good progress on safety.

On performance, he said: “It is clear that BP’s overall strategy remains robust. We have great positions in many of the major hydrocarbon basins of the world as well as in the markets of key economies and we are preparing for the longer term by building a new, low-carbon energy business.

“Our problem is not about the strategy itself but about our execution of it. BP’s performance has materially lagged our peer group in the last three years. It has been poor because we are not consistent and our organisation has grown too complex. At the root of all this is a need to change our behaviours.”

Hayward said the bulk of the competitive shortfall represented revenues lost from impaired US refining capacity and delays to new production in the Gulf of Mexico. The remainder arose from BP’s higher cost base relative to its rivals.

“We expect the revenue gap to narrow as major new production comes on stream in the fourth quarter and refinery throughputs rise at Texas City and Whiting over the coming months,” he said.

Hayward said redundancies would be inevitable in some parts of the company but stressed that front-line operations would continue to be strengthened. He did not anticipate major disposals but would not rule out small-scale asset sales.

By: Jeanne Lim
+65 6780 4359

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