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BP Performance changes coming – perhaps not safety

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This topic contains 2 replies, has 1 voice, and was last updated by  Charles Randall 15 years, 5 months ago.

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  • #3908

    Charles Randall

    BP’s performance lags, but changes coming
    RESTRUCTURING: Major plan to address company’s complex organization.
    By JANE WARDELL   The Associated Press   Published: October 12, 2007

    LONDON — BP outlined a plan to streamline its structure, cutting the number of business units and stripping out management layers, as it said Thursday that its poor financial performance and safety record had left it lagging behind its oil industry peers.  The massive restructuring is the linchpin of new chief executive Tony Hayward’s attempt to restore BP’s advantage against its competitors after a host of safety and operational problems.
    Analysts have blamed BP’s complex organizational layout for many of those woes, which have included a deadly Texas refinery accident, oil spills in Alaska and delays at its Gulf of Mexico oil and gas projects.
    “BP’s performance has materially lagged our peer group in the last three years,” Hayward said in a worldwide message to staff that was also issued to the London Stock Exchange. “It has been poor because we are not consistent and our organization has grown too complex. At the root of all this is a need to change our behaviors.”
    Under Hayward’s plan, that will start with cutting the number of BP’s main business segments from three to two. The company will incorporate its existing gas, power and renewables business into the two remaining units — exploration and production, and refining and marketing.
    It will also create a smaller division for alternative energy to handle the company’s low-carbon business and future growth options outside oil and gas. Hayward, who took over from disgraced former CEO John Browne in May, said that BP’s corporate infrastructure would be “rigorously reviewed,” with the result that up to four layers of management will be shed in some parts of the company.
    He said that job losses would be inevitable, but stressed that frontline operations would be strengthened. He said earlier this year that the company would cut its head-office work force by 25 percent.  Analysts said the overhaul would have little short-term impact — most expect BP to unveil poor quarterly results on Oct. 23 after disruptions to U.S. facilities — but was positive for the company’s longer-term future.
    “In our view the changes are about better efficiency, and the upside should come from better revenue growth as a result of delivery on major projects and on operational efficiency,” analysts at J.P. Morgan said in a note. Fadel Gheit, an analyst for Oppenheimer & Co., said that BP was taking the “first steps in the right direction.”
    Hayward said BP was making good progress on safety, telling staff that a focus on people would ensure that the company deployed the “right skills in the right places” and allowed staff to exercise professional judgment without “unnecessary interference.”
    Hayward said that the bulk of BP’s competitive shortfall represented revenues lost from impaired U.S. refining capacity and delays to new production in the Gulf of Mexico. The remainder arose from BP’s “unacceptably high” 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, adding that the structural changes would reduce the company’s overhead costs.
    Hayward said he did not anticipate major disposals but would not rule out small-scale asset sales. Hayward said that some of the changes announced Thursday are already under way and the others would be introduced immediately.

  • #7217

    Charles Randall

    BP’s Safety issues are not likely to be changed given type & direction of this business plan – which is strictly financial targeted = lead off  with job losses (wrong direction), Restructuring (illusion progress), and assumption BP’s not peer or cost competative.  So showing the door to Lord Brown & Pillari – US operations head,  just means they picked another pair of clones Hayward & Malone and went back to same old BP financial focus thinking that isn’t going to clean up the safety problems.
    First Safety is all about people, people, people (in same way real estate is about location) – you have to add executive level Safety leaders (which they claim they will add – but doesn’t appear to have anyone’s input in this plan development). And then add more safety managers – not less,  then drill the basics into the front line fighters – and not just BP company employees but all on site workers / contractors as well (not evident its even in plan?).  CLUE BP – you cannot put out a plan like this focused on  profits, cost and financials and think you are going to get employee’s to put their efforts on safety and get around to your management goals when / if they are fit. You just reinforced what everyone found wrong with your safety program – its not a priority.
    And Restructuring is just plain waste of time, people & money : I love the following ancient quote that any modern day plant employee or manager could say today and still be insightful
    “We trained hard….but it seemed that everytime we were beginning to form into teams, we would be re-organized.  I was to learn later in life that we tend to meet any new situation by reorganizing, and what a wonderful method it can be for creating the illusion of progress while producing only confusion, inefficiency and demoralization instead.” Greek Navy – Petronius Arbiter 210 BC.   
    This BP plan is all about playing to the Stockmarket & Wallstreet analysts crowd and not focusing on what is needed and not giving credit to what their BP employees: middle management & workers have achomplished. 
    I am not sure where Hayward gets his facts – but BP is ranked a lot higher both Environmentally & Safety wise (especially since Conoco has had to absorb all past sins from Phillips accidents). And BP has a Refinery  average overall Complexity rating of ~11.0 compared to next best Exxon &Conoco with ~10.0, Chevron with 9.0 and Shell with 8.0 average complexity Range. Likewise BP’s  ROACE% is mid rage with its peers and it has led peers on reserves production growth.  All BP needs to do is keep fires out & plants running and you can only do that with safety focus – not restructuring, looking at your neighbors strength’s. Safety first – and profits will always follow.
    This is time for, Safety Consultants or BP middle-management to do an “Intervention” on this plan, maybe some Executive / Board major Brain Transplants to get them focused on what is really important. BP employees are hostage on this – has be corporate level folks to get the change. The safety people are over-worked and the old refineries are over-utilized chasing short term profits like this plan & earlier versions have as targets. You cannot accomplish anything if you cannot keep the plant on-line & this is recipe for another disaster like Texas City. 
    You cannot remove Middle Management, make job cuts that will load already overworked plant workers with task from the people that were removed.  Don’t even try pretend that foolish questions which wasted Mid-Mgrs time are going away – the Exec’s will just pass them down for some “Direct Feedback”.
    The BP safety folks made good attempt to look into what happened at Texas City and how to stop this from happening in the future. But I didn’t see anyone put up a red flag that this wasn’t just a BP failure – its an Oil Industry failure, its an OSHA failure and it’s a Safety Focus failure springing from the pre-occupation on cost cutting & outsourcing jobs cheaply.  The 15 people killed in the accident were all CONTRACT employees – and if they had published OSHA safety numbers according to usual rules the next day…… it wouldn’t have shown up on BP’s safety stats! The way US Safety stats work is that it shows up only when a “Permanent” employee dies or gets hurt, but the work site doesn’t generally get marks if contractors from other companies are killed or injured there.
    There is a problem with “Refinery Hidden Deaths” for example US Bureau of Labor Stats reported no refinery deaths in 2002 or 2003 but there were at least 9 contract employee’s Asphyxiated, burned or fell to their deaths during those years…..they just were not counted until Houston Chronicle did a review of media accounts vs. OSHA reports. When jobs get outsourced it is always the most dangerous & the most costly jobs that are placed.  Often the larger Engineering firms do not train much below the management level because workers are hired and let go after construction is completed and turnover is very high due to regionality-  even though they claim it is not. Additionally a lot of work is often subcontracted out to other firms that do it cheaper that the majors do (and in safety – cheap means you get what you pay for).  If any BP contractors had safety training – they would have known that trailers didn’t belong on fence-line or at least challenge the issue  with safety managers to get them to over-ride the site designation.  GO AHEAD OUTSOURCE THE JOB – JUST KEEP SAFETY CONTROL OVERSIGHT & ACCOUNTABILITY AT REFINERY, AND MAKE ALL WORKERS INCIDENTS COUNT AGAINST THE REFINER.
    Their was an accident is similar to the tragic BP Texas City, in a great number of ways = the Phillips explosion in 1989 that killed 23 people & injured 130 others. And a John Gray Report found that a lot of the problem was around the disconnect in the contract employee safety training!!  He specifically laid out that OSHA should require plants to collect & record site specific injury & illness data for ALL WORKERS ON SITE !
    How many people is it going to take to get the focus right??  I am not sure the right focus can be seen in this BP Plan, and Restructuring, if it every does ANY good, comes from bottom up not the top down to get safety focus. 

  • #7213

    Charles Randall

    Perhaps my response on BP plan business vs safety was too harsh judgement – looks like BP (see Wallstreet Journal article below from friend) also has some major trading desk problems in Propane, Gasoline & Crude that have ~similar priorities as the safety issues & fines. Hope Hayward got big raise for all the cleanup problems.
    BP Moves to Clean Up Troubles
    Guilty Plea on 2005 Blast,
    Trading-Charges Settlement
    Expected to Come Tomorrow
    By ANN DAVIS in Houston, MATTHEW DALTON in New York, GUY CHAZAN in London
    October 24, 2007; Page A3

    New BP PLC Chief Executive Tony Hayward is making sweeping moves to clean up the oil giant’s operational and regulatory troubles. Among them: an expected agreement to plead guilty to U.S. criminal environmental charges and pay a $50 million fine related to a deadly Texas refinery explosion two years ago, according to people familiar with the matter.
    The London-based company also is expected to pay $303 million to settle civil charges and avoid criminal prosecution in the U.S. for allegedly manipulating and cornering the propane market in 2004, said people familiar with that matter. The settlement includes a compliance overhaul that could end BP’s reign as one of the oil industry’s most aggressive energy traders, they said.

    •  The News: BP is expected to plead guilty to criminal charges and pay a $50 million fine related to a deadly refinery blast in Texas. It is also expected to pay $303 million to settle propane-trading allegations.
    •  The Background: BP’s new chief executive is trying to put a host of problems behind the company.
    •  The Challenge: BP is looking to improve results in a tough climate that saw third-quarter profit fall 29%.

    The expected guilty plea would conclude a long-running probe by the Justice Department and the Environmental Protection Agency into whether BP cut corners on safeguards at its plant in Texas City, Texas. It isn’t expected to include criminal fines or charges against any BP workers or managers, said the people familiar with the matter.
    A BP spokesman declined to comment. Spokeswomen for the Justice Department and the EPA declined to comment.
    A spokeswoman at the Commodity Futures Trading Commission, which was conducting the probe into the propane market allegations along with the Justice Department, declined to comment.
    Both the expected guilty plea and the trading settlement, expected to be announced tomorrow, follow a recent shake-up of BP’s management ranks and mark an effort by the oil giant to wipe its slate clean. The probes have come as the company looks to improve its results in an increasingly tough operating environment. Yesterday, it said third-quarter profit dropped 29% from a year earlier, to $4.41 billion.
    The Texas City settlement levies a corporate criminal fine on BP for violations of the U.S. Clean Air Act, said people familiar with the matter. The explosion killed 15 people and injured more than 170. It wasn’t clear how severe the charges would be, what other penalties they might carry or whether it would subject BP to sanctions or monitoring in the U.S.

    BP, without admitting fault, agreed to a $21.4 million fine with the federal Occupational Safety and Health Administration in September 2005 to settle violations of workplace safety rules at Texas City.
    Other companies this year have run afoul of the Clean Air Act, which governs air pollution, and faced criminal proceedings. In June, a federal jury in Corpus Christi, Texas, found Citgo Petroleum Corp. a unit of Petroleos de Venezuela SA, guilty of two felony criminal violations of the act. The company said at the time it would appeal. The Justice Department said last month that Honeywell International Inc. would pay an $8 million criminal fine after pleading guilty to violating the act.
    The profit slide and the multiple enforcement probes have proved a baptism by fire for Mr. Hayward, who took the helm in May after predecessor, John Browne, quit. Mr. Hayward took over a company whose share-price performance was lagging behind its closest peers. In addition, he had to contend with the refinery blast, corrosion in an Alaskan oil pipeline the following year and a variety of U.S. energy-trading investigations.
    The CFTC, the main energy-market regulator, is expected to announce a new civil case tomorrow against an individual BP gasoline trader for alleged wrongdoing in that market, lawyers informed of the case say. It is unclear whether the trader still works for BP.

    Historically, BP has derived more of its earnings from trading than other major oil companies have. BP’s trading desk has long held a reputation for aggressive risk-taking and for using its massive storage and refinery assets as part of bigger market bets. That has led to increased scrutiny from the CFTC as well as from criminal investigators at the Justice Department.
    The CFTC last year alleged BP manipulated propane prices in 2004, sending them spiking 50% higher at the height of the home-heating season, driving up heating and cooking costs for millions of mostly rural Americans. BP traders were caught on tape openly discussing the alleged propane price-manipulation scheme. That case included a guilty plea by a former BP trader last year in a related criminal case.
    BP’s attorneys have been working overtime in recent months to settle probes involving its propane, gasoline and crude-oil trading activities. This year, BP disclosed it had concluded an independent review of its “trading compliance culture” and had taken steps to strengthen compliance. People familiar with the settlement say BP is settling the propane matter and taking those steps in hopes of neutralizing an additional, longstanding investigation into its crude-oil trading desk.
    The pending trading settlement requires BP to change its business culture and overhaul its compliance methods under the government’s watch. The payment includes civil penalties that are among the highest the CFTC has ever levied.
    As part of the propane settlement, BP will pay $125 million in civil penalties to the CFTC, $100 million in similar civil penalties to the Justice Department, $53 million to consumers of propane who lost money from the alleged price manipulation and $25 million into a consumer-fraud fund, a person briefed on the settlement said.
    BP also will submit to a government-appointed compliance monitor’s oversight for the next three to five years. In addition, it agreed not to link the pay of its trading-desk compliance officers to profits from marketing and trading, and agreed to keep trading activities from being housed under other departments not subject to oversight.
    Write to Ann Davis at and Matthew Dalton at

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