BP PLC must improve its operational performance to boost its profits, said BP Chief Executive Tony Hayward, at a press conference in London to present the company’s second-quarter results.
Hayward, who was appointed to the role in May, admitted that BP’s operational performance “is not good enough.” He said, “The absolute numbers are large, but on most key measures our competitive performance in the first half was disappointing.”
Hayward is determined to enforce change by yearend and build on the momentum in 2008. The company has suffered delays in major projects coming on stream and outages at its US refineries, which have contributed to poor performance.
BP produced 3.8 million boe/d in this year’s second quarter, which was 5% lower than last year. The E&P segment made $6.5 billion in profit compared with $7.3 billion for the same period in 2005. BP attributed the fall to lower production volumes, increased integrity spend, and higher costs.
No change was made to the production guidance which remains at 3.8-3.9 million boe/d for 2007.
New Hayward agenda
Hayward is keen to turn around the company’s safety culture following the critical report issued by the Baker Panel, which investigated the fire and explosion at its 460,000 b/d Texas City, Tex., refinery that killed 15 people and injured 180 others (OGJ Online, Mar. 26, 2007). “We are implementing the Baker Panel recommendations,” Hayward said. Furthermore, he said, the company will implement a group-wide operating management system that will improve the capability and consistency of its operations.
The benefit of the training program is to establish a common management system across the group, he explained. BP’s previous internal program ‘Getting HSE right’ is being revamped to address process safety, which had been identified as a major omission in BP’s safety culture under the Baker Panel report.
Developing people is also another priority under Hayward’s tenure. He has launched an initiative that will see 100 people-25% of BP’s staff in its London headquarters-redeployed in the field. These will be planners who will go back to petroleum engineering. The emphasis, for BP, is to “have the right people in the right place-and keeping those people in position longer.”
Hayward admitted that a lack of in-house engineering experience was a major reason behind the problems with Thunder Horse field in deepwater Gulf of Mexico.
BP is retrieving and rebuilding all seabed production equipment after tests showed metallurgical failure (OGJ Online, Sept. 16, 2006).
Andy Inglis, head of exploration and production, said Thunder Horse is on track to start up by yearend 2008. “We are making good progress against this target,” he said.
The semisubmersible platform weighs more than 50,000 tons and is designed to process 250,000 b/d of oil and 200 MMscfd of gas.
Refinery focus
Revenues will be restored by bringing the refineries in the US back to capacity and starting up major projects, Hayward said.
The 405,000 b/d Whiting refinery is expected to return to full capacity in the first half of next year, BP said. “Repairs are ongoing and we expect to resume sour crude processing in the fourth quarter of 2007.” BP refineries at Carson City, Texas City, and Toledo also had unplanned maintenance stoppages and production problems, causing the company to lose out on refining opportunities when margins are at an all-time high for the industry.
BP’s refining and marketing section increased profits by 48% to $2.7 billion this quarter, including a gain of $770 million for nonoperating items, mainly related to Coryton disposal gains, said Chief Financial Officer Byron Grote. The company said it is confident it can improve the performance of its refinery portfolio.
Rising industry costs
However, Hayward added that increasing industry costs in the supply chain and higher depreciation charges will likely lessen BP’s earnings. Industry costs are rising at 10%/year “with expenses a bit less and capital a bit more,” according to Hayward. BP will manage industry costs through standardization of designs, standardized equipment lists, and a focus on continuity and consistency.
“We want to take standardized designs that are repeatable,” he said. “We have done this in Azerbaijan and Trinidad and want to do this in Egypt and Angola.” Hayward explained that building a standardized equipment list meant using a limited number of components that could fit into its design. As for continuity and consistency, he said the company had seen a dramatic learning curve in handling key infrastructure projects.
