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BP's new cap fits but it's time for a change in management

Author : Paul Gay

27 July 2010

BP has reached a milestone in its handling of the Macondo crisis with the successful fitting of a second capping device, which has sealed the stricken well in the Mexican Gulf after the first attempt merely stemmed the flow of oil. The company has also released a set of figures for the financial quarter to June, the three months' period that the well has been leaking, showing massive losses of $17billion.

Drilling the relief wells was delayed by hurricane
Drilling the relief wells was delayed by hurricane

This record loss for a British company is the result of setting aside $32.2 billion to cover the costs linked to the Gulf of Mexico spill. The figure includes the $20 billion already set aside in an escrow account for compensation claims and the company has suggested that the total figure could rise further. The company will increase its asset sales over the next 18 months to $30 billion in an effort to wipe the slate clean.

Taking out the costs of the oil spill, BP made a second quarter profit of $5 billion, compared with $2.9 billion for the second quarter last year. It has decided that there will be no dividend for the second quarter running and has also ruled out a shareholder payment for next quarter. The board will not consider its position on future dividends until February next year when the fourth quarter results are published.

The company has also confirmed a change in senior management announcing that CEO Tony Hayward will leave his post by mutual agreement in October. He will be replaced by his American colleague, Bob Dudley, who has already taken charge of the clean-up operation for the worst oil spill in US history. Hayward who is 53, will receive a year's salary plus benefits, together worth more than £1m, when he steps down. He will also be entitled to draw an annual pension of £600,000 once he reaches the age of 55. It seems likely, however, that Haywood will retain a position in the company as BP plans to nominate him as a non-executive director of its Russian joint venture, TNK-BP.

Dudley said in an interview on Tuesday (July 27th, 2010) that BP could kill the leaking by Sunday. "We want to restore our reputation," Dudley said on CNBC-TV. Permission has been granted to prepare for a static kill of the well by pumping mud through the new cap. This procedure is viewed as an intermediate measure until the relief wells are completed later in August but final approval from the US administration will still be needed to carry out the operation.

Dudley believes BP will emerge from the Gulf of Mexico oil spill crisis a smaller and wiser company. He described the Macondo spill as a terrible tragedy from which the oil and gas industry would learn a lot.

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