BP’s difficulties may be behind it

Chief Market Strategist, Cantor Index

THE moment John Browne became chief executive of BP, the company’s fortunes went from strength to strength. Lord Browne, as he is today, orchestrated two very shrewd initiatives – the oil giant’s merger with Amoco in 1998, and its acquisition of ARCO (Atlantic Richfield Company) in 2000.

The world was BP’s oyster. It eventually became the largest company in the FTSE 100, valued close to $250bn (£159bn) at one time. BP’s shares were a major component of investment portfolios on both sides of the Atlantic, and the company was responsible for approximately 14 per cent of the dividends paid by all FTSE 100 companies.

Lord Browne was still relentless in his quest to broaden BP’s horizons – hence the setting up of a 50-50 joint venture with a Russian consortium. TNK-BP was founded, with oligarchs from Alfa-Access-Renova (AAR) owning the TNK stake. Before too long this operation was responsible for 25 per cent of BP’s output.

But in 2006, it became clear that BP’s US management had come up short. There were leaks in its Alaskan Prudhoe Bay fields, an explosion at its Texas Refinery, costing 15 lives, and problems near the Gulf of Mexico. Tony Hayward, Lord Browne’s protégé, replaced him as chief executive in 2007. It was not long before there were issues at TNK-BP, and Bob Dudley stepped down as its chief executive in 2008.

Then came the defining moment of truth; the Macondo “blow-out” in the Deepwater Horizon fields in the Gulf of Mexico in 2010 – an ecological disaster, which tragically cost 11 lives. Barack Obama, many will recall, was sneering in his contempt of “British Petroleum”. Heywood had to go and was replaced by Dudley. The US authorities forced BP to ringfence billions of dollars to meet its obligations. And since litigation and fines could cost even more, BP needed to sell assets. Its share price was damaged and dividends were slashed.

BP then incurred the wrath of TNK by negotiating with Russian state oil firm Rosneft to jointly develop the Arctic Sea. After some skilful political manoeuvring, last year BP sold its stake in TNK to Rosneft.

Now, having reached an extra $4.5bn settlement for the Gulf oil spill, and,despite contracting production, many believe that BP is close to being back on even keel. The Sunflower could shine again. With oil prices remaining above $90, results today could be interesting.