BP to simplify management, cut costs

By Tom Bergin

LONDON (Reuters) - The chief executive of BP Plc (BP.L) on Thursday outlined a plan to address industry-lagging profitability by slashing management layers, adopting consistent procedures for developing oil and gas fields and reducing "unacceptably high" costs.

Tony Hayward said the plan was the result of a six-month review started when he took over in May, although analysts said it left BP's decentralized "hub and spoke" business model intact.

Some redundancies are inevitable, BP said, but the numbers were not likely to be significant as some staff will be redeployed and new positions will be created.

"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 organization has grown too complex," Hayward said in a statement.

"What we are doing represents a fundamental shift in how BP works."

BP's shares added to earlier gains after the statement, which had been widely flagged in previous days.

"It's a step in the right direction and will help put BP on the front foot again. However, it will obviously take time to feed through to operational performance and financial results," said Neil Morton, oil analyst at MF Global.

BP's image and profits have been battered in the past two years by delayed startups of key fields, technical problems at its refineries, oil pipeline leaks and an explosion at a Texas refinery that killed 15 workers.

Hayward blames the project delays and refinery problems on excessive bureaucracy and BP managers' tendency to try and develop from scratch a cutting-edge solution to every technical challenge.

Safety regulators said the Texas City blast was partly due to cost cuts imposed by former CEO John Browne, while BP itself said cost cuts contributed to the pipeline leaks in Alaska that forced a partial shut-down of the U.S.'s largest oil field.

A BP spokesman said the company, the third-largest western oil major by market value behind Exxon Mobil Corp (XOM.N) and Royal Dutch Shell Plc (RDSa.L), has no cost-saving targets, or a target date for completing the restructuring.

EXXON EXAMPLE

The adoption of more standardized procedures echoes the culture of industry leader Exxon Mobil, which is famous for operating in the same way everywhere.

BP will also follow Exxon's lead in reducing the number of management layers from 11 to seven, the number Exxon Mobil has, a BP source said.

However, Morton said BP appeared to have retained its "hub and spoke" structure, which forces managers of fields and other assets to compete for capital while also allowing them a greater degree of freedom and flexibility.