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BP reorganizes oil production unit

BP logo is seen at a fuel station of British oil company BP in St. Petersburg, October 18, 2012. REUTERS/Alexander Demianchuk
BP logo is seen at a fuel station of British oil company BP in St. Petersburg, October 18, 2012. REUTERS/Alexander Demianchuk

By Tom Bergin

LONDON (Reuters) - BP unveiled a reorganization of its oil and gas production operations on Friday, reversing a change it enacted after the Gulf of Mexico oil spill.

The latest move is partly intended to free Chief Executive Bob Dudley up from close oversight of day-to-day operations so he can help chart BP's recovery from the disaster which killed 11 men and spilled 5 million barrels of crude into the sea, three sources close to the company said.

BP's shares have failed to recover since the Macondo well was capped, and Dudley has been criticized for failing to communicate a strategy for growth.

Lamar McKay, currently head of BP's U.S. operations, will become head of a new exploration and production (E&P) unit it called Upstream, a reinstatement of a role that was abolished in 2010, in the wake of the oil spill.

McKay, like Dudley, is a former executive from Amoco, the company BP took over in 1997 to join the top tier of the oil industry, making the British firm one of the three biggest.

BP had planned to announce his appointment internally next week but brought forward the announcement following a Reuters story revealing the plan.

BP directors agreed on the reorganization some months ago, two sources said, but wanted to delay announcing it until it had made further progress with the U.S. authorities on settling investigations around the spill.

The company said last week it would pay $4.5 billion in penalties and plead guilty to criminal misconduct. A U.S. government civil investigation could also lead to fines in excess of $20 billion and two BP engineers face manslaughter charges relating to the rig blast that led to the spill.

Two sources close to the company said it was also mulling possible changes to its safety division, with a view to potentially bringing some safety oversight roles back under the control of the managers of operating units.

The sources said the separate chain of command for safety personal slowed down operations.

A BP spokesman said there were no changes planned to the safety unit, created in 2010 to signal BP was serious about safety after a series of disasters

BP's shares were up 0.4 percent at 435 pence at 1356 GMT, against a flat DJ Stoxx European oil and gas sector index.

PENDULUM

Dudley broke up BP's old E&P division into three units on his elevation to CEO to replace Tony Hayward, whose gaffes during the spill led to his stepping down.

The creation of functional roles for exploration, drilling and operating oil and gas production facilities, was aimed at moving BP away from its traditional decentralized structure of independent business units.

The decentralized model was blamed by analysts and U.S. government investigators for giving managers incentives to put profits before safety.

Dudley said in a statement that BP had successfully implemented a more centralized model, which analysts have likened to that adopted by rival ExxonMobil.

The chain of command now runs along functional lines, whereas in the past managers of individual fields or refineries had wide rein to run their assets as they saw fit.

BP did not announce any change in the centralized model but two sources close to the company said Dudley was planning to tweak this. "The pendulum had moved too far away from decentralization," one source said.

Also, the existing model, which created extra roles reporting to the CEO, was seen to hinder Dudley's ability to focus on strategic matters.

"There was a sense that Bob had an awful lot on his plate," one source close to the company said.

(Additional reporting by Andrew Callus; Editing by Philippa Fletcher)

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