How Deepwater Horizon disaster helped BP boss save the oil giant
Ed Clowes looks back at the career of the man who helped reeling BP survive toxic debts by ‘staying calm and learning to let go’
When Bob Dudley took over as boss of oil giant BP in July 2010, few could comprehend the magnitude of the task at hand. The very existence of the century-old company was under threat. BP was responsible for one of the worst environmental disasters in history, the Deepwater Horizon oil spill, which continued to leak in to the Gulf of Mexico as Dudley embarked on his first day as chief executive.
The scale of the incident – which killed 11 workers and let almost 5m barrels of oil spew into the sea, decimating marine life – was just beginning to dawn on investors.
In the two months following the Deepwater Horizon disaster, BP’S market value halved as talk of record fines began to gather pace.
Around that time, Dudley received a phone call he has since described as the “worst moment”. He was told that BP’S debt had become so toxic it wasn’t even tradable. The company was “facing oblivion”, the chief executive later recalled.
BP shares had fallen so dramatically by the summer of 2010 that – now looking like a bargain to rivals – rumours of a takeover swirled. Either that, or the business would collapse.
Neither the takeover, nor the collapse, ever materialised. Instead, the company was battered by a record $65bn in fines and clean-up costs.
Faced with a seemingly insurmountable task, Dudley said in 2017 he had to “act fast, but deliberate. Don’t overreact. Stay calm”. Remain calm he did, while mounting one of the greatest corporate turnarounds in UK history.
Unable to tap the bond markets and in desperate need of cash, the company was forced to start selling assets. The total came to about $60bn, including oil fields in the Gulf of Mexico and Alaska, and the Russian joint venture he used to run.
“We had to … break all of these emotional bonds,” Dudley said years later. He recalled employees becoming nostalgic, saying “I was part of the engineering on that” or “my father worked in that refinery”.
Learning to let go of important things would serve BP well, it would later find. To underpin the selling of its assets, BP announced it was halting its dividend programme for three quarters.
The drastic measures had some success. By October 2011, the City was enthralled with BP’S turnaround story. The share price began to climb again on crumbs of positive news, regaining some lost ground.
“He was instrumental in steadying the ship and rebuilding a top quartile portfolio” at an extremely difficult time, said analysts at Sanford C. Bernstein.
Irene Himona at Société Générale said: “Not many companies can deal successfully with a $67bn event which was a near-death experience.”
But before Dudley had time to catch his breath, the company was facing turbulence again.
In 2014, the oil price fell dramatically, plummeting from a peak of $115 per barrel that June to about $27 in January 2016.
It was a catastrophe for oil companies: in the UK alone, more than 150,000 industry jobs were lost in the two years following the crash.
The UK’S woes were compounded by a sharp downturn in production from the North Sea, a region described by Dudley in 2016 as one of BP’S “crown jewels”.
All told, the sharp fall in oil prices led to nearly half a million jobs being cut around the world.
For a company in as fragile a state as BP, the collapse in North Sea business and the oil price decline could have been a death sentence.
Yet somewhat miraculously, the sale of assets that BP had undertaken to pay for the fallout from the Deepwater Horizon disaster actually left the company leaner and more able to weather the storm than its rivals.
Dudley later said that selling prized parts of its business to pay for litigation and clean-up fees had been “really tough”, but “when the price dropped again, it was a lot easier” because BP had already embarked on an aggressive cost-cutting programme.
“We had done this before so it was just about rolling up our sleeves and figuring out what to do,” Dudley said, adding: “People have stayed loyal in some very difficult times.” To survive,
BP was forced to overcome a classic issue facing the oil majors. “In big oil companies, the allocation of capital has historically become the point of competition – upstream, downstream, refinery, marketing – so people competed for capital. We could not have gone through the last three years unless we had cut that out,” Dudley told Energy Voice in 2017.
One of the contributing factors to the precipitous fall in oil prices in 2014 was the arrival of US shale producers.
High oil prices in the preceding years had pushed US producers to try to extract it themselves – leading to a process called fracking, which quickly became popular in the country.
Described by Dudley as a “swing producer” akin to the oil cartel Opec, for the past six years shale producers have influenced global oil prices in a way that simply did not exist before.
It is not the only uncertainty facing BP. “The reality for the rest of the century,” Dudley said recently, was that the world would be transitioning towards cleaner energy, presenting its own set of challenges for the company.
For BP’S next chapter, Dudley will hand over control to his successor, Bernard Looney.
Having steered the ship through the stormiest period in BP’S history, Dudley will retire in February after a decade at the helm.
The news “should not come as a surprise to the market given Looney’s role in modernising the upstream for BP and driving the digital agenda”, said analysts at Barclays. His appointment “may accelerate the journey that BP is on regarding the energy transition”, they added.
Bernstein analysts also welcomed Looney’s elevation: “We see no radical change in strategy but an incoming CEO who understands his organisation, diversity, shareholders, free cash flow and how to make BP investible amid the growing energy-transition concerns.” Following Dudley’s decision to retire, BP chairman Helge Lund described the American’s tenure as “very wise and calm”.
Dudley had led the company through “probably the most challenging time in BP’S history”, adding that the whole industry owed Dudley a “debt of gratitude”.