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BP’s Hayward: ‘I’m also angry and frustrated’

Sunday Telegraph

BP chief Tony Hayward has been called ‘the most hated man in America’. He says he understands the outcry but maintains that he is the right person to lead the energy giant.

By Rowena Mason
Published: 8:34PM BST 05 Jun 2010

Tony Hayward: ‘This won’t stop deepwater drilling. It will transform it’

Tony Hayward doesn’t look like US public enemy number one.

The slight, boyish BP chief executive appears remarkably chipper for a man who has spent the past seven weeks trying to fend four million gallons of oil away from the US coast.

But American hostility towards Hayward and the 100-year-old British oil company has been relentless since the Deepwater Horizon rig in the Gulf of Mexico exploded and sank. The accident killed 11 men, polluted hundreds of miles of coastline and wiped £36bn off BP’s share price.

Oil from BP’s well is continuing to gush into the sea, although the flow has at last been partially reduced. While the crisis continues, US President Obama has promised to keep his boot on the oil giant’s throat and other politicians have called for its assets to be seized.

Even Sarah Palin, the Republican who famously called for America to “Drill, Baby, Drill”, has cautioned her people against the machinations of “foreign oil companies” in domestic waters despite the fact her husband Todd worked for BP for 18 years.

Hayward, visibly tired, but still neatly suited, remains defiant about the personal insults, even after the New York Daily News described him as the “most hated and clueless man in America”.

“Do I look like it’s getting to me?” he challenges, with a smile. “No it’s not. I’m focusing on the task ahead, which is to lead my team, get the bloody leak stopped and clean it up. Though there are probably a few people who would like to pour a tin of green paint over me.”

Hayward cuts a shrinking figure at the end of a sunlit boardroom at BP’s office in St James’s Square in London – shuffling his chair back defensively at the hint of an uncomfortable question.

Outside television reporters gather and the front entrance is under police guard, but he remains collected and repeats his mantra: “We will do the right thing. We will clean this up.”

Some now believe that the Gulf of Mexico spill is an existential crisis for the oil major, until recently, Britain’s largest company. So why hasn’t Carl-Henric Svanberg, BP’s chairman, been more vocal in trying to restore the company’s reputation?

It didn’t help concerns about his capability when the former Ericsson chief made his first media appearance since the leak at a technology conference, joking that he had expected a “smoother ride” at BP.

As if to prove the critics wrong about his visibility, Svanberg bounds into the room, pausing in the doorway for dramatic effect with arms raised in greeting: “Hey-hey! Nice to meet you.” He shakes a few hands and then is gone as suddenly as he arrived.

The long boardroom table – headed by Hayward – is symbolically empty once again. But Hayward insists his chairman is the right man for the job.

“Our chairman has been very, very supportive, as has the entire board,” he insists. “Carl-Henric has been out for extended trips, we’ve talked twice a day. The US wants to see who’s in charge: it’s either me or it’s him. We decided very early on it would be me. I think that was the right decision.”

It could be interpreted as self-sacrifice. Hayward has always been highly regarded in investor circles – described once as “the best thing that ever happened to BP” – for his operational ability and talent for stripping out costs.

It is now difficult to believe he will survive the crisis in the role of chief executive, especially after a series of gaffes regarded as insensitive to the spill victims. But Hayward is adamant that he will still be leading the company in a year’s time, claiming that stepping down is inconceivable: “It hasn’t crossed my mind. It’s clearly crossed other people’s minds but not mine.”

For Hayward, there are potentially even more serious consequences than losing his job. The US has a history of prosecuting and jailing corporate executives deemed to have misbehaved on its soil. A criminal investigation into the company has already begun.

“I’m not anxious about being arrested. The criminal investigation will proceed and will draw whatever conclusion it draws. The only thing I’m losing sleep about is the leak.”

Hayward has been stationed in Houston as he fights the spill, but on Thursday he flew back to London to face the City, before spending some time with his family.

The key area of concern for investors and analysts has been rising costs – which could eventually top $37bn (£25.6bn) – and US political interference in the dividend.

“There are reports that BP will be paying $10.5bn – that’s billion with a capital B – in dividend payments this quarter,” President Obama thundered on Friday. “Now I don’t have a problem with BP fulfilling its legal obligations, but I want BP to be very clear they’ve got moral and legal obligations here in the Gulf for the damage that has been done.”

Early last week, Hayward spelt out that BP can afford the payout given its strong cash flow – but now he appears more tentative about its likelihood.

Will political pressures be taken into account when deciding whether to return money to shareholders? “The board will take all considerations into account when it makes a decision on the dividend in another six weeks.”

Hayward claims shareholders have been generally sympathetic, with “10-to-one messages of support versus messages of vilification”. But another BP executive admits that US investors have been far more antagonistic and affected by the negative media coverage.

There was speculation that Hayward would push for time with Prime Minister David Cameron given the importance of BP to British retirement funds. Around one in every six pounds of dividend payments comes from the oil giant’s coffers.

It would be politically difficult for the UK government to get involved, but there have been signs it is worried. Vince Cable, the Business Secretary, on Friday called America’s anti-British rhetoric “extreme and unhelpful”.

Hayward says all the conversations with the Cameron’s Government have been at arm’s length. “I think he’s preoccupied with issues up in Cumbria. My team have been briefing his office on a regular basis. I don’t think there’s any necessity for me to talk to the Prime Minister directly.”

Asked whether he wanted Cameron to intervene on BP’s behalf with Barack Obama, Hayward – with a half-smile – would only say: “Let’s see what the future holds.”

The meeting is characterised by similar evasive little exchanges. Would the board benefit from someone like Peter Mandelson to help deal with a hostile US public? He’s a spinner extraordinaire, political royalty and widely linked with a BP position following his exit from Government.

“Peter’s pretty busy. He’s writing his memoirs, isn’t he?” Hayward chuckles. So that’s a no then? “Did I say that?” More chuckling from the BP boss.

It has been suggested that BP could do with a smoother operator on board like the media-savvy Lord Browne, the flamboyant former chief executive. Never one to court the spotlight, Hayward has developed an even stronger aversion to the media lately.

“One of the things you learn is not to read a newspaper or watch television. Others read them but I don’t bother.”

He has, at times though, been forced to change his tune after outraged press reaction. After complaining he wanted his “life back”, Hayward later issued an apology for appearing insensitive to those who lost theirs on board the rig.

He is reluctant to fan the flames by criticising the political and media treatment of BP. “I think the reaction is entirely understandable when something of this magnitude has occurred. I’m also angry and frustrated,” he says.

However, behind the scenes, one senior BP executive says the company does feel itself to be a victim of the US midterm elections, scapegoated by politicians scrabbling for popularity.

This sense that the reaction to the spill has somehow got out of proportion does occasionally break through Hayward’s on-message patter.

Talking about how he stays sane while working 18-hour days, he mentions running. On the beach? “I wouldn’t find much oil – oh I’m not allowed to say that,” he jokes, before backtracking.

This topic – the location, volume and environmental impact of the oil – has been contested ground from the start.

BP has had to up its estimate from no leak, to 1,000 barrels per day, to 5,000, before finally conceding to the US government figure of 20,000 barrels. It has also disputed the claim of scientists that there are large immobile plumes of oil under the surface.

And Hayward has been in trouble for saying that the environmental consequences would be “very, very modest”. Days later, the oil spill was officially pronounced larger than the 1989 Exxon Valdez disaster.

Given this enormity, some analysts find it hard to believe that BP has a future in America.

It is only five years since BP’s Texas City refinery exploded, killing 15 workers and injuring 170 others, after multiple safety breaches. And just four years since the decaying, neglected Prudhoe Bay pipeline spilt 200,000 gallons of oil across Alaska.

Asked whether BP will end up with smaller US operations, Hayward claims it is “not obvious that will be an outcome”. Neither does he believe the company will scale back its deepwater drilling ambitions – quite the opposite.

“We will be helping the industry set new standards because the world needs extra oil and gas from deepwater. The reality is that you can never completely eliminate risk.”

It’s an extraordinary claim, but he believes BP will be in the strongest position to lead the charge for high-pressure drilling.

“This won’t stop deepwater drilling. It will transform it,” he asserts. “We will be at the vanguard because we will know more about it than anyone else.”

He is confident, but Americans are increasingly repeating the charge that BP has a systemic safety problem. So why do accidents keep happening?

Hayward shifts into management-speak. “We’ve changed systems and processes, organisational constructs, accountability. We have done from the ground up very systematic implementation of an operating management system across the whole company.” Pushed a little, the BP boss lays the blame with the rig’s blowout preventer – the device that did not shut off the well when pressure built up. Transocean, the rig’s operator, was the owner of this equipment. “At the moment the focus is the seeming failure of this piece of equipment, the blowout preventer,” he says, thumping the table.

However, preliminary inquiries have found seven areas of potential failing. Damagingly for BP, there have been reports of arguments on the rig when its staff wanted to replace heavy cement with seawater to speed up processes. And the company’s well design has also been criticised for having only one casing – a thinner, cheaper option – rather than multiple layers.

Hayward gives a vehement defence of the well’s structure. “There was nothing problematic with the casing design in the Gulf of Mexico. About 30pc of the last 100 wells have that design.”

Asked whether the company’s new UK deepwater well in the Shetland Islands would be using the same thinner casing, he says, for the first time tetchily: “I don’t know. Like you, I’m not a drilling engineer designing that well.”

As for the future shape of the company, he says it will “clearly be very different”, with more focus on risk reduction and having the right equipment to deal with a blowout and spill after the event.

Hayward doesn’t rule out consolidation within the industry following the accident. Total’s chief executive, Christophe de Margerie has said it would be “unethical” to make an opportunistic bid for BP given its troubles. But last time the company had a US disaster, it ended up in merger talks with Royal Dutch Shell.

“I think it’s too early to say [whether there will be consolidation],” Hayward says. “Certainly our share price is lower than it was a month ago. Does that make us vulnerable? I don’t know.”

There is undoubtedly a risk that BP’s share price will continue to decline until the leak is totally plugged.

However, Hayward is optimistic that the first relief wells – the best way of stopping a leak – will be done by August, brushing off concerns that previous accidents have needed up to four attempts and nine months before success.

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