BP Said Preparing to Replace Hayward With Dudley as Board Seeks Recovery

BP Plc plans to appoint Robert Dudley to succeed Tony Hayward as chief executive officer as theboard looks to recover the company’s position in the U.S., twopeople with knowledge of the matter said.

Dudley, the director of BP’s oil spill response unit, isready to be announced as the company’s first American chief onJuly 27 and to take the helm Oct. 1, one of the people said,asking not to be identified because a final decision hasn’t yetbeen made. The decision was reached in discussions with boardmembers about how best to take BP forward and rebuild its U.S.position, the person said. The BP board meets tomorrow to“rubber stamp” the plan, the second person said.

“The fact he is American should help to keep things alittle more straightforward in his dealings with the U.S.administration,” Ted Harper, who helps manage $6.8 billion atFrost Investment Advisors in Houston, said today. He doesn’thold BP stock. “Dudley’s most important task will continue tobe making sure that the well is capped.”

Hayward has faced public anger in the U.S. and criticismfrom lawmakers over his handling of the spill that was triggeredby an April 20 explosion on the Deepwater Horizon rig, whichkilled 11 people. Dudley, 54, was born in New York and grew upin Mississippi, part of the Gulf Coast region sufferingenvironmental and economic damage from the spill. BP on June 23appointed him to manage its response to the leak.

BP is preparing an announcement for tomorrow that will notepress speculation, confirming a board meeting will be held andannouncements to be made as needed.

Lost Value

The company, which announces second-quarter earnings onJuly 27, has seen its market value fall by about 50 billionpounds ($77 billion) as it battled to stop the spill. The wellhas now been sealed, and BP plans to permanently plug it withcement next month.

Hayward “has the support of the board,” BP spokesman Mark Salt said by mobile phone today in London.

Dudley spent about 30 years in the oil industry, includinga stint as CEO of BP’s Russian joint venture, TNK-BP, startingin 2003. That job ended after disputes with Russian partners ledto Dudley fleeing Russia in 2008, citing “sustainedharassment” amid court battles and labor and tax inspections.

While seeking to contain public outrage over theenvironmental damage, Hayward made several gaffes, includingsaying he wanted his “life back” and calling the spill“relatively tiny” in a “very big ocean.” The well spewed35,000 to 60,000 barrels of oil a day from a mile deep in thewater, according to a U.S. government-led panel of scientists.

‘Most Hated’

The New York Daily News said he was “the most hated -- andclueless -- man in America.” U.S. President Barack Obama saidhe would have fired Hayward, while White House Chief of StaffRahm Emanuel said on ABC in June that “Tony Hayward isn’t goingto have a second career in PR consulting,” while criticizingthe CEO for taking a yachting trip.

“Hayward turned the heat up on himself, and some of hismisstatements served to boost the move for him to be replaced,”Harper said.

“The new leaders of BP will have an uphill climb tocorrect the legacy left by Hayward,” U.S. Representative Edward Markey of Massachusetts said in a statement today. Markey, aDemocrat, is chairman of the Select Committee on EnergyIndependence and Global Warming.

The company’s success capping the runaway well after threemonths will keep its final liability for the spill to $33billion, according to analysts.

Well Cap

The 40-foot stack of valves halted the flow a week beforeTropical Storm Bonnie blew through and forced a temporary haltto drilling of a relief well that will seal the leak for good.Worst-case forecasts for the crisis had pegged the bill as highas $100 billion.

“The doomsday scenarios are looking very remote,” saidJason Kenney, an analyst at ING Wholesale Banking in Edinburgh,who expects BP’s final bill to reach $28 billion. “The biggestestimates were based on massive criminal negligence and theworst-case of the well not being stopped at all.”

BP will probably say net income before extraordinary itemsrose to $5 billion from $4.4 billion a year earlier because ofhigher oil prices and better refinery earnings, according to themedian of 12 estimates in a Bloomberg News survey. The $4billion the company has spent on the spill so far won’t beincluded in that figure. The increase in underlying profit willhelp BP in its campaign to bolster its financial position.

Second-Quarter Results

“In terms of second-quarter performance, they’ll be quitestrong aside from the spill,” said Alastair Syme, an analyst atNomura Holdings Inc. in London who predicts the bill will riseto about $17 billion. “The market will try to press them onfuture costs.”

The median estimate of the total costs is $33 billion, aBloomberg News survey of 11 analysts shows, with predictionsranging from $17 billion to $60 billion. Louisiana TreasurerJohn Kennedy has said the total cost of the spill may reach $100billion.

Tropical storm Bonnie stopped BP’s drilling operation nearthe Macondo well, setting back a permanent solution by about twoweeks. Without the week-old cap holding back the flow, the spillwould have worsened.

Exxon Mobil Corp., the biggest publicly traded oil company,and Royal Dutch Shell Group Plc, Europe’s largest, will reportearnings July 29.

Stock Plunges

The spill has wiped about 40 percent of BP’s market valuesince the Deepwater Horizon blowout. That’s more than double themedian estimate among analysts for the cost of the spill,suggesting investors are taking a dimmer view of BP’s future.The stock dropped 2.1 percent last week.

Before the spill, Hayward led BP to become the biggest non-state producer of oil and gas last year and aimed to increaseoutput by as much as 2 percent a year through 2015. The companynow plans to sell assets, reduce investments and suspend the $10billion annual dividend for three quarters to pay for the spill.

BP Chairman Carl-Henric Svanberg agreed with presidentObama last month to set aside $20 billion for spill victims andcleanup. The payments into the fund will take place over severalquarters, starting with $3 billion in the third quarter and $2billion in the fourth.

BP said last week that it sold $7 billion of assets in theU.S., Canada and Egypt to Apache Corp. It has also said it plansto sell holdings in Pakistan and Vietnam. BP may revive the saleof fields in Alaska after they failed to make it into the Apachedeal, two people with knowledge of the matter said last week.

Refining Margins

The 61 percent increase in oil prices since the beginningof 2009 may bolster BP’s revenue across the world. In the firstquarter, BP profit more than doubled from a year earlier. InMarch, BP agreed to buy $7 billion of assets from Devon EnergyCorp. in the Gulf of Mexico, Brazil and Azerbaijan.

Refining margins are also picking up after averaging $5.49a barrel in the second quarter from $3.08 in the first threemonths of the year, according to BP.

BP’s own survey of analysts showed a mean estimate of $5billion for so-called replacement cost profit, with a range of$4.83 billion to $5.29 billion. Chief Financial Officer Byron Grote told investors on June 4 that the company will treat spillcosts as a non-operating, identified item and that it willcreate a separate area on the income statement for it.

None of the analysts in the Bloomberg Survey had changedtheir cost estimates since BP stopped the flow of oil from theMacondo well this month. Politics will determine BP’s eventualbill, and the U.S. will ultimately want to keep BP alive, saidGudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo.

“There has to be some limitation on the costs,” saidIsfeldt. “If BP can go bankrupt, who will want to drill in theU.S. anymore?”