Stephen Foley: BP boss is right to reject quick fixes

 

Outlook Having got himself embroiled in an embarrassing debacle in Russia, Bob Dudley is understandably reluctant to countenance other hasty decisions on strategy at BP, and investors should be grateful rather than grumbly about that.

There are good reasons for the discount to the sector at which the oil giant's shares are trading. Lest we forget, it was only a year ago this month that BP finally managed to plug its gushing Macondo well, with enormous clean-up operations and undersea engineering challenges still before it.

The announcement and subsequent collapse of its tie-up with Rosneft, which would have made the riches of the Russian Arctic available to replenish BP's oil and gas reserves, has served to highlight the company's relatively mature portfolio of production assets. That BP has been unable to make the most of its currently producing assets, with maintenance costs among the reason for yesterday's profit miss, only adds to the pressure on Mr Dudley, 10 months into his tenure as chief executive.

But the suddenly fashionable idea of splitting oil companies' exploration and production activities from their refining operations (à la Marathon Oil and Conoco-Phillips) is no panacea for BP. It is in the process of selling off several of its biggest refineries, and it has to resolve the future shape of its E&P activities before investors will get excited about being invested solely in these. Instead, bolt-on additions to production in Indonesia, Trinidad and Australia will improve matters next year. Share buy-backs and a restoration of the dividend to pre-crisis levels look a more sure-fire way to bolster the share price while Mr Dudley rights himself from the Rosneft fiasco.

Yesterday's figures showed the bill for the spill rising again, by another $500m, though that is offset by contributions from BP's partners in the well, extracted through some legal strong-arming. The timing of a resumption of drilling in the Gulf of Mexico is still hard to predict, given the regulatory hurdles and the political sensitivities involved, though this year seems likely. BP's share price reflects real uncertainties still to be resolved, but time will do much of the healing. The stakes are high. Mr Dudley ought to resist impatient investors' calls for big bangs and quick fixes.

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