BP slashed its production targets yesterday and pledged to put safety and operational integrity at the top of its agenda following a horrendous year of setbacks for the world's third-biggest oil company.
Tony Hayward, the company's chief executive designate, who takes over from Lord Browne of Madingley in August, promised he would focus "like a laser" on safe and reliable operations after a series of disasters in the past two years, including the Texas City refinery explosion, in which 15 workers were killed, and the pipeline leak at BP's Prudhoe Bay oilfield in Alaska.
The reduction in BP's output forecasts came as the group reported a 12 per cent slide in fourth-quarter profits to $3.9bn (£1.98bn) and spooked the markets, causing its shares to fall as analysts cut their earnings estimates. Despite the fourth-quarter setback, BP still managed to end the year with record profits of $22.25bn - up 15 per cent on 2005 - thanks to higher oil prices.
BP said it now expected production this year to be flat compared with last year's output of 3.9 million barrels per day. Output is then expected to rise above four million barrels in 2009 and reach more than 4.3 million in 2012. The new targets represent a nominal cut of about 17 per cent on BP's previous production guidance and an underlying reduction of about 10 per cent when divestments and differing assumptions about oil prices are taken into account.
BP's shares, which have underperformed their peers by a large margin in the past two years, slipped by 1.5 per cent as brokers downgraded their profit forecasts. Merrill Lynch cut its earnings-per-share estimates for the 2007-10 period by an average of 13 per cent.
Mr Hayward said that one of the main factors behind the new "conservative" production forecasts was BP's renewed concentration on safe operation. "We will in some cases deliberately slow the pace of our activity in order to improve safety and efficiency," he said.
Another major contributor was the fact that the oil industry was operating at full capacity, making it more difficult to get hold of men and materials to carry out exploration and production. This has resulted in a 14 per cent increase in BP's exploration and production costs in the past year with rates for hiring offshore rigs, for instance, rising by 44 per cent in 2006.
Mr Hayward also cited delays in BP's Atlantis and Thunder Horse platforms in the Gulf of Mexico, which are two years behind schedule for safety reasons, and together will reduce planned output by 150,000 barrels this year.
BP's new chief said he intended to use his first nine months to focus on safety and reliability before anything else. He did not rule out the mergers and acquisitions which have been one of the hallmarks of Lord Browne's 12 years in the job.
But he said they would only be pursued if they fitted the group's strategy and refused to be drawn on whether BP might be interested in a merger with Royal Dutch Shell. "M&A is simply a tool to use to deliver strategy. It is never ruled in or ruled out. In the past two to three years we have found more value in selling things that didn't fit strategically than buying things that did. That may change."
Lord Browne said BP has no intention of selling its stake in the Russian joint venture TNK-BP while the chief executive of the company, Robert Dudley, sought to play down suggestions that the Kremlin was seeking to take control of one of its biggest potential assets, the Kovyta field, through the state-owned gas company Gazprom.
Regrets? Too few to mention, says Lord Browne
Je ne regrette rien. The French are filming a biopic of their most famous chanteuse, Edith Piaf. Perhaps Lord Browne should apply for a walk-on part when he retires from BP at the end of July.
Certainly, its chief executive for the past 12 years and the man once feted as the Sun King of the oil industry was in no mood for reproach, despite deciding to leave 18 months earlier than intended under something of a cloud. "My bias is not to have regrets. Things are as they are, that is the concrete reality," he said.
What? Not even a twinge of regret at missing out on the chance to lead BP through what will be its centenary next year? "Centenary years... they come and they go," he reflected.
Yesterday marked the beginning of the end of Lord Browne's reign at BP, as he shared the top table for the first time with his chosen successor, Tony Hayward, to present his last set of annual results. If Lord Browne worked magic for most of his time at BP, then Mr Hayward is the scorcerer's apprentice. Sure-footed in the main, he avoided the invitation to say whether he too would seek to rule through charisma, and batted away questions about merging with Shell.
It was a workaday performance but the youthful-looking Mr Hayward has plenty of time to grow into the role, even if he never quite reaches the bravura heights of his predecessor. Asked to sum up BP's future strategy in four words, he deferred instead to his mentor. Effortlessly, Lord Browne conjured up the perfect vision of an oil major with an environmental heart. For a moment it was possible to forget that this set of results, his 47th report card, as he put it, was not quite all it might have been.