Hayward admits failures as BP's profits and output fall

BP's new chief executive, Tony Hayward, has pledged to oversee a turnaround at the oil giant as the company posted a drop in second-quarter profits.

Making his City debut as chief executive, Mr Hayward told reporters yesterday that rather than make optimistic predictions he would "prefer to concentrate on real delivery". "My message today is simple: BP's current operational performance is not good enough," he said.

The former head of exploration and production took over the helm in May after his predecessor, Lord Browne, resigned because he lied to a court over his relationship with his former partner Jeff Chevalier. This came at a difficult time for BP, which has faced heavy criticism over the past year for safety failings at its US oil refineries, after a report commissioned in the wake of the 2005 explosion at BP's Texas City operation which killed 15 workers. There have also been a series of leaks at its Prudhoe Bay field in Alaska. The company has had unplanned maintenance stoppages and production problems at its Whiting, Carson City, Texas City and Toledo refineries in recent months. The difficulties meant that BP lost refining opportunities - at a time of record margins for the industry - as well as forcing it into the market to buy petrol at a time when the price was rising.

"BP is like a boat which is well-built but requires some essential maintenance, having been through some stormy waters in the last few years," Mr Hayward said.

He added that BP expected its Thunder Horse oilfield in the Gulf of Mexico to start production at the end of 2008. It was due to start production in 2005, but has suffered repeated delays.

In a veiled criticism of previous management decisions, Mr Hayward said problems with Thunder Horse were due to BP allowing its internal technical expertise to be eroded and relying too heavily on outside contractors.

Mr Hayward has ordered a shake-up in the transparency of the organisation and a standardisation of operations.

Despite a pick-up in oil prices in the period, the energy giant posted profits of $6.09bn (£2.96bn) for the three months to 30 June, down on the $6.12bn reported a year earlier. Production for the quarter was down 5 per cent, while the performance in refining and marketing was hit by "operational issues" at a number of its refineries in the United States.

The profits figure was inflated by asset sales, which meant the second quarter included $741m of one-off items. Stripping out these items, BP still bettered the $5.05bn forecast by some analysts.

Richard Hunter, head of UK equities at Hargreaves Lansdown, said the results were encouraging given the recent difficulties. "The mid-term report is much better, with the management changes at the top ushering in a new era for BP," he said. "Whilst profit was down for the period, this had been well flagged in advance and the outlook for the remainder of the year looks upbeat. It is generally agreed that the oil price is fairly stable at its current levels, and the resumption of projects such as the Gulf of Mexico should consolidate performance as the year pans out."