Russia Chose to Partner With BP For a Good Reason

Last week BP announced that it had agreed to swap a 5 percent, $7.8bn stake in the company for 9.5 percent of Russian semi-nationalized oil giant Rosneft as the first steps to extracting oil and gas from the East Prinovozemeisky blocks on Russia’s Arctic shelf in the South Kara sea.

So why did the Russian government and prime minister Putin choose BP as their partner following the Gulf of Mexico oil spill and BP’s part in it. Although the balance of blame for the oil spill between BP and its main contractors Haliburton and Transocean may rumble on for years in the US courts it can be seen that BP has already taken steps and put new procedures in place to prevent a similar debacle taking place again.

Maybe BP thought that they had the correct procedures in place before the Gulf oil spill, and as someone who has worked as a contractor offshore for BP I know how strict their procedures were, certainly on paper. Like wise maybe all the other major players believe their safety procedures will not allow such an incident to happen.

However it did happen and BP have now set up a new safety division to give even more priority to safety in all its operations and has stopped allowing contractors to make their own decisions which could have a serious impact on BP’s finances or reputation. Possibly this is what the Russians like about BP, they now have an extra level of safety in place created by a real disaster and the knowledge of how to cope with it, where as the other main oil companies, Exxon and Shell for instance would reject any suggestion that it could happen to them.

Possibly BP is now seen to have have a competitive edge after its disaster in the Gulf and has been seen quite publicly to be a changed, and changed for the better, company. Mr. Putin realises that BP will do all it can to avoid any similar occurrences and the amazing feat of engineering a solution to the leak is a tribute to the engineering skills of BP in dealing with a first time situation, combined with their already proven experience of working in harsh and remote locations.

BP Selling Assets For Compensation Fund

As part of its process of raising funds to pay for the  clean up and compensation costs of the Gulf of Mexico oil spill, BP has announced the sale of its interests in four Gulf of Mexico oilfields to Japan’s Marubeni Coporation.

If approved by the regulatory authorities the sale is expected to raise $650m. This is only a small amount of the $30 billion that BP hopes to raise to meet the cleanup and compensation costs.

BP has only owned the interests in the four fields for under a year. It originally bought them from Devon Energy along with other assets in the Gulf of Mexico, Azerbaijan and Brazil. “When BP acquired the Devon Energy Gulf of Mexico assets, it was clear that these four fields did not sit easily with the rest of our business in the region,” said BP executive,  Andy Holt.

BP announced last week that it would be selling interests and assets in Venezuela and Vietnam for $1.8 billion as part of the fund raising.

BP said in a company statement that its other interests in the Gulf of Mexico will not be affected by the newly announced sale to Devon Energy, which is expected to be completed early next year. BP will remain the largest producer of gas and oil in the area as well as being the largest drilling lease holder.

Bob Dudley, chief executive of BP, said on Monday that the Gulf of Mexico oil spill had “threatened the very existence” of the energy giant.

“I can promise you that I did not become chief executive of BP in order to walk away from the US. BP will not be quitting America,” Dudley, who is an US national, told a conference of business leaders in London.

“There is so much at stake, both for BP and the United States. The US has major energy needs. BP is the largest producer of oil and gas in the country, and a vital contributor to fulfilling them.”

The damaged well was eventually plugged in July and sealed in September, but not before it spilled about 4.9 million barrels of oil into the Gulf waters. The spill damaged several hundred miles of fragile coastlines and caused BP’s shares to collapse. losing over 50% of the pre spill value.

The bill so far for compensating victims currently stands at about $11.2bn.

Tony Hayward Blames Other Companies

Tony Hayward the outgoing chief executive of BP declared that the Gulf of Mexico oil well disaster represents a failure for the entire deepwater oil and gas drilling industry.

“The industry needs to re-evaluated safety” Hayward told in investment professionals in a webcast. Everyone will need to re-evaluate the business model to reduce risk associated with deepwater drilling” Hayward added.

BP has always maintained that it does not deserve all the blame for the April accident and its subsequent pollution and intends to pursue legal action against its trading partners for a sharer of the cleanup and containment costs. Those partners include rig operator Transocean, the blowout preventer builder Cameron and Halliburton.

“It is clear the accident was the result of multiple equipment errors and human error involving many companies,” Hayward said in the webcast.

“From the beginning of the crisis, I’ve sought to do the right thing, do it the right way and communicate openly,” said Hayward.

Eleven workers died when the Deepwater Horizon oil rig exploded and sank in the Gulf of Mexico on 20 April. From that day until July 15 when a cap was sealed over the wellhead oil flowed into the Gulf at the rate of tens of thousands of barrels a day.

Protesters from Greenpeace shut down several BP petrol stations across London on Tuesday to coincide with and after the release of BP’s second quarter results.

Greenpeace claimed closing 46 stations from two to several hours but BP said the number was actually 40 stations. Protesters entered the stations to drop off a letter and pulled a safety switch that cut off power as theta were leaving. BP signs were also covered with posters reading, “Closed: Moving beyond petroleum” which is a play on the BP slogan “Beyond petroleum.”

The affected stations were mostly open again for business during the afternoon with some not expecting to open until early evening. Not all of them were actually owned by BP but are dealer owned selling BP gas.

Greenpeace stated that it was simply targeting stations selling BP product and their spokesperson Beth Herzfeld said they “don’t want to make anyone suffer.”

“We’re sorry for any problems that are caused, but the petrol that are sold in these businesses are BP,” she further said “BP is determined to chase the last drops of oil, whatever the cost to the natural environment and people’s health.”

The protest came shortly after BP announced a large $17.15 billion loss in the second quarter as a result of the Gulf of Mexico oil spill and the ongoing clean up and compensation payments.

Under pressure BP chief executive Tony Hayward is to leave BP in October. He will get an immediate annual pension of around $930000 when he leaves. That is $25.479 per day.

Mr. Hayward has been under pressure over the Gulf of Mexico oil leak and it is expected that his pension entitlement will be hugely controversial given the pollution and affect on people whose lives have been affected by the oil spill.

It is understood that BP pension scheme rules allow the pension to be taken at any point after the age of 50. Mr. Haywood’s pension is valued at about £11 million and he also had six years under a long term performance scheme which might eventually be worth seven several millions more. Mr.

Mr. Hayward was leaving by a mutual agreement and will be replaced by American colleague Bob Dudley who is presently in charge of the Gulf of Mexico cleanup operation for the company.

BP is set to reveal its latest results on Tuesday. The accounts will cover the  compensation and clean up costs of up to $30 billions  and may result in the worst quarterly loss for a UK company. It has lost 40% of its market capitalization since the May accident and spill.

Mr. Hayward has been heavily criticized by residents of the Gulf Coast and also by US politicians for his handling of the cleanup operation. He has also made a series of gaffes including saying that he just “wanted his life back”. He was also taken to task for attending a sailing event in the UK in June whilst the pollution was increasing day by day. Mr. Haywood was rebuked by members of the house energy and commerce committee at stonewalling questions at a congressional hearing.