An interview with Bob Dudley
The tragic events of 20 April 2010, in which an explosion on the Deepwater Horizon drilling rig in the Gulf of Mexico led to the deaths of 11 men and oil leaking into the Gulf for 87 days, have left an indelible mark on BP and its people. Not least its new chief executive
Like a number of BP's American staff, Bob Dudley grew up along the Gulf Coast, spending childhood holidays swimming and fishing in its waters. It was these close ties with the region that brought him into the response early on, and made him the ideal choice to head up BP’s Gulf Coast Restoration Organization, an entity that was created in June 2010 to manage all aspects of BP’s spill response. It was a role he was to carry out for just three months, before replacing Tony Hayward as BP’s chief executive.
Dudley took on the top job in one of the most challenging periods in BP’s 100-year history. As well as the complex engineering that was needed to physically stop the oil leak, the spill required a massive onshore and offshore response, with some 48,000 people playing a role at its peak (see pages 12-21). Within a few days of the accident, BP began paying claims to those whose livelihoods had been affected, and later pledged $20 billion to a trust fund, to continue meeting those claims, as well as the cost of Natural Resource Damages claims.
As efforts to cap the well were repeatedly unsuccessful, costs continued to rise, while the company’s share price fell sharply and its credit rating was downgraded. Dudley says BP needs to take the lessons of the tragedy “deeply into the fabric of our organisation”, with a more intense focus on risk management. “BP has a choice,” he says. “It can step away from risk, or it can learn from the incident and focus on risk management to an accelerated degree. We need our people to think about potential low-probability, high-impact events, and then plan for them.”
Dudley took on the top job in one of the most challenging periods in BP’s 100-year history. As well as the complex engineering that was needed to physically stop the oil leak, the spill required a massive onshore and offshore response, with some 48,000 people playing a role at its peak (see pages 12-21). Within a few days of the accident, BP began paying claims to those whose livelihoods had been affected, and later pledged $20 billion to a trust fund, to continue meeting those claims, as well as the cost of Natural Resource Damages claims.
As efforts to cap the well were repeatedly unsuccessful, costs continued to rise, while the company’s share price fell sharply and its credit rating was downgraded. Dudley says BP needs to take the lessons of the tragedy “deeply into the fabric of our organisation”, with a more intense focus on risk management. “BP has a choice,” he says. “It can step away from risk, or it can learn from the incident and focus on risk management to an accelerated degree. We need our people to think about potential low-probability, high-impact events, and then plan for them.”
New steps to strengthen safety and risk management are top of Dudley’s priorities for BP. These will help fulfil the next priority - to earn back trust - and provide the foundation for the third – to build shareholder value in a safe and sustainable way for the long term.
To help put safety and risk management at the heart of the company, BP has restructured the way it rewards performance, encouraging individuals to think about their personal legacy to the company and its assets. Under the new structure, staff are being asked to set out priorities in the areas that the company wants to see strengthened. Those priorities include their personal commitments to promoting safety, risk management, compliance, teamwork and, crucially, how they will work towards long-term as well as short-term goals.
“I saw people work like this during the Gulf of Mexico response. BP employees from all the over the world played their part, either directly, down on the beach or in a crisis centre, or indirectly, stepping up and filling in, making sure the rest of the business ran safely, reliably and performed well. There was this strong desire to act as stewards for the wider business. That is the spirit we need to capture and replicate right across the organisation.
“If everyone has a sense of long-term stewardship over our assets every day,” he continues, “then people will also start to speak up more if they have concerns. I want us to sharpen our everyday attitude to operational and technical risk, to ensure it is the norm for people on the frontline to speak about risk, and for managers to listen.”
To help put safety and risk management at the heart of the company, BP has restructured the way it rewards performance, encouraging individuals to think about their personal legacy to the company and its assets. Under the new structure, staff are being asked to set out priorities in the areas that the company wants to see strengthened. Those priorities include their personal commitments to promoting safety, risk management, compliance, teamwork and, crucially, how they will work towards long-term as well as short-term goals.
“I saw people work like this during the Gulf of Mexico response. BP employees from all the over the world played their part, either directly, down on the beach or in a crisis centre, or indirectly, stepping up and filling in, making sure the rest of the business ran safely, reliably and performed well. There was this strong desire to act as stewards for the wider business. That is the spirit we need to capture and replicate right across the organisation.
“If everyone has a sense of long-term stewardship over our assets every day,” he continues, “then people will also start to speak up more if they have concerns. I want us to sharpen our everyday attitude to operational and technical risk, to ensure it is the norm for people on the frontline to speak about risk, and for managers to listen.”
This ‘sharpening’ of attitudes has been embodied by the creation of a new safety and operational risk (S&OR) division. Headed by Mark Bly , the organisation will have its safety experts embedded within BP’s operating divisions to guide, scrutinise and, if necessary, intervene. It will also have a central team of specialists who will establish and update BP’s safety and risk management standards.
“For the most part, BP was making steady progress on safety before the incident,” says Dudley. “However, we must now accelerate that and make sure it applies everywhere. My expectation is that S&OR will not only look at day-to-day operations, but also how we design our facilities for the future.”
Another major organisational shift is occurring in the upstream business, now divided into three divisions – Exploration, Development and Production. The changes are a further evolution of work started before the oil spill and, says Dudley, will help BP focus on the capabilities it needs to manage its risks. “This is a necessary adjustment to the approach that was instituted in 1992, when the company took action to recover from financial trouble. At that time, we created a series of business units and we basically said to the heads of those units: ‘You are your own CEO’. That planted a drive for performance within the DNA of this company, and empowered people to do amazing things in a difficult period, but it also meant that systems and processes became less standardised. I don’t want BP to lose that entrepreneurial sense – or its very good relationship management – but by putting in place this new structure, we can apply those qualities at the same time as having the rigour, consistency and standardisation we need to operate safely and responsibly everywhere.
Another major organisational shift is occurring in the upstream business, now divided into three divisions – Exploration, Development and Production. The changes are a further evolution of work started before the oil spill and, says Dudley, will help BP focus on the capabilities it needs to manage its risks. “This is a necessary adjustment to the approach that was instituted in 1992, when the company took action to recover from financial trouble. At that time, we created a series of business units and we basically said to the heads of those units: ‘You are your own CEO’. That planted a drive for performance within the DNA of this company, and empowered people to do amazing things in a difficult period, but it also meant that systems and processes became less standardised. I don’t want BP to lose that entrepreneurial sense – or its very good relationship management – but by putting in place this new structure, we can apply those qualities at the same time as having the rigour, consistency and standardisation we need to operate safely and responsibly everywhere.
The consequences of the Gulf of Mexico incident are far-reaching, and, says Dudley, “they leave BP a different company from the one we were a year ago.” This is certainly true in the financial sense, with the company posting its first full-year loss in 18 years. The ongoing costs of the oil spill had already been anticipated back in summer 2010, with the temporary suspension of the dividend and the announcement that BP would divest
$30 billion in assets by the end of 2011.
It is also true that the shape of BP will never quite be the same again. In the drive to create shareholder value in a safe and sustainable way, Dudley and his team are ‘resetting’ the portfolio to create a company that plays to its core strengths and moves with the currents in the global energy market. One such trend is the expectation that energy demand in the mature industrialised countries will remain fairly flat, while soaring in Asia and other emerging economies. Consequently, as well as divesting non-strategic assets in the upstream, BP has announced it will halve its US refining capacity, with the sale of Texas City and Carson refineries. Dudley pays tribute to the work done in these operations while acknowledging that they now offer more value to others than to BP.
It is also true that the shape of BP will never quite be the same again. In the drive to create shareholder value in a safe and sustainable way, Dudley and his team are ‘resetting’ the portfolio to create a company that plays to its core strengths and moves with the currents in the global energy market. One such trend is the expectation that energy demand in the mature industrialised countries will remain fairly flat, while soaring in Asia and other emerging economies. Consequently, as well as divesting non-strategic assets in the upstream, BP has announced it will halve its US refining capacity, with the sale of Texas City and Carson refineries. Dudley pays tribute to the work done in these operations while acknowledging that they now offer more value to others than to BP.
The rationale behind these announcements is to retain the positions that offer the greatest competitive advantage, including a series of new upstream projects, and create a portfolio that has the potential for stronger growth from a smaller base.
“It’s about ongoing value as much as current production volumes. It’s about quality over quantity and it’s about choices for the future, rather than the legacy of the past,” says Dudley. “We’re focusing not so much on short-term outputs – today’s barrels and dollars – but on inputs that drive long-term value – safety, compliance, relationships, capability and technology. The BP of the future will be smaller, but it will also be safer, more agile and stronger. It will be a company that is committed to rebuilding value and trust for the long term, by doing the right things and doing them well.”
The most tangible sign of progress for shareholders is the reinstatement of a dividend and this, says Dudley, reflects the company’s stronger underlying performance. However, it has been lowered since the last payment in recognition that BP still needs to continue to meet its obligations in the Gulf of Mexico and maintain financial flexibility.
“It’s about ongoing value as much as current production volumes. It’s about quality over quantity and it’s about choices for the future, rather than the legacy of the past,” says Dudley. “We’re focusing not so much on short-term outputs – today’s barrels and dollars – but on inputs that drive long-term value – safety, compliance, relationships, capability and technology. The BP of the future will be smaller, but it will also be safer, more agile and stronger. It will be a company that is committed to rebuilding value and trust for the long term, by doing the right things and doing them well.”
The most tangible sign of progress for shareholders is the reinstatement of a dividend and this, says Dudley, reflects the company’s stronger underlying performance. However, it has been lowered since the last payment in recognition that BP still needs to continue to meet its obligations in the Gulf of Mexico and maintain financial flexibility.
One thing that has not changed, as far as Dudley is concerned, is BP’s distinctive ability to look for oil, and, at a presentation to investors in February, he announced that the company would increase its investment in exploration. Indeed, even before February, BP announced a swathe of new access deals covering the UK, Australia, Azerbaijan, Egypt and China. Then later in February, it announced a major partnership with Reliance Industries Limited of India, that will see BP taking a 30% stake in 270,000 square kilometres (104,000 square miles) of offshore exploration and production contracts as well as creating a joint venture to market natural gas in the country.
All this seems to point to the fact that the world is still willing to do business with BP. “Over the past few months, I’ve travelled to China, Brazil, Russia, Trinidad, India and Azerbaijan, and the message I’m getting is that the governments in these countries have been watching the response in the Gulf of Mexico very carefully,” says Dudley. “They believe we responded in the way they hoped any company would respond in their own country. They tell me that they would like us involved in their country because we know more about this than anyone. Indeed, we’re sharing what we’ve learned very widely as people ask us to do so.”
Much will depend on the company’s future relationships with the US; relationships that are the focus of a lot of work. “BP continues to do the right thing in the US,” Dudley says. “We’re working with the regulators in Washington, meeting our obligations on the Gulf Coast, we’re funding various programmes. So, I feel pretty good about those relationships at the moment.” Dudley continues to make frequent trips to the region to meet with local people affected by the spill, with officials and BP employees.
All this seems to point to the fact that the world is still willing to do business with BP. “Over the past few months, I’ve travelled to China, Brazil, Russia, Trinidad, India and Azerbaijan, and the message I’m getting is that the governments in these countries have been watching the response in the Gulf of Mexico very carefully,” says Dudley. “They believe we responded in the way they hoped any company would respond in their own country. They tell me that they would like us involved in their country because we know more about this than anyone. Indeed, we’re sharing what we’ve learned very widely as people ask us to do so.”
Much will depend on the company’s future relationships with the US; relationships that are the focus of a lot of work. “BP continues to do the right thing in the US,” Dudley says. “We’re working with the regulators in Washington, meeting our obligations on the Gulf Coast, we’re funding various programmes. So, I feel pretty good about those relationships at the moment.” Dudley continues to make frequent trips to the region to meet with local people affected by the spill, with officials and BP employees.
“I’m very proud of the dedication of people across BP,” Dudley says, believing the staff’s continuing commitment was reflected in strong third- and fourth-quarter results, despite the year’s overall loss. “There’s no doubt 2010 was a very difficult year for BP, yet we delivered strong underlying performance, once you strip out the costs associated with the Gulf incident. To a degree, this reflects higher oil prices, but that’s not the only factor. It also shows how BP’s people all over the world delivered strong performance in challenging circumstances and it shows their dedication to doing the right thing.” He includes the several-hundred-strong group of retirees who came back to help the company during the crisis.
Ultimately, as a result of the changes he is implementing, Dudley believes people will look at BP in a very different light. “I’d like people to say BP really ‘gets it’, that it appears to be wanting to help lead the frontiers of risk management, as well as operating safely on the frontiers; that it’s got a new way of working with contractors and suppliers; and that it’s lived up to its commitments in the Gulf. That’s a tough agenda, but only then do I think we can get back on the right path.
“This year is going to be one of consolidation, as we focus on completing our divestment programme, continue to meet our obligations in the US and bring new rigour to the way we manage risk,” he continues. “None of those things is easy, so it’s important to have leaders who really listen to their people.
Ultimately, as a result of the changes he is implementing, Dudley believes people will look at BP in a very different light. “I’d like people to say BP really ‘gets it’, that it appears to be wanting to help lead the frontiers of risk management, as well as operating safely on the frontiers; that it’s got a new way of working with contractors and suppliers; and that it’s lived up to its commitments in the Gulf. That’s a tough agenda, but only then do I think we can get back on the right path.
“This year is going to be one of consolidation, as we focus on completing our divestment programme, continue to meet our obligations in the US and bring new rigour to the way we manage risk,” he continues. “None of those things is easy, so it’s important to have leaders who really listen to their people.
“I don’t assume that I always know the answer to something. I can draw on years of experience and intuition, but we need to be constantly enquiring and learning and listening to everyone – including the quietest voice in the room. We have to keep thinking the unthinkable – be it operational, financial or compliance risk. Nobody has all the answers. Only by working together and making the most of everyone’s capabilities will we begin to move the company forward.”
