5,000 Jobs on the Line at BP

Big Oil company's restructuring expected to cost $1.35 billion over two years

Published in CSP Daily News

By
Steve Holtz, Online News Director & Beverage Editor

LONDON -- The previously announced restructuring of BP PLC will include eliminating about 5,000 jobs by mid-2009. That's on top of the 9,500 jobs being purged as part of the Big Oil company's sale of its 700-unit U.S.-operated convenience-store business.

"Our objective is to reduce the corporate overhead by between 15% and 20%," CEO Tony Howard said in a fourth-quarter results conference call yesterday. "We are starting from the top with fewer layers of management and a smaller corporate infrastructure. All our corporate functions will have a simplified and smaller structure and will be [image-nocss] managed centrally to drive standardization, increase capability and prioritize spending."

He added that the cost of the restructuring in the fourth quarter of 2007 totaled $350 million, and another $1 million will be spent in 2008. "We expect to see benefits from these measures in 2009 and beyond," he said.

As previously reported in CSP Daily News, BP announced plans for a restructuring in October with the goal to improve performance by simplifying how the company is structured and run, ensuring that resources are increasingly shifted to the front line with operating managers freed from corporate bureaucracy and the burden of unnecessary overheads.

Addressing what he described as his "three priorities," safety, people and performance, Hayward said in October the company was making good progress on safety. The focus on people would be to ensure the company deployed the "right skills in the right places" and allowed staff to exercise professional judgment without "unnecessary interference."

The job cuts represent about 5% of BP's workforce of about 97,000.

In a subsequent letter to employees in the Chicago area, BP said most of their 3,300 jobs soon would be relocated or eliminated.

"Houston is the headquarters of BP in America and home to over 7,000 BP employees," said the opening line of a memorandum to employees from BP North America chief Bob Malone and two other top BP officials, according to a report in the Chicago Tribune. "Over the next two years, BP in America will consolidate its functional activities there. The move will eliminate the cost and complexity associated with maintaining functional centers in Houston and the Chicago suburbs."

Of the 3,300 jobs in the Chicago area, BP plans to move most support and staff positions to Houston. Several hundred jobs in the operating lines of the company—refining, pipelines, retail, marketing and chemicals—likely will remain in the area, a source knowledgeable about BP's plans told the newspaper.

BP's not the only major oil company making significant employee cutbacks. Shell Oil Co. and its parent company's previously stated goal of cutting $500 million from its budget could mean as many as 3,200 job cuts. Royal Dutch Shell is expected to outsource the bulk of its information technology division in 2008, according to a January report in The Financial Times.

A Shell spokesperson told CSP Daily News this week that those cutbacks are still on track but have yet to be made.

Elsewhere in its fourth-quarter 2007 report, BP said it has raised its quarterly dividend by 31% to reflect "the company's increasingly robust view of the future," in spite of fourth-quarter profits well below analysts' expectations.

The company announced that it added to its reserves more than 100% of the oil and gas it produced last year, when its leading rivals have either reported poor performance or said nothing about their reserves replacement, according to a report in The Financial Times.

Replacement cost net profit was $2.97 billion in the fourth quarter, down 24% from the equivalent period of 2006. For the year, replacement cost profit was $17.3 billion, down 22%.

Excluding "non-operating" charges of $1.03 billion related to the sale of 700 U.S. convenience stores and other restructuring costs, the fourth-quarter profit was $4 billion, when analysts had been expecting about $4.5 billion.

Those analysts' forecasts had been cut sharply in recent weeks, generally by about 25%, after talking to the company they began to focus on issues such as a higher tax charge and weak refining margins, particularly in the U.S. Midwest.

Production of oil and gas was down 3% for the year at 3.82 million barrels of oil equivalent a day. However, it was 2% higher in the fourth quarter of 2007 than in the equivalent period of 2006, a better result than for the other oil supermajors to have reported so far, including ExxonMobil, Royal Dutch Shell and Chevron.

BP's reserve replacement also seems likely to have been better than that of its competitors. Exxon and Shell have given no guidance on reserve replacement for 2007, which they will set out over the next few weeks. Chevron said it expected to have replaced just 10-15% of its production.

BP's dividend for the fourth quarter of 2007 will be 13.525 cents, up 25% from the third quarter, or 6.813p, up 28% in sterling terms. For the year the dividend is up 16% in dollar terms.

The group said the rise in the dividend signaled "greater confidence in its ability to deliver sustained dividend income to shareholders [and] also marks a shift in the balance between dividends and buybacks as a means of returning value to shareholders."

By Steve Holtz, Online News Director & Beverage Editor
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