Never mind oil, BP runs low on directors

April 9, 2009


— Neil Collins is a Reuters columnist. The opinions expressed are his own —

LONDON, April 8 (Reuters) – BP has undergone a critical period of self-assessment over the last four years. The chairman, no less, says so in the oil company’s annual report.

Peter Sutherland’s assertion might be tested at next week’s annual meeting, following the departure from the board of Tom McKillop as penance for being caught in the chair when Royal Bank of Scotland collapsed.

Big companies can rise above such isolated setbacks, but BP seems particularly prone to them. Just when it seemed that the change of chairman was going to be unusually smooth, the knives came out for Paul Skinner, and his transfer from Rio Tinto was off. Sutherland promised not to stay on for more than another year, and pledged to “refresh” the board.

Someone needs to. The chief financial officer, Byron Grote, is coming up for retirement, while Erroll Davis, a non-executive, has been on the board since 1997. The deputy chairman, Ian Prosser, has been there since 1998.

Prosser, it should be recalled, is the brewer whom the J Sainsbury board anointed as its chairman in 2004 only for him to have to withdraw after the idea received a raspberry in the press. Prosser is unlikely to seek re-election to the board next year.

Tony Hayward, who stepped up to chief executive after John Browne was obliged to resign in 2007, has enough problems without having to look over his shoulder at an unfamiliar board.

The good news is that the highly-regarded Bob Dudley, now extracted from the Russian glue-pot marked TNK, joins the board at next week’s meeting.

Sutherland, in his statement, says BP is now “weighing shareholder returns towards dividends”, rather than share buybacks, but with oil under $60 a barrel, BP does not generate enough cash to cover the current payout.

Last year’s oil boom encouraged all companies in the sector to commit more to exploration and production, and BP’s gearing could rise from around 20 percent now to nearer 30 percent, which is at the high end for an oil major.

BP shares remain a highly-geared play on the oil price, and a new board being up to the task. After all, “the world economy depends on our efforts” according to Sutherland. No trace of hubris there, then.

(Editing by Richard Hubbard)

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