BP posts record loss, unveils new boss

BP fell into losses in the second quarter as the Gulf of Mexico oil spill took its toll. As expected the oil giant announced the departure of Tony Hayward as chief executive. The firm, which said Hayward will be replaced by fellow executive director Bob Dudley on October 1, took a $32.2bn charge for the Deepwater Horizon disaster, including the $20bn it has already committed to putting in escrow. As a result the company reported a headline replacement cost pre-tax loss of $16.97bn for the second quarter, compared to a profit of $3.14bn the year before.After adjusting for all non-operating items and fair value accounting effects, second-quarter underlying replacement cost profit was $5bn, in line with market expectations, compared to $2.9bn in the second quarter of 2009. The size of the provision to cover the fall-out from the oil spill exceeded most estimates which ranged from $25bn to $30bn. The $32.2bn charge includes cost to date of $2.9bn for the response and a charge of $29.3bn for future costs, including the funding of the $20bn escrow fund. "We expect we will pay the substantial majority of the remaining direct spill response costs by the end of the year. Other costs are likely to be spread over a number of years, including any fines and penalties, longer-term remediation, compensation and litigation costs," said Hayward. Hayward said that, leaving the Gulf of Mexico issue aside, the performance by the company was "very encouraging". Second-quarter operating cash flow, excluding Gulf of Mexico oil spill costs, was $8.9bn, up 31% compared with the same quarter last year. Net debt was reduced by $2.9bn in the first half to $23.2bn despite the money spent on the response to the Gulf of Mexico oil spill. The ratio of net debt to net debt plus equity was 21% compared with 22% a year ago. In addition, the company has lined up substantial additional bank borrowing facilities, all of which remain undrawn, has reduced cash outflow in 2010 by reducing capital expenditure and by cancelling the payment of further dividends this year, as previously announced.Incoming chief executive Dudley currently runs the recently-established unit responsible for clean-up operations and compensation programmes in the Gulf of Mexico. He joined BP from Amoco after the merger of the two companies in 1998. He was president and chief executive officer of BP's Russian joint venture, TNK-BP, until 2008. Dudley will be based in London and his current duties in the US will be assumed by Lamar McKay, chairman and president of BP America. Hayward will be nominated as a non-executive director of TNK-BP. "I believe the decision I have reached with the board to step down is consistent with the responsibility BP has shown throughout these terrible events. BP will be a changed company as a result of Macondo and it is right that it should embark on its next phase under new leadership," Hayward said. BP said that under the terms of his contract Hayward would receive a year's salary in lieu of notice, amounting to £1.045 million.