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Special Report: New CEO Dudley Isn't the Long-Term Answer at BP, Expert Says [Editor's Note: Frequent Money Morning contributor Dr. Kent Moors is an advisor to six of the world's Top 10 oil companies and a consultant to some of the world's largest oil-producing nations. Since his "Energy Advantage" advisory service went live on July 6, the portfolio, cumulatively, is up 56.9%. For more information on the service, please click here. Below, see what worries Dr. Moors about BP's latest plans, and new CEO.]
By William Patalon III, Executive Editor, Money Morning
When readers ask me how Dr. Kent Moors could be up nearly 60% on a portfolio that he only launched July 6, I don't give them an answer.
I tell them a story.
When the BP PLC (NYSE ADR: BP) CEO-replacement saga began to unfold earlier this week, and the Money Morning news team was working the story, I contacted Dr. Moors to ask him if he knew anything about anointed successor Robert Dudley.
With that response, Dr. Moors underscored, yet again, why he's the ultimate energy-sector insider: He doesn't just know about Dudley - he actually knows him.
In fact, Dr. Moors went on to give me an analysis of the new CEO's managerial style, including Dudley's strengths and weaknesses. Dr. Moors even went as far as highlighting the elements of Dudley's managerial proclivities - and the elements of BP's strategy - that pose the biggest risks to the Big Oil company's turnaround.
It's no surprise that Dr. Moors understands all this: He's worked as an advisor to BP before.
I've been a journalist for nearly 30 years, and before I moved into editing, was considered one of the top business reporters in the country. So I know a true industry insider when I see one.
In the few months since he's joined Money Morning's roster of global experts, I've talked with Dr. Moors enough to know that - in the global energy sector - he's the ultimate insider.
In fact, his latest insights on the BP situation - its new CEO, the status and likelihood of success of the so-called "relief wells," and even BP as an investment - were so good, that we decided to post my most recent interview with him in Money Morning, so that you can read it in its entirety.
William Patalon (Q): What was your reaction to BP's decision to oust CEO Tony Hayward and replace him with Robert Dudley, an American and an insider? A solid, strategic move? Window-dressing? A non-factor?
Dr. Kent Moors: A move was inevitable. Hayward had become a lightning rod. Short-term, replacement of the CEO allows for a "new renewal" approach. Largely a PR factor in that sense, but BP still makes its moves to embellish its image when in difficulty. Bob Dudley has senior level experience and has been awaiting something serious to do after being ousted as head of TNK-BP, BP's major Russian joint venture. Dudley managed to alienate the Russian partners to the extent that BP was in danger of losing its position in Russia if Dudley was not removed. BP saw TNK-BP as a way into Russian E&P (exploration and production) work, but did not want the venture to operate outside of Russia (where it would be a competitor to BP itself). The Russian partners, however, did.
Dudley is an interim appointment to appease the U.S. government. From a tactical standpoint, BP needed to make a move by July 27 - the day it made its quarterly financial report.
Q: Do you know Dudley? If so, what's your assessment of him as an executive? Is Dudley qualified? In your travels, have you crossed paths with him? Any thoughts, impressions, comments?
Dr. Moors: Yes, we met in Russia. He delegates excessively, [and is] not a particularly good administrator or executive on details. He is primarily a strategist. Has little field experience - he looks at matters with the view of a director, not a program manager. He sees the big picture, but is lost in the details. Problems, of course, arise from the details - not the overall strategic policy.
Q: What moves do you expect that he'll make once on board? Are they the moves that you would have him make were he asking you for advice?
Dr. Moors: BP will emerge as a smaller company. It will pick and choose upstream projects, and will emphasize the downstream refinery to retail distribution [part of the business]. Dudley will spend much of his time serving as the source of sound bytes on the liability issues emerging from the spill. That would have been his job anyway, had he not been elevated to the CEO slot. The company must fundamentally revise its strategic-risk-management plan. This is the third time I am making this suggestion. Since I was advising BP the last two times I made it, I doubt they will listen this time, either.
Dudley does not seek outside advice. Owing to his limited project experience - I am talking here about having to get your hands dirty in the actual operational elements - he tends to defer excessively to inside advice. That's a bad idea when you stop to consider that it was the "inside advice" that resulted in the current disaster.
Q: Does this "swap at the top" change your outlook on BP's shares? Why or why not?
Dr. Moors: Not in itself. The situation has to stabilize and a new BP structure has to emerge before the value of the stock itself can be correctly estimated.
Q: Does the move have other, ancillary effects on energy-sector stocks? If so, which sub-sector, or which stocks, and why?
Dr. Moors: Only to the extent that senior management has to be more adept at explaining organizational elements and serving as a conduit between company and the outside. The days of the audience of a major energy CEO being limited to his board of directors are drawing to a close.
Q: Given Dudley's reported better rapport with the U.S. government, what's the prognosis for offshore drilling in the U.S. Any better? Or is this a non-factor?
Dr. Moors: Dudley will be treated easier in upcoming committee hearings because he is the guy who replaced Hayward. His appointment means nothing in terms of changing the offshore drilling dynamic. That is currently playing out on Capitol Hill with the discussion on several pieces of legislation. The single-biggest development from the industry that will help that along was the announcement of a multi-company emergency-reaction plan.
Q: Anything new on the spill itself? The relief wells? I recall that, in one of your last columns for us, you outlined the "nightmare scenarios" for the relief wells.
Dr. Moors: I am still not sold on doing both a static kill from the top and a direct kill from below. The idea is to move as much mud down to offset pressure differences. If there are significant pressure differentials between the annulus (the space between the production casing and the borehole) and inside the production casing (the pipes of the blown well), the combination could create a major collapse and pipe implosion. The static kill is moving in from 5,000 feet down (the blowout preventer above the wellhead on the seabed floor). The direct kill is moving in at a 47-degree angle to intersect with the production casing about 17,500 feet down (13,500 feet below the seabed).
Q: Anything else we should be watching for?
Dr. Moors: Increasing problems experienced with an aging pipeline, terminal and capped field structure. In the last week alone, we've seen a barge collision with a capped well in the Gulf, a dramatic pipeline explosion in Dalian (China) and a Michigan pipeline rupture that sent oil spilling into the Kalamazoo River. More incidents such as these are on the way. The required capital expenditure to maintain this infrastructure are increasing fast.
[Editor's Note: Dr. Kent Moors, a regular contributor to Money Morning, is the editor of "The Oil & Energy Investor," a newsletter for individual investors. In a career that spans 31 years, Dr. Moors has been consulting the energy industry's biggest players, including six of the world's Top 10 oil companies and the leading natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa. As the preceding interview so clearly illustrates, Dr. Moors' experiences - as well as the unrivaled industry access, contacts and insights he possesses - are the backbone of the Energy Advantage, an energy-sector advisory service whose portfolio is up a cumulative 56.9% since its July 6 debut. For more information on that service, please click here.]
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