Six months ago, the FT’s analysis of BP’s latest numbers began, Bob Dudley stated that the company had reached a “definite turning point”. How right he was. Unfortunately, the turning was down rather than up. The shares are not quite plumbing the ocean floor of the panic which followed the Macondo well disaster, but despite higher oil prices, the slowly clearing fog of litigation and the continuing sales of assets at prices well beyond book values, they have still managed to plunge by 13% in the last two months.

The fall neatly reflects the news of a 13% decline in first-quarter profits, while the other oil majors were cleaning up, so to speak. The most charitable description of BP is that it is a company in recovery mode, while us long-suffering shareholders (sic) wait for Dr Dudley’s medicine to take effect. A less charitable conclusion would be that the patient has such a chronic sickness that only major surgery will cure it.

The parallel that strikes me is with British Gas. In 1993 it managed to drift into three life-threatening crises simultaneously. The war of attrition with its regulator was culminating in a hostile report from the Monopolies Commission, its retail business was somewhere between a laughing stock and Public Enemy No1 (remember Cedric the pig?), while its nascent upstream arm was under sniper fire from the rest of the industry.

In came Dick Giordano, a tough, anglophile American businessman. Dudley might note how his fellow American dealt with the crisis. He saw that no single board could concentrate on three such problems at once, yet each was too important to be dealt with by sub-committees. His solution was to break the business up. Today those businesses are Centrica and BG Group, while the third has disappeared (profitably) into National Grid. An investor who bought in on Giordano’s arrival would have multiplied his money many times.

BP’s board faces the continuing (much worse) crisis in the mire that passes for the Americian judicial system. Meanwhile, it has probably lost control of TNK-BP, its vital Russian oil associate, after the bizarre bungle of its proposed joint venture with Rosneft handed the Russian Arctic to Exxon on a plate. BP also seems incapable of making profits from selling the end-product to actual consumers on the forecourt.

Yet even after paying handsomely for the Gulf disaster, it remains an extraordinarily rich company. Its exploration expertise is second to none, and it’s clear from the prices of the businesses it’s sold to pay the Macondo bill that it owns plenty of hidden gems, some of which barely warrant a mention in its vast annual report. Managed for the benefit of all shareholders, TNK-BP would be a fine, long-term asset. At the same time, it’s not obvious how BP’s upstream knowhow helps it to sell petrol profitably.

As everyone knows, breaking up is hard to do, and in any case must wait until the Macondo money-gusher is finally capped. That’s the turning point which really matters. It may be that the directors of BP, as they sweep past the uniformed flunkies outside the St James’s Square head office, have grasped all this and are secretly preparing plans to break up their behemoth. Well, we can all hope. It’s just that on past form, the BP board is probably giving more thought to where to lunch after the meeting than to asking what this once-great company is for.

Advertisements