Tags: BP | Restructure | Trading | Arm | Profit | Erosion

BP to Restructure Trading Arm Amid Profit Erosion

Friday, 08 October 2010 09:46 AM

Oil major BP is restructuring its trading arm to cut costs and focus on growth markets such as China and India to turn around falling profits, the head of the unit said in an internal document.

The company, one of the world's largest oil traders, is seeing a decline in its traditional business in mature Western markets but sees growth in the two Asian countries and emerging supply basins of West Africa and Brazil, Paul Reed, chief executive of BP's global trading unit, said in the document obtained by Reuters on Friday.

Reorganization of the unit's leadership structure, which includes dropping at least one senior position, would take effect from Dec. 1, according to the document.

A BP spokesman confirmed the company was reviewing the structure of the trading arm but declined to comment on whether changes would include staff cuts or asset sales.

"As a result of market conditions which are resulting in lower volatility, we are reviewing the structure of our trading arm, and are exploring making changes in due course to improve its efficiency," the spokesman said on Friday.

Other potential areas for growth included gas and LNG trade, Reed said.

"BP's asset base is predominantly in the mature markets and has relatively little exposure to some of these areas," Reed said in an e-mail to Integrated Supply & Trading division (IST) staff.

"In order for IST to continue to understand global commodity flows, we will need to pursue new and longer term opportunities, investing in new projects or commercial commitments."

Reed said profitability had been eroded in a trading environment where price volatility was low, storage plays had been limited by growing inventories on land and at sea, and spare refining capacity had led to thin margins.

BP plans to reassess its portfolio as well as cut costs to align both with the lower-margin trading environment, which the company expects to continue into the medium-term future, he said.

BP would cut resources used in "non-critical areas" and simplify processes to foster a nimbler trading unit as well as to sharpen focus on developing and implementing strategy, Reed said.

Adapting to new regulations by governments, following extreme price volatility in 2008-2009, was another reason for BP's restructuring, Reed said.

"Regulation will lead to a fundamental change in the way the industry does business, fund itself and uses exchanges and clearing houses," he said.

"With the changes we have made in our control and compliance agenda, IST is well positioned relative to most of its competition. However, we still need to focus significant effort on both advocacy and on implementing the required changes."


To deal with the tough operating environment, BP aims to shorten the decision-making process by cutting layers of management, including removing the position of chief operating officer (COO) of global oil and gas.

Each regional trading head, known as HOSTs (Head Of Supply & Trading), would directly report to Reed rather than the COO from Dec. 1. Reed did not give the new role of outgoing COO Tim Bullock in the memo.

BP has appointed one of the European trading heads, Alan Haywood, to a newly established position as head of commercial development, to focus on major projects, strategy and regulatory developments. The review process would extend to management layers below regional trading heads, Reed said, to speed decision-making and to focus accountability for trading oversight.

"I recognize that the path we are on will create uncertainty and it is partly for this reason that we will be moving quickly. We will do nothing without undergoing due consultation and thereafter a proper management of change," Reed said.


The last time BP changed its trading policies was in 2008, when it adopted the Trading from a Single Point of Accountability (TSPA) system.

At least three senior ex-BP personnel, including former global head of fuel oil trading, Quek Chin Thean, have said in court documents that the TSPA was a factor in their resignations.

Quek, with five others, detailed the factors as part of their defense in a lawsuit against them by BP for breach of contract.

The BP spokesman declined to comment on Friday on whether the changes were in part due to difficulties surrounding the implementation of its new trading policy.

Three of the six — Quek, trading manager John Foo and marine fuels manager Clarence Chang — felt that their roles had been diminished under the TSPA, which had created unnecessary layers in decision-making processes and made their jobs more difficult, court documents show.

Quek said that the working environment had become engulfed in "a climate of fear," where compliance had focused on policing and penalizing individuals for breaches, rather than finding solutions to meet compliance requirements.

Since the beginning of the year, the IST group, which employs 3,500 personnel, has seen at least 59 resignations from its Singapore office, including 20 who joined fuel oil trading outfit Brightoil.

Senior trading personnel in the company, including Bullock, Marcus Cooper, who replaced Quek as the global fuel oil head, and Andy Milnes, who was the HOST of the Americas, also questioned the effectiveness of the TSPA, the court documents showed.

"We seem to be suffering from a lack of perceived respect throughout the whole organization — the Front office (trading personnel) thinks they are not respected by the Functions (compliance staff, among others)," Bullock said in an email dated May submitted to the court.

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Oil major BP is restructuring its trading arm to cut costs and focus on growth markets such as China and India to turn around falling profits, the head of the unit said in an internal document. The company, one of the world's largest oil traders, is seeing a decline in its...
Friday, 08 October 2010 09:46 AM
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