BP plans leaner trading unit

Singapore: Oil major BP is restructuring its trading unit into a leaner and nimbler outfit in the face of eroding profits, the head of the unit says in an internal document obtained by Reuters yesterday.

The document from Paul Reed, chief executive of the trading arm, said the company sees a decline in its traditional business but growth in newer markets, especially China, India, and new emerging supply basins in West Africa and Brazil.

"BP's asset base is predominantly in the mature markets and has relatively little exposure to some of these areas," Reed said in the email message to his staff in the oil major's Integrated Supply & Trading division (IST).

"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 the firm's profitability had been eroded in an trading environment where price volatility was low, inventory build-ups in landed and floating storage had limited gains on trading plays, and spare refining capacity led to thin margins.

BP, one of the world's largest oil traders, plans to cut costs and reassess its portfolio to align both with the lower-margin trading environment, which BP expects to continue for the medium-term future, he said.

BP would also cut resource utilisation in "non-critical areas" and simplify processes to foster a nimbler trading unit as well as to sharpen focus on developing and implementing strategy.

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."

Aims

To deal with the tougher operating environment, BP has embarked on a restructuring programme that aims to shorten decision-making by cutting layers of management, including removing the position of chief operating officer of Global Oil and Global Gas.

With the removal of the COO position, each regional trading head, known as HOSTs, will now directly report to Reed, from December 1. Reed did not give the new role of outgoing COO Tim Bullock in the memo.

Major projects

A new role, the Head of Commercial Development, to focus on major projects, strategy and regulatory developments was also established, with Alan Haywood appointed to the position.

Reed said the review process would extend to management layers below regional trading heads, to speed decision-making and to focus accountability for trading oversight.

"I recognise 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.