The Squeeze: Oil, Money and Greed in the 21st Century. Tom Bower
deputy John Browne had arrived at BP’s American headquarters in Cleveland, Ohio, to supervise BP’s 54 per cent investment in Sohio, the successor to the Standard Oil Company of Ohio, the original John D. Rockefeller corporation. The purchase had given BP an entrée into Alaska, but London had failed to prevent the American directors buying a copper-mining company, wasting $6 billion of Alaskan profits. ‘Sohio’s completely out of control,’ exclaimed Horton. ‘They’re losing $1 billion a year.’ Originally acquired in 1970, Sohio was Horton’s platform to prove his credentials as Walters’s successor. As head of BP chemicals in 1980, he had closed 20 plants and fired two thirds of the workforce. The cure at Sohio in May 1987 was to buy total ownership for $7.9 billion (£2.5 billion) and dismiss swathes of staff. Sohio, Horton and Browne proudly announced, would earn profits of $560 million within two years. Renamed BP America, it represented 53 per cent of BP’s total assets. From Ohio, the warts of BP’s culture in London were glaring. Deprived of courage, hope and energy, BP could only be resuscitated if the employees’ historical aversion to risk was replaced by American entrepreneurship. Their successful remedy in Cleveland, Horton and Browne decided, should be applied to the whole company after they returned to London in 1989.
Like most oil men, Horton and Browne believed in 1989 that ‘demand had peaked’, and oil would remain cheap because high prices stunted demand. Exxon, Mobil, Chevron and other more powerful competitors argued that prices were unpredictable, and survival depended upon cutting costs. Horton encouraged Walters to follow the herd. ‘BP cannot survive with this culture,’ he told Walters after listing eleven layers of management. ‘It’s sclerotic. Get rid of the brigadier belt. Too many have a vested interest to sabotage change.’ Starting from scratch, said Horton, BP needed to be repositioned and to duplicate Shell’s ‘wonderful worldwide brand’. Browne, as the new chief executive of exploration, echoed that criticism. In June 1989 he commissioned a presentation for investors in London and at the Rockefeller Center in New York. ‘This is dreadful,’ he said after previewing the slides. ‘We’re declining.’ BP’s access to 70 billion barrels of reserves had dropped to four billion, and were not being replaced. Production was falling from 1.5 million barrels a day to below one million. While its rival Shell had successfully retained profitable oil and gas fields in Nigeria, Oman, Malaysia, Brunei and Holland, BP would go out of business unless it found new, big prospects. Tom Hamilton, the American chief for international exploration, was told by Browne to present a scenario for a new strategy. ‘I’m going away with my family on holiday,’ explained Hamilton. ‘Take the company plane and come back early,’ ordered Browne. ‘I’ll need 90 days to do it,’ replied Hamilton. ‘You’ve got three days to calculate the best odds to discover more oil,’ replied Browne. In September 1989, Browne commissioned new exploration operations in Yemen, Ethiopia, Vietnam, Angola, Gabon, Congo, South Korea and the Gulf of Mexico.
Few doubted the need for brutal surgery. Peter Walters’s retirement in early 1990 provided the opportunity for change. Persuaded by Bob Horton’s presentation about his achievements and by his argument in favour of a cultural revolution, the board unanimously picked ‘Horton the Hatchet’ as BP’s new chairman and chief executive. ‘Project 1990,’ said Horton, ‘is my personal crusade to revolutionise the company.’ Twelve thousand employees would be dismissed and $7 billion of assets sold. Horton espoused drama as a resolution to the crisis.
Eighty-two committees at BP’s London headquarters in Finsbury Square were axed, leaving just four. The eleven layers of management were also reduced to four. To inspire enthusiasm and to reincarnate BP’s 120,000 staff as open-minded and freethinking, Horton participated in ‘cultural change workshops’ with 40 senior staff to discuss the ‘new vision and values’. His propagandists praised ‘the terrific buzz which motivated us to get the change moving’, but others carped that the balance between pain and progress was wrong. Horton had chosen Jack Welch’s operation at General Electric as his model for a centralised, focused corporation. In the oil business, no one could ignore Lawrence Rawl, the chairman of Exxon. Although Exxon was, in Horton’s opinion, ‘wildly overmanned and too engineer- and lawyer-led’, Rawl consistently produced successful results. Horton’s public predictions, accompanying jerky attempts to build solid corporate foundations, compared poorly with Rawl’s rare but pertinent statements about Exxon’s unflustered deliberations. As oil prices gyrated in late 1990 from $40 down to $31, Rawl cautioned that uncertainty made investment decisions difficult: ‘This is a long-term business. We cannot turn the money off and on every time someone clears his throat in the Middle East or elsewhere as the price goes up and down.’
The ‘cough’ was Iraq’s invasion of Kuwait in August 1990. America’s oil industry was still struggling. Oil production had fallen every year since 1986 by between 2.5 and 6.5 per cent. Banks remained reluctant to lend because of the continuing uncertainties. The oil business, it was said, was as safe as rolling dice in Las Vegas. Even Exxon lacked sufficient money and personnel to instantly boost production. The US government offered no leadership to fashion a new energy policy. In 1988 America had believed that George Bush Snr was the oil industry’s dream candidate, although as Ronald Reagan’s vice president he had offered it no help, and he had in fact campaigned for the presidency as an environmentalist. During his single term, Bush would dilute an Energy Bill giving the industry minor tax relief, would not limit imports, and would cancel the sale of eight offshore leases. Texans, surrounded by abandoned derricks, were angry that the president sent the army to Kuwait out of fear of losing 1.5 million barrels of oil a day, but that no one appeared to care about Texas’s similar losses since 1986. Their anger spread to contempt for east coast liberals and Californian environmentalists who nevertheless still harboured a sense of entitlement that energy should be abundant and cheap. Hoping for a cautious recovery from that economic devastation, Horton concluded that ‘the fundamental realities point to higher oil prices’. BP, he decided, needed to change fast.
The hyperactive Horton lacked Rawl’s gravitas. He misunderstood Exxon’s foundations, created in around 1865, and built on vast untapped reserves of oil. Ever since John D. Rockefeller’s retirement in 1897, the corporation had been led by domineering personalities moulded by Exxon’s character and caution. Unlike that prototype, Horton was not fashioning himself as a conservative, sober, confident chieftain, but was duplicating the caricature of a brash American chief executive. After four years in Cleveland, he had forgotten that BP was a British Boys’ Club, uniting in a collegiate atmosphere people who had lived, worked and played together for 25 years. Running too fast, he was failing to implement his own plans. Instead of focusing on the cuts, he ordered BP to expand despite the continued recession. At a time when the price of oil was about $16 a barrel and slipping, he expected that it would rise to $21 or even $25. Convinced of his own genius, he welcomed personal publicity. Impulsive and careless with his language, he told the first journalist invited into his office: ‘I’m afraid because I am blessed by my good brain which is in advance of my colleagues’, I tend to get to the right answer rather quicker and more often than most people.’ (He would forever regret this remark: ‘It came out wrong, and I have had it hung round my neck ever since – never ever did I think I was a genius, far from it.’) The cover of Management Today featured Horton holding a hatchet, while Forbes magazine photographed him sitting on a throne. There was gossip within BP’s headquarters about Horton asking his secretary, ‘Should I go to a charm school?’ His insensitivity bewildered his colleagues. Newspapers began reporting Horton’s unpopularity, one asking: ‘When Robert Horton and his wife return from their holiday in Turkey, many BP staff will hope that their plane will crash.’ David Simon, a managing director, was told that Horton concealed such criticisms from his mother. ‘Good God,’ exclaimed Simon. ‘Horton has a mother!’ Another executive told Horton to his face, ‘Why don’t you bugger off to Chessington Zoo and watch the gorillas and monkeys?’ ‘Why?’ asked Horton. ‘Because you might learn a lot.’
Relations between Horton and his fellow directors were not improved after they arrived at Heathrow airport on 23 June 1992 to fly to Alaska for a board meeting. Horton was overheard having an unseemly argument with the BA employee at the check-in desk. The atmosphere at the board meeting was fractious. BP would record its first quarterly net loss of £650 million ($1.24 billion) after its income