‘I’m clearing out the cupboard,’ Moody-Stuart announced, planning instant surgery. Offices around the world were closed and country chairmen demoted, 4,000 staff were dismissed, 40 per cent of the chemicals plants sold, $4.5 billion of bad investments written off, capital spending cut by one third and, most dramatically, American Shell lost its independence. Appallingly managed and beyond financial control, US Shell represented 22 per cent of the company’s assets, yet contributed only 2.6 per cent of its earnings. Walter van de Vijver, a 42-year-old engineer, was dispatched to integrate the American company with its European owner. The cost of Moody-Stuart’s surgery was huge. Shell’s net income fell by 95 per cent, from $7.7 billion in 1997 to $350 million in 1998. There was little optimism that things would improve. The oil price in 1998, Moody-Stuart believed, was ‘likely to stay at $10’, and the likelihood of it going above $15 was ‘low’. At those prices, Shell’s profits, like BP’s and Exxon’s, were certain to fall further.
Moody-Stuart’s parallel agenda was to reform Shell’s ‘Business Principles’. A team had been working since September 1997 to develop a five-year strategy to resolve dilemmas involving human rights, global climate change and environmental problems. A larger question was whether any of these activities made sense in a ‘world of $10 oil’. Moody-Stuart was emphatic that his strategy was to generate profits ‘while contributing to the well-being of the planet and its people’. By then Watts had completed his study to alter Shell’s reputation. To boost employees’ self-esteem and to celebrate the ‘transformation process’, Moody-Stuart agreed that Watts, the new head of exploration and production, should stage a stunt. At a conference of 600 Shell executives in Maastricht in June 1998, Watts was propelled onto the stage in a spaceship, dressed in a spacesuit. ‘I have seen the future and it was great,’ he yelled to his audience, all of whom were wearing yellow T-shirts emblazoned with the slogan ‘15 per cent growth’. The onlookers were, remarked one eyewitness, ‘gobsmacked’ by Watts’s attempt to remake his ‘dour, pedantic image’. Everyone understood his agenda, however: Shell’s reserves were falling, and targets needed to be stretched. Managers were formally urged to ‘improve our effectiveness’. The message was ‘improve the score card’. At the end of his presentation, Watts urged his flock to sing Beethoven’s ‘Ode to Joy’: ‘Somewhat over the top,’ Moody-Stuart admitted. ‘We all do foolish things occasionally.’ Galvanising morale had been important. The oil majors were facing a torrid time. Those that failed, Moody-Stuart knew, would be buried alive. Executives from four American oil companies – Mobil, Amoco, Arco and Texaco – had approached Shell seeking mergers or to be bought. Shell’s split structure made that impossible. The company, Moody-Stuart knew, needed a counterplot to resist the unexpected challenge posed by BP.
John Browne understood oil better than most. Shell’s Mark Moody-Stuart, Chevron’s David O’Reilly and Exxon’s Lee Raymond could not match Browne’s intellect and bravado, but none had as much to prove. Employed by BP since leaving Cambridge University, the son of a BP executive who had met his Romanian mother, a survivor of Auschwitz, in post-war Germany, Browne understood that trouble and taboos had been inherent within BP since its creation. During his youth he had lived with his parents in Iran and had witnessed the company’s arrogance and subsequent humiliation. The industry’s rollercoastering battles ever since encouraged his taste for audacious gambles to rebuild a conglomerate lacking geographical logic and natural roots.
BP was founded on disobedience and survived by maverick deeds. The original sinner was William Knox D’Arcy, a wealthy Australian who arrived in Persia in 1901 on a hunch that oil could be discovered there. D’Arcy negotiated a 60-year concession over 480,000 square miles of desert. For seven years his team drilled unsuccessfully across an area twice the size of Texas, until in 1908 he was ordered by Burmah Oil, a Scottish investor, to stop. Having started yet another test bore D’Arcy’s team ignored the message and, detecting a strong smell of gas, struck oil. There was no natural reason why that fortuitous discovery should have evolved into the formation of a famous company. Culturally, the directors of the new Anglo-Persian Oil Company based in Glasgow were embarrassingly ignorant about their faraway asset. In contrast to the American oil companies which had spawned an integrated market built on discoveries in Texas and across the prairies, Anglo-Persian, which became BP, was a colonial concession sponsored by the British government. Managed by retired military officers recruited particularly from the Indian army, its staff clung to their suzerainty. Amateurs in marketing and untrained to supervise refineries and chemical industries, they aspired to be gentlemen, and were generally indifferent to indigenous politicians, especially Arabs and Iranians, whom they regarded as inferior. Unlike Shell’s country chairmen, soaked in local cultures and enjoying rapport with host governments, BP’s managers carelessly alienated their hosts, offhandedly oblivious of Iraq’s and Iran’s vast oil wealth.
Little changed before the nationalisation of BP’s oilfields in Iraq in 1951. Sir Eric Drake, the corporation’s conceited chairman, assumed that the confiscation would be compensated by increasing oil prices and the discovery of new reserves in Libya, Nigeria and Abu Dhabi, or by expanding into petrochemicals and shipping. Over the next 20 years, BP balanced the escalating demands of the Shah of Iran, the bellicosity of OPEC and Arab nationalism, especially in Libya, by finding new oil in Alaska in 1968 and the North Sea in 1970. The problem was the directors’ lack of commitment to exploration. The discovery of a new field, noted the exploration department in 1971, evoked the reaction, ‘What on earth are we going to do with all this oil?’ Terry Adams, BP’s director in Abu Dhabi, was expected to embody that casual attitude. To finance a pipeline in Alaska, Adams was ordered in early 1973 to sell half of BP’s share in Abu Dhabi’s offshore interests to a Japanese company for $736 million. ‘This is top secret, none of the locals need to know,’ BP’s manager Roger Bexon told him, referring to Sheikh Zaid, the leader of the state. In his anger after the sale was announced, Sheikh Zaid nationalised half of the Anglo-Japanese investment. The Japanese never believed that BP was unaware of the impending confiscation, and the Abu Dhabians griped about BP’s lack of respect. Insouciantly, the British pleaded ignorance, underestimating the profoundly negative consequence of their arrogance.
Arab irritation compounded BP’s problems in the region after the 1973 war. In succession, the company’s oilfields in Kuwait and Libya were nationalised. Overnight, BP’s plight was dire; the company had become entirely dependent on the discovery of oil in Alaska and imminent production in the North Sea, and it had fallen in rank from membership of the Big Three to seventh among the Seven Sisters. Morale was flagging, and there were even fears that BP faced extinction. Unlike the precise management processes at Chevron, Mobil and Exxon, which ran in harmony regardless of the identity of the individual chief executive, BP’s direction depended upon the chairman’s vision. ‘There are no sacred cows,’ declared Peter Walters, appointed chairman in 1981, who advocated retrenchment. BP’s focus was to be entirely oil. Following Exxon and Shell, Walters slowly reversed the diversification into non-oil businesses and ordered a $6 billion sale of all the nutrition manufacturers and mineral interests. He seemed unable to do much more to salvage the company from the morass. Impaired by the British government’s nonchalance, BP was crippled by debts, aggravated by the government’s order to repurchase about 10 per cent of the company’s shares from the Kuwaiti government which had been bought during a disastrous flotation. In an industry dominated by Exxon and Shell, BP had hit the buffers, destabilised by debt. Walters never recovered his self-confidence.
Two BP directors in America regarded