As Profit Rises, BP Chief Seeks To Allay Anger

Firm Faces Image Problem Over Oil Prices, Mishaps

NEW YORK, July 26 He has gone to the best schools, been knighted, been made a life peer and turned British Petroleum into the world's second-largest publicly traded oil company, but John Browne is still scrambling to make his company bigger, fix a troubled U.S. subsidiary and, above all, explain why consumers shouldn't be angry at big oil companies as they rack up record profit.

The price of oil has soared because of political anxieties, not because of any physical shortage of supplies at the moment, Browne, chief executive of BP PLC, said in a wide-ranging interview in the company's Midtown offices here Wednesday, a day after his company reported another jump in quarterly earnings and a day before Exxon Mobil Corp. is expected to set new records.

"The explanation probably lies in this balance of anxiety and stability. Are people anxious? They look at the news, and they see issues with Iran, issues with Iraq, issues with Lebanon, issues with Venezuela, issues with Nigeria, issues with Bolivia," Browne said. "And so we get some geopolitical drive on the price of oil, and that seems to be fueling this rather dramatic increase that's taken place recently."

High world prices, easily passed on to consumers, have pushed profit at the major oil companies to record levels, but Browne balked at calling those earnings a windfall. "It helps the bottom line, there is no doubt about it," he said of high oil prices. Referring to the earnings, he added: "I'd like to be more accurate about it. I think these are rents which were not expected, not reasonably expected and, therefore, they are probably unearned in the technical sense."

What looked like good fortune also had some element of planning, Browne said. BP had "positioned itself at considerable risk" during the 1990s, when oil prices plunged as low as $10 a barrel, and he said that was paying off.

Although many oil analysts have been raising their price forecasts in recent weeks, Browne said he does not expect the price to stay at this level indefinitely, noting that the oil business is cyclical. BP is making investments on the assumption that crude oil will cost about $40 a barrel, he said. While that is far higher than the $25-a-barrel assumption BP used a couple of years ago, it is still well below current prices of more than $70 a barrel. "We think about $40 in the medium term," he said.

"The reserves in the world are extensible," Browne said, brushing aside concerns raised by some oil analysts that world production may be hitting, or already past, its peak. "One day, oil will peak, but we don't think we're anywhere close to it," he said. "That's not the issue. There's plenty of oil reserves around. The real issue is the appropriate rate of development of it and, secondly, what contribution will oil make to the energy balance over the next 20 years."

Meanwhile, he said, there is no shortage of exploration projects for BP. It plans to increase capital spending by as much as $1 billion this year, to $16 billion. One focus for the company continues to be Russia, where BP is getting about 1 million barrels of production a day from a joint venture, according to analysts. Browne had BP buy $1 billion of the recent initial public offering by the Russian state-owned oil company OAO Rosneft, which he said at the time was in part an effort to remain in Moscow's good graces. BP could use political help in arranging the construction of pipelines to deliver natural gas from a giant field in eastern Siberia to China. Russia's state gas pipeline monopoly, OAO Gazprom, has been blocking the project. Many analysts believe Gazprom is trying to use its leverage to push BP into giving up a share of the field, which Browne said Wednesday has more reserves than all of Norway, one of the world's biggest gas exporters.

"We have to find a balance between their rights to export gas . . . and our ownership of the field," Browne said. "This is not about pushing; it's a matter of negotiating." He said that as China's needs grow, decisions will be made. He said that China would need the gas by 2012 to 2014 and that those dates are "around the corner" in terms of engineering and building a pipeline.

Browne, who has sought to polish BP's image by stressing its commitment to developing alternative energy sources, also apologized for a series of events that have tarnished the company's name in the United States, where 40 percent of its business is based. The company has been plagued by a series of leaks in its Alaska pipeline, allegations of price fixing by former propane traders and an explosion at a Texas refinery that killed 15 people last year.

He said BP had "walked across a fault line" and was taking steps to prevent such things in the future. Whereas responsibility for U.S. operations had been divided in the past, Browne recently appointed a single head for all North American operations, Robert Malone. Browne said he would also add $1 billion to spending on safety, recruit four or five people to a new advisory board for U.S. operations, and hire an outside auditor to monitor whether the company was complying with its commitments. "These are things I want to apologize for," Browne said of the leaks and the explosion. "These caused a lot of stress and distress to people, and to some families irreparable damage."