November 23, 2012 / 12:21 PM / 7 years ago

EXCLUSIVE-UPDATE 1-BP to restructure oil production unit-sources

* Changes to free up CEO to focus on turnaround

* Lamar McKay to head exploration and production divisions (Adds detail, background)

By Tom Bergin

LONDON, Nov 23 (Reuters) - BP is planning to announce a reorganisation of its oil and gas production operations, three sources familiar with the matter said, the second significant restructuring of its main cash generator since the Gulf of Mexico oil spill.

The latest changes will undo some of the measures Chief Executive Bob Dudley imposed in 2010 and are partly intended to free him up from close oversight of day-to-day operations so he can help chart BP’s recovery from the disaster which killed 11 men and spilled 5 million barrels of crude into the sea.

BP’s shares have failed to recover since the Macondo well was capped, as the company struggles to convince investors that it has a strategy for growth.

Lamar McKay, currently head of BP’s U.S. operations, will become head of a new Exploration and Production (E&P) unit, the sources said, a reinstatement of a role that was abolished in 2010, in the wake of the oil spill. BP declined to comment.

Dudley broke up BP’s old E&P division into three units on his elevation to CEO to replace Tony Hayward, whose gaffes in during the spill led to his stepping down.

The creation of functional roles for exploration, drilling and operating oil and gas production facilities, was aimed at moving BP away from its traditional decentralised structure of independent business units.

The decentralised model was blamed by analysts and U.S. government investigators for giving managers incentives to put profits before safety.

Dudley has espoused a more centralised model, akin to that adopted by rival ExxonMobil. The chain of command now runs along functional lines, whereas in the past managers of individual fields or refineries had wide rein to run their assets as they saw fit.

Two sources said Dudley was planning to tweak the structure. “The pendulum had moved too far away from decentralisation,” one source said.

Also, the existing model, which created extra roles reporting to the CEO, was seen to hinder Dudley’s ability to focus on strategic matters.

“There was a sense that Bob had an awful lot on his plate,” one source close to the company said.

BP directors agreed on the restructuring some months ago, one source said, but wanted to delay announcing it until it had made further progress with the U.S. authorities on settling investigations around the spill.

The company said last week it would pay $4.5 billion in penalties and plead guilty to criminal misconduct. A U.S. government civil investigation could also lead to fines in excess of $20 billion and two BP engineers face manslaughter charges relating to the rig blast that led to the spill.

Two sources close to the company said it was also mulling possible changes to its safety division, whereby some safety oversight roles functions might be brought back under the control of the managers of operating units.

The sources said the separate chain of command for safety personal slowed down operations.

But a BP insider said the standalone safety division, created in 2010 to signal BP was serious about safety after a series of disasters, would remain intact.

Editing by Philippa Fletcher

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