Sir Peter Walters, chairman of BP from 1981 until 1990, who has died aged 92, laid the foundations for its transformation into a premier league international oil company.
When Walters joined BP in 1954, its management culture was still touched with the imperial flavour of its days as the Anglo-Iranian Oil Company, and the government owned nearly half the shares.
He was fortunate to arrive at a period of continuous growth, and his early postings included two in the US, where he used the privileged access to senior management to make his mark, joining talks with other oil majors and the US government. He was in “the right spot at the right time”, he said.
He became managing director in 1973, the time of the first oil shock. BP reacted by deciding to diversify away from oil, moving into coal, minerals and information services, and boosting its existing interests in nutrition. But when Walters stepped up to be chairman in 1981, focus replaced diversification, and later he would describe diversification as his biggest mistake. Eventually IT, coal and minerals were all sold. The more successful nutrition division lasted longer, growing almost to rival the chemical division.
Walters set out to change the culture from an internalised one, dominated by negotiations between upstream oil-producing and downstream converting businesses. Instead, he insisted that each must pay its own way and that if another owner could do better, it should be sold. His mantra was “no sacred cows”.
Walters’s strong free-market beliefs chimed with the fiercer external business climate that inspired the Thatcher government and the demand for shareholder value exemplified by T Boone Pickens’s assault on big oil in the US and James Hanson’s takeovers in the UK. “I made clear to my colleagues that my role was to be a potential predator, to test whether they were getting as much value extraction as another owner.”
By now BP’s core business was in trouble. As the 1982 recession bit, its European refining, chemicals and shipping business lost £600m. Walters acted drastically, calculating that the first company to cut back would reap advantage; be less likely to be blocked by governments and unions; and be able to buy supplies and services cheaply elsewhere. In three years, nine of 12 European refineries were closed, chemical operations were pruned and BP’s shipping fleet was eventually handed over to independent managers. Managers got used to buying as well as selling oil.
Profits from production successes in the North Sea and Alaska swelled reserves, while a rights issue in 1981 brought in £624m and diluted the government’s shareholding to 31.5%. Walters was knighted in 1984. Profits, which had dipped below £1bn in 1982 and 1983, would rise to more than £1.7bn by the end of the decade.
In the US, where BP’s subsidiary, Standard Oil of Ohio, had wasted billions of Alaskan revenues on poor exploration decisions and diversification into minerals, Walters took decisive action in 1986, sacking the US management and installing as CEO and chief financial officer two senior Britons, Bob Horton and John Browne. Horton went on to become chairman of BP, and Browne chief executive. A year later, BP bought out the US shareholders.
Walters was convinced that BP could never be a top-rank international company with the government as its biggest shareholder; foreign governments, including the US, would always question its independence. Now his wish to cut these ties coincided with the Thatcher government’s commitment to privatisation. Nigel Lawson, as energy secretary, then chancellor, was an enthusiastic supporter.
In 1986 postponement of water privatisation had left the government with a big hole in its budgeted finances. It was decided to sell the BP shares, but Walters was horrified to find that it was to be a complete sale, not a phased withdrawal. Protests overruled, the sale was launched on 14 October 1987 with the razzmatazz of marines abseiling down BP headquarters. Crucially, Walters, anxious for complete independence, refused Lawson’s offer to retain a golden share which would give a veto over any change of ownership.
Within a week, the global stock market had suffered its Black Monday collapse and the market price fell below the offer price. The underwriters wanted the issue pulled, but Lawson stood firm, anxious to maintain the integrity of the privatisation operation for the future. On 28 October, Walters wrote asking for the issue to be withdrawn. Lawson decided to proceed, noting, critically, that Walters was “absent and unreachable on the day of decision”.
A new crisis erupted. Walters’s letter had warned that with the price so low an unknown buyer could obtain a majority stake at a very low initial cost. By 18 November, the Kuwait Investment Office had amassed 10% and was still buying. Walters warned Lawson that it could mean a direct competitor demanding a place on the board, or the US blacklisting BP if a large share was in the hands of an Opec member. Lawson rang Walters to suggest BP contact the KIO chairman direct. “He thanked me but did nothing,” the chancellor reported.
By now another battle was joined. On 8 December, BP launched a dawn raid to buy 15% of Britoil, an earlier privatisation of the government’s oil interests, and made an offer for a further 14.9%. They were up against the US company Atlantic Richfield (AKA Arco), but Walters gambled correctly that the golden share the in Britoil that the government had retained would not be used to block consolidation of two British companies. He was proved right and Arco sold their 24% to BP.
It was left for the government initially to resolve the Kuwaiti issue, referring it to the Monopolies and Mergers Commission on public interest grounds. In September 1988 it ruled that the holding operated against the UK public interest and ordered KIO to reduce below 10%. In January, Walters, in spite of misgivings among some financial advisers, spent precious BP reserves in buying half the KIO shares.
It was a messy end to a successful tenure. When he retired a year later, in 1990, he left a company weaker than it might have been, but genuinely independent, with earnings, cashflow and return on equity competitive in the industry, and managers comfortable with the free-market outlook. Although BP stumbled under his successor, Horton, its recovery came under the leadership of key members of his team. Even US commentators saw Walters as having led the whole industry away from vertical integration to a culture that emphasised trading and decentralisation.
He was born in Birmingham. His father, Stephen, a policeman, was killed in an air raid during the second world war and he was brought up by his mother, Edna (nee Redgate). Money was tight but Peter won a place at King Edward’s school, Birmingham, and then studied economics at Birmingham University, joining BP in 1954 after national service with the Royal Army Service Corps.
After leaving BP, Walters took his analytical interest in strategy and structure, as chairman, first to Blue Circle and then to the Midland Bank, now HSBC. In 1994 he became chairman of the pharmaceutical company SmithKline Beecham and led it into its merger with Glaxo six years later.
He was a reassuring chairman of the Institute of Directors (1986-92) and governor of the London Business School for 10 years (1981-91), the last four of them as chairman of the governors. In 2002, he returned to the oil industry, joining the advisory board of the Russian Tyumen Oil Company with a brief to advise on corporate governance and strategy.
Personally, Walters was disarmingly soft-spoken and approachable, almost insouciant, with a lively social interest offsetting his determined commitment to free-market economics. His longstanding connection with the Police Foundation, reflecting his father’s profession, culminated in his becoming its president in 2001.
He is survived by his second wife, Meryl (nee Marshall), whom he married in 1992, and by two sons, James and Alastair, and a daughter, Caroline, from his first marriage, in 1960, to Patricia Tulloch, which ended in divorce in 1991.
