Knowledge Network: Faculty & Research

Story and photos by Daryl James

Life changed in an instant for Bob Dudley when he flipped on the television in his hotel room April 20, 2010. As director of BP operations in Asia, he had come to India on business and wanted to catch up on world news. But instead of the routine headlines he expected to find, he saw a breaking story about his own company with people he recognized.

An explosion in the Gulf of Mexico had killed workers on the Deepwater Horizon platform, and oil was gushing from the seafloor. “I knew immediately it had the potential of being something catastrophic,” said Dudley, a 1979 graduate of Thunderbird School of Global Management in Glendale, Arizona. “I think if you go around BP, everybody will tell you exactly where they were on that day.”

Dudley rushed to Houston, Texas, and spent the next several weeks immersed in the Gulf Coast recovery effort. While media outlets still followed the story around the clock, BP announced a change in leadership starting Oct. 1, 2010, with Dudley as its first American CEO.

In his new role Dudley continues to monitor the Gulf Coast recovery closely. But he also worries about other global trends shaping the industry. He mentioned five key issues in a one-on-one Thunderbird interview July 14, 2011, at BP offices in Houston. The conversation previews a keynote address Dudley will deliver Nov. 10, 2011, at the inaugural Thunderbird Global Business Dialogue in Arizona.

Growing energy demand

The first major trend involves a huge spike in global energy demand. Dudley says BP research shows the world’s energy consumption will rise 40 percent above current levels by 2030. “That is the equivalent of another United States and another China entering the world demand pool,” Dudley says.

Growth in United States and Europe will be virtually flat, which means nearly all of the movement will take place in emerging markets. “Where will this energy come from?” Dudley said. “It is not clear how the world is going to be able to do that.”

Rising demand will give leverage to resource rich countries, but only if they manage their resources wisely and develop solid relationships with key stakeholders. “It comes down to people interacting with people,” Dudley said.

Renewable energy limitations

As energy usage spikes, some relief will come from renewable sources. But Dudley said technology and business innovation have not kept pace with demand.

Renewable options such as wind and solar currently provide less than 2 percent of the world’s energy. “It is much less than people realize,” Dudley said. “And what has happened in Japan has put a hole in nuclear, I think. So that just further adds to the burden.”

He said BP continues to invest heavily in renewable energy as a “long wavelength transition,” but all renewable sources combined might climb to only 7 percent or 8 percent of total consumption by 2030.

Rise of national oil companies

Another pressure for multinational companies such as BP comes from the rise of state-owned companies. Dudley said international oil companies managed or owned about 80 percent of the world’s energy resources in 1970. Today that figure has dropped to about 8 percent.

“That is why companies such as BP have to work in the really difficult frontiers of the industry, or we will become irrelevant,” Dudley said. “That is why we have to operate in deep water or in politically difficult places where people need help.”

Big business backlash

The next issue is a growing backlash against “big oil” and large corporations in other industries. Dudley said this trend is most pronounced in the developed world, especially the United States.

“There’s a growing feeling in the world that big is bad,” Dudley said. “But companies that are big sometimes can weather investment cycles differently and better than small companies. Because of that, there is a role for big companies to play in the world.”

He said multinational oil companies such as BP make “big bets” that sometimes do not produce revenue for a decade. Big bets come with big losses that small companies cannot survive. “If you’re big enough and have your investments spread out,” he said, “the company itself can be sustained.”

Dudley said the challenge for oil and gas companies will be to communicate this message — even as pressure mounts worldwide for access to affordable, reliable energy.

Aging talent pool

Just when the industry needs experienced engineers and managers the most to navigate these complex challenges, Dudley said huge numbers of professionals will begin to retire. The average age of a drilling engineer, for example, is about 48.

“For about 15 years nobody wanted to work in oil and gas,” Dudley said. “This has produced a demographic bulge of experience.”

He said the problem is even more pronounced in emerging economies, which rely heavily on expatriate talent to fill senior leadership positions. Efforts have started to develop local talent through operations such as Thunderbird Worldwide Kazakhstan — which will open Sept. 30, 2011, in Almaty — but companies will need time to develop their high-potential managers into executives.

“You need people who can function with lots of ambiguity with lots of patience,” Dudley said. “And they have to listen and think about issues from all sides and find solutions.”

All of these trends will converge and overlap in the coming years. “That’s what keeps me awake at night,” Dudley said. “When I look at the complexity of the world, and I see all this experience that is going to move through the pipeline.”

>> Learn more: Advanced Management Program for Oil and Gas Industry Executives, a two-week certificate program taught at Thunderbird School of Global Management, Nov. 27-Dec. 9, 2011.

>> Related article: BP CEO Bob Dudley on Redefining Global Leadership

Bob Dudley ’79 accepts a Career Achievement Award from Thunderbird President Ángel Cabrera, Ph.D., during Homecoming in March 2009.	“How Now Green Cow,” a sculpture in the Parade of Cows series, stands outside BP offices in Houston, Texas. The sculpture’s inspiration came from BP employees, who submitted names for cows associated with BP and its core values. Artists include Marketing Plus and X Factor Design.
A wall of clocks marks different time zones at BP offices in Houston, Texas.	BP Group CEO Bob Dudley ’79 talks about his career July 14, 2011, at BP offices in Houston, Texas.
Thunderbird Corporate Learning director John Berndt, right, meets with Bob Dudley on July 14, 2011, at BP offices in Houston, Texas.	A BP worker leaves corporate offices July 14, 2011, in Houston, Texas.
BP Group CEO Bob Dudley ’79 will be a keynote speaker Nov. 10, 2011, during the Global Business Dialogue in Glendale, Arizona.	A BP office building towers above the trees at the corporate campus in Houston, Texas.

Posted: 08|1|11 at 7:30 am.
Filed under: Emerging Markets, Global Business Dialogue, Global Leadership.
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