London (Platts)--23Nov2012/1059 am EST/1559 GMT

BP has appointed the current head of its US operations, Lamar McKay, to oversee the company's existing upstream oil and gas divisions, which were created in the wake of the 2010 Gulf of Mexico oil spill, the company said Friday.

McKay, 53, became head of BP America in 2009 and has played a key role in dealing with US authorities and investors amid the storm of public and political outrage over the disaster, which created the world's biggest offshore spill.

BP previously scrapped the position of a single upstream head in the wake of the spill, creating instead three separate units covering exploration, development and production. That structure remains in place, but with the heads of the different units now reporting to McKay, instead of directly to CEO Bob Dudley, BP said.

"During the past two years, we have successfully introduced a more centralized organization to our Upstream; BP's largest organizational change for two decades," Dudley said in the statement.

"I believe it is now timely and appropriate to appoint a fully dedicated chief executive to this, our largest business," he said, adding that McKay's leadership of BP America over the past three years has been "exemplary".

McKay, a US citizen, will take up his new role, based in London, effective January 1, BP said in a statement.

A petroleum engineer by education, McKay joined BP in 1998 when he formed part of the Amoco team working on the BP-Amoco merger, which was agreed that year.

McKay then served as head of upstream Strategy and Planning for BP in London until 2000. He was later appointed to head of BP's upstream division in the UK and later in Russian and Kazakhstan. McKay also served as a member of the board of TNK-BP and, in 2009, was appointed head of BP America.

BP has not yet named a successor to McKay as head of BP America.

SMALLER, HIGHER EARNING UPSTREAM

Dudley, BP's first non-British CEO, split the company's upstream operations and create a new safety division in September 2010 as the troubled major sought to rebuild its reputation in the wake of the Gulf oil spill.

The shake-up saw the exit of BP's former upstream head Andy Inglis as the company also tried to draw a line under its part in critical drilling errors behind the Macondo blowout disaster.

But McKay will inherit a smaller upstream division than his predecessor Inglis, as BP has shed over $33 billion worth of assets since 2010 to help pay for the cost of the disaster. The company, which has also been hit by drilling delays in the Gulf of Mexico in the wake of the spill, has set itself a $38 billion divestment target by the end of 2013.

BP's oil and gas production averaged 3.26 million barrels of oil equivalent a day during the third quarter of 2012, down from around 4 million boe/d in Q1 2010.

The oil major is also set to see its output slip further next year when it completes the sale of its 50% stake in Russian venture TNK-BP to Russian state-controlled Rosneft.

Although BP plans to book its equity production, earnings and reserves as part of its major tie-up with Rosneft, its 20% stake in the Russian major would represent equity production of 908,000 boe/d.

During Q3, BP's share of TNK-BP's production was 1 million boe/d.

But BP is hoping that the sale of non-core upstream assets to focus on higher-earning projects will improve dramatically its cash earning potential per barrel.

BP saw operating cash flow reaching some $22 billion last year -- over 60% higher than 2010 -- and the major expects cash flow to grow around 50% by 2014 compared with 2011, assuming a $100/barrel oil-price environment.

Since the spill, BP has also looked to aggressively expand its exploration base and is planning to bring 15 new major upstream projects into production by the end of 2014. Most of these are in what it calls four "higher-margin areas": namely the Gulf of Mexico, Angola, Azerbaijan, and the North Sea.

--Robert Perkins, robert_perkins@platts.com; Richard Swann, richard_swann@platts.com

--Edited by Valarie Jackson, valarie_jackson@platts.com

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