BP CEO Lord John Browne on War, Oil and Bottom Line

This is a partial transcript from "Your World with Neil Cavuto," July 26, 2006, that was edited for clarity.

NEIL CAVUTO, HOST: Just think of this. You got a live war going on in the Middle East. You got North Korea firing missiles, Iran also trying to get nukes and Iraq, well, that's always violent and unstable.

Now, ironically, all of this world strife could actually be helping the bottom line of a lot of companies, particularly in the oil patch.

My next guest runs the second largest of them on the planet. He is Lord John Browne. He is the chief executive of BP, which just reported numbers that beat almost all estimations, $7.3 billion made in just the last three months.

Lord Browne, good to have you.

LORD JOHN BROWNE, CEO, BP: Good to be here.

CAVUTO: All volatility that is doing this?

BROWNE: It is. A lot of it is the price of oil.

Now, obviously, as the price rises, our profits go up. And, so, that's been amplified by the way in which we have run the operations.

CAVUTO: Do you see it continuing?

BROWNE: It looks, most likely, that it will. And I think, if you look at the situation at the moment, the fundamentals of the oil market in '05 and '06 are really quite similar. You know, there are high inventories. Everyone has got a lot of oil in stock.

And the amount of surplus capacity OPEC has that they're not producing is actually rising a bit. So, that's the slack in the system, if you will. But, yet, the price of oil in the first half of this year was 20 percent higher than it was last year.

CAVUTO: So, it's not a capacity issue, per se, to you?

BROWNE: It doesn't seem to be. It's much more about the balance between anxiety and stability.

CAVUTO: How much of that do you think is built into the price of oil today?

BROWNE: Well, quite a lot.

CAVUTO: What's quite a lot?

BROWNE: Well, let's say it could be the 20 percent difference, you know?

CAVUTO: Wow.

BROWNE: You know, what else can you explain it by?

CAVUTO: So, $15 is...

BROWNE: Yes.

CAVUTO: ...all anxiety?

BROWNE: I tend to think that the market is the market, and the price is the price. So, you can't really tell which bit is what.

But the only way to explain the difference between '05 and '06 is just that. It's the sense that there's a lot of anxiety around. People aren't sure what's going to happen. And, as a result, they're actually stocking oil. There's a lot of oil in storage. In fact, I think there's pretty well no more storage left in the world.

CAVUTO: I don't know if it's happening in your home country, but, certainly, in this country, you have seen, every time the prices get this high, there's a clarion call in Congress to rein in the profits of the oil companies. What do you make of that?

BROWNE: Well, it's understandable, because the numbers are very big to any human being. But I think this: first of all, we have to invest for the future. One of the ways of getting the price of oil and the price of gasoline down is to find more oil and to find substitutes for oil, which takes a lot of research and development.

CAVUTO: But isn't the rap against, not necessarily your particular company, Lord Browne, but the industry in general is that you're not really doing that to the degree you should?

BROWNE: Wrong. Well, we are. We're definitely doing that.

We invested heavily, even when the price of oil was low. In fact, I remember being criticized heavily by people, saying, you're spending too much. And we said no, no. We have to spend on a level basis.

So, we're spending, you know, getting on for $18 billion, $19 billion in capital investment. And we're putting a whole load of money into R&D for alternative energies and bio-fuels — this is ethanol and beyond ethanol — to substitute for oil and gasoline.

CAVUTO: All right.

Now, I know the dollar equivalent in Britain and much of Europe is over $5, $6, $7, depending on where you go. In the United States, when it goes over $3, it gets a lot of people's attention. Do we just have to get used to that?

BROWNE: At the moment, I'm afraid we do.

CAVUTO: But what's "at the moment"?

BROWNE: Well, it depends on how long it takes to get more oil into the market and get more substitutes for oil.

CAVUTO: Months? Years?

BROWNE: I think it could be years, possibly.

CAVUTO: Really? So, for people who are buying all these SUVs in this country, bad move?

BROWNE: Bad move if they can't afford it. But I think people should take a cautious approach on what it takes to drive a car nowadays.

CAVUTO: Yes.

Let me ask, personally, in your case, Lord Browne, you have announced you're sticking to BP policy. I guess you guys have to retire at 60. The closer I get to that number, I don't find it so old. But that's a policy, right? But a lot of folks don't want you to leave. Are you still sticking to that?

BROWNE: Absolutely.

I'm sticking to retiring at the end of '08. I wanted to make it very clear, because speculation and uncertainty is bad for a company. It's simply bad.

CAVUTO: But 60 is not old.

BROWNE: Well, it's not old.

CAVUTO: So, where do you go?

BROWNE: Well, the reality is, I will have run the company for over...

CAVUTO: Thirteen years.

BROWNE: ... 13 years. And I think it's time to demonstrate that a company is not one person, that there's a great succession plan, and someone should take over.

CAVUTO: I know. I know, the kumbaya stuff.

BROWNE: You know, it's true.

CAVUTO: But let's face it. You're not going to be on a golf course.

BROWNE: No, I don't agree with...

CAVUTO: So, where are you going?

BROWNE: Well, I'm going to do business. I'm going to...

CAVUTO: Where?

BROWNE: Well, it depends.

CAVUTO: The oil industry?

BROWNE: Maybe some energy. Who knows.

I haven't decided yet. There are lots of opportunities to think about it. But, right now, my first job is being CEO of BP. So, I spent a lot of time doing that, and I will continue to do that.

But there seems to be lots of exciting things out there. I love business. I love the dynamic, exciting time with it. And I like the people.

CAVUTO: Real quickly, how long do you think this Middle East quagmire goes on?

BROWNE: Everyone has been wrong about the forecasts, so...

CAVUTO: True.

BROWNE: ... it's foolish to forecast.

The fact is that lots of things keep moving around. If it's not one thing, it's the other. And I think that's what we see right now. Some of the things that are happening don't directly affect oil, but they give additional force to that sense of anxiety. You know, we're not quite sure what is happening.

So, people want some certainty. And, right now, people vote on the uncertainty side, the anxiety side, rather than the stability side.

CAVUTO: Indeed, so far.

All right, Lord John Browne, thank you very much. I know you're still a ways from that retirement. We wish you well in it.

BROWNE: Thank you very much, indeed.

CAVUTO: Thank you.

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