Matthew Lynn: BP needs to start fighting back

Oil company BP certainly knows how to dig a deep hole. But does it have any idea how to climb out of one?

BP is on the ropes. The dividend has been suspended, the share price has tanked, and there is still little sign of its catastrophic oil spill in the Gulf of Mexico getting fixed.

If the company doesn't start fighting back soon, it won't have a future. The three ways it should start are by hiring Tony Blair as chairman, approaching Russian energy colossus Gazprom for a merger and hiring some experienced executives from the tobacco industry to teach it what to do when you are the most unpopular organisation on the planet.

There is no point in underplaying the crisis. Last week BP abandoned its US$10 billion-a-year dividend and created a US$20 billion escrow fund to compensate victims of the oil spill. Its senior unsecured ratings were cut three levels to A2, the sixth-highest investment grade, from Aa2 by Moody's Investors Service, which warned that further downgrades are possible. The share price has dropped from more than £6.50 earlier this year to about £3.50 now.

But no situation is ever beyond salvation. There are ways for BP to start fighting back.

1: Hire Blair as chairman.

Anyone who watched chief executive Tony Hayward struggle to find a voice while being skewered by the US Congress last week would have realised the company needs to step up its debating skills.

BP chairman Carl-Henric Svanberg is about as much use as a ballerina on an oil rig. Whatever he learned while chief executive of cellphone giant Ericsson, it certainly didn't include communications. In this kind of crisis, the man is a passenger.

This is essentially a political crisis, so why not try a politician? Former British Prime Minister Blair is a brilliant communicator. They love him in the United States. He already works for JPMorgan Chase so it's not as if he's particularly fussy about whose payroll he joins. And he was so close to the oil giant during his premiership the company used to be nicknamed Blair Petroleum.

He would turn the debate aroundin no time. Heck, the guy managedto wriggle his way out of the Iraqwar, which probably did moredamage than anything that has happened in the Gulf of Mexico.

2: Approach Gazprom about a merger.

It wouldn't come as a surprise to anyone if the ambitious Russian energy giant was eyeing BP. The share price is so burned out, and its management looks so weak, it is vulnerable to a hostile bid.

The Russian company is now worth more than BP, with a market value of US$125 billion compared with less than US$100 billion for BP, so a takeover would hardly be difficult.

Why wait to be taken apart? Propose a merger instead. The Russian company's vast resources in its own country make a natural fit with BP's global expertise and distribution, as well as its own interests in Russia. BP will get a much better deal if it makes the first approach.

And, hey, let that nice Vladimir Putin deal with all the Washington politicians who want to put Gazprom-BP out of business.

If Gazprom isn't keen, try PetroChina. The same logic applies. The Chinese company is huge, and surely needs to expand. And the White House will think twice about messing with a company from China. It might start dumping those Treasuries and put the US into bankruptcy.

3: Hire everyone from British American Tobacco and Philip Morris International who feels like a 50 per cent pay rise.

BP needs to recognise that the oil industry has gone through a seismic shift. A mix of climate change, rising oil prices and the environmental hazards involved in extracting the stuff from harder, more dangerous places mean it will be deeply unpopular. It is certainly in long-term decline. What does that remind you of? The tobacco industry about two decades ago.

But huge unpopularity and steady decline can be an okay place to be. For example, British American Tobacco's share price has quadrupled in the past decade. BP's shareholders would be pretty happy if its shares followed suit.

You have to forget about being liked, forget about growth, and focus on the bottom line. Ship in everyone from Big Tobacco who wants a big pay rise - we'll assume they are not in the tobacco game for anything other than the pay - and get them to teach you exactly how it's done.

Those are all radical changes of direction. But BP needs to get on top of this crisis before it's too late.

- Bloomberg