THE SUNDAY TELEGRAPH (UK): Business profile: Chapman turns up the gas: Frank Chapman… chief executive of BG Group, the UK's third-biggest oil and gas operation”: “speculation is increasing that a giant such as Shell, where Chapman worked for 18 years, might buy its way out of trouble, even though BG's price is at a record high” (ShellNews.net) 20 Feb 05
By Martin Baker (Filed: 20/02/2005)
BG's chief executive was a 'late starter' at school – but with his company's profits, output and reserves all soaring, he's making up for it now. Martin Baker meets him
Frank Chapman is in full flow, until an unexpected event blocks the pipeline. The chief executive of BG Group, the UK's third-biggest oil and gas operation, has just come from the plush media amphitheatre at City brokers Cazenove, where he explained to the analysts that the group's full-year results are good and getting better. They seem to believe him.
The market does, too. The share price rose sharply in the week before Tuesday's announcement, and the actual figures – operating profits up by 22 per cent, dividend up 10 per cent, sharply higher output, raised production targets and increased reserves – do not disappoint.
BG outpaced its bigger rivals by replacing all the oil and gas that it extracted – its reserves replacement measure gives a rate of 126 per cent compared with 89 per cent for BP. Some analysts griped that it could have been better, given it was 219 per cent in 2003.
When we meet in a windowless dungeon just down the corridor, the market has marked up the shares still further. BG, although still a minnow compared to Shell and BP, is valued at more than £14bn.
Chapman, who is wiry, edgy and, reportedly, very ambitious, has presided over BG Group since 2000. The company was created after British Gas demerged Centrica, in February, 1997, to become BG plc and was then restructured to become BG Group, in 1999, before demerging Lattice, the pipelines business, in 2000.
A pair of gimlet eyes peer over a pair of wire-framed spectacles. Chapman's doing what he's been doing all day. You sense it is almost automatic. "In 1996 this company earned £35m. Now it earns £1.5bn," he says. "Profits have grown 38 per cent compound over this period. The real BG story is the remarkably strong growth rate."
Suddenly, there's the blockage. Chapman notices that some of my notes are in Greek characters. It's the simplest of codes, designed to keep the interview flowing, but in this case it backfires. "How can you work in Greek? Are you Greek? Is it just a series of arbitrary letters, or does it mean something?" he asks.
The Greek thing seems to have pushed a button in Chapman's psyche, but eventually he moves back into autopilot when asked about corporate strategy: "We choose markets that are high-value, and then find resources to connect to those markets. High-value markets, low-cost gas, connecting the two, having the skills to play anywhere along the chain – exploration, production, pipeline, shipping, manufacturing of LNG [liquefied natural gas], reclassification of LNG, power generation, transmission, distribution.
"We're unique in being wholly focused on this gas strategy. We're organised round integrated gas chains rather than being some vertically segmented organisation."
The latter parts of this are, um, Greek to me, but Chapman is convinced that he's speaking a language the markets understand.
He certainly has to hope that this continues to be the case. The bigger players in BG's sector are not without their problems, and speculation is increasing that a giant such as Shell, where Chapman worked for 18 years, might buy its way out of trouble, even though BG's price is at a record high.
Chapman sighs at the suggestion: "Since 1996, there has been an almost continuous stream of speculation about all of the companies, but most often about Shell. Actually, we don't spend too much time thinking about that."
Well, maybe. But Chapman, an East End boy, has the lean and hungry look of a corporate Cassius. He is certainly not going to hang around and wait to be bought. So – unless he attempts the impossible feat of buying Shell or BP – it seems likely he will have to rely on organic growth to stave off the corporate predators.
On this point, his optimism is measured: "Companies can't continue to grow indefinitely. As we get bigger it's more difficult to grow at such high percentage rates, but the strategy we've laid out demonstrates that, to the end of this decade, we'll continue to grow earnings that are a multiple of the industry average.
"This year is what we'd call a pause year. This year the underlying earnings per share growth rate is about 8 per cent. That's a quiet rate for us."
Chapman has all the usual management spiel about his love of teamwork, and talks a lot about the satisfaction he gets from the chief executive's job. He is entitled to relish his position, not least because of his extraordinarily rise.
Chapman's father was a truck driver whose love of woodwork carried over to his son. Young Frank's ambitions transmuted to draftsmanship and, eventually, engineering. He admits to an unhappy start in academic life: "I was a late starter at school. I was at a secondary modern, I didn't qualify to get to grammar school.
"I remember the 11-plus. There were a lot of IQ tests, puzzles. Failed that. I was a B-streamer in most lessons, except in woodwork and technical drawing."
But the ugly duckling of the B-stream transmogrified into a swan of considerable distinction. He did well enough to get into technical college and get a diploma in engineering. That allowed him to go to Queen Mary College, London, where the late-blossoming Chapman gained a first-class degree.
He was able to succeed because he loved the subject. As a boy, he took clocks apart and has a love of "understanding systems and materials".
After university, he worked for BP for a short while. He then moved to Shell, where he managed major projects. This gave the engineer in him immense satisfaction but, after a time, companies became his project. He took the managing director's job at the division of British Gas that would become BG Group almost nine years ago. "I just wanted to run a FTSE100 company. I don't really know why, but that was my passion," he says.
"Passion is the most important ingredient for success," he adds. "The guys in our company with real passion, the ones who extract great enjoyment from the job, are usually the ones who end up succeeding."
Chapman has a quiet manner, but the passion is real enough. The City thinks he's a pretty good communicator, and he has the reputation for letting his staff know what he thinks.
Woe betide the underprepared BG executive. "I tend to be quite interactive. I can be extremely challenging to people . . . I don't know about giving people grief, but I like to have powerful dialogue. In executive meetings I like to have debate. I like people to talk back, push their ideas; for other people to come in and have a robust discussion, because it helps me think . . . I suppose that's extrovert behaviour."
You imagine that Chapman's reflective side comes to the fore on his frequent sailing trips. His wife is a keen shore sailor, and Chapman recently obtained a master's yachting licence that will see him cross the Atlantic this summer. The boy from the Docklands has already come far. He is determined to go further.