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BP’s “Pattern of Neglect and Corner-Cutting”

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Two major, damning reports have surfaced in the past 24 hours that may make it impossible for BP’s reputation to ever recover. The spill itself was a major hurdle, but now we are seeing documents that “portray a company that systemically ignored its own safety policies” as well as first-hand accounts from Deepwater Horizon explosion survivors that company decision makers on the oil rig may have prioritized revenue over safety.

Here’s the video of Anderson Cooper discussing the rig’s last moments with the survivors in what “paints perhaps the most detailed picture yet of what happened on the deepwater rig — and the possible causes of the April 20 explosion.”

Here’s more from the CNN story on the workers’ comments:

The BP official wanted workers to replace heavy mud, used to keep the well’s pressure down, with lighter seawater to help speed a process that was costing an estimated $750,000 a day and was already running five weeks late, rig survivors told CNN.

BP won the argument, said Doug Brown, the rig’s chief mechanic. “He basically said, ‘Well, this is how it’s gonna be.’ ”

“That’s what the big argument was about,” added Daniel Barron III.

Shortly after the exchange, chief driller Dewey Revette expressed concern and opposition too, the workers said, and on the drilling floor, they chatted among themselves.

“I don’t ever remember doing this,” they said, according to Barron.

“I think that’s why Dewey was so reluctant to try to do it,” Barron said, “because he didn’t feel it was the right way to have things done.”

Revette was among the 11 workers killed when the rig exploded that night.

In the CNN interviews, the workers described a corporate culture of cutting staff and ignoring warning signs ahead of the blast. They said BP routinely cut corners and pushed ahead despite concerns about safety.

The rig survivors also said it was always understood that you could get fired if you raised safety concerns that might delay drilling. Some co-workers had been fired for speaking out, they said.

On top of these first-hand accounts comes a joint report from ProPublica and the Washington Post that shows that these issues were not just occurring on the Deepwater Horizon. Similar safety concerns have existed throughout many BP operations over the past decade.

A series of internal investigations over the past decade warned senior BP managers that the company repeatedly disregarded safety and environmental rules and risked a serious accident if it did not change its ways.

The confidential inquiries, which have not previously been made public, focused on a rash of problems at BP’s Alaska oil-drilling unit that undermined the company’s publicly proclaimed commitment to safe operations. They described instances in which management flouted safety by neglecting aging equipment, pressured or harassed employees not to report problems, and cut short or delayed inspections in order to reduce production costs. Executives were not held accountable for the failures, and some were promoted despite them.

Similar themes about BP operations elsewhere were sounded in interviews with former employees, in lawsuits and little-noticed state inquiries, and in e-mails obtained by ProPublica. Taken together, these documents portray a company that systemically ignored its own safety policies across its North American operations — from Alaska to the Gulf of Mexico to California and Texas.

The report gives a year-by-year breakdown of all the transgressions, but even to an untrained-to-the industry eye, the evidence seems overwhelming to suggest that their has been a legacy of ignoring safety — both for workers and the environment.

ProPublica sees it the same way.

It is difficult to compare safety records among companies in industries like oil exploration. Some companies drill in harsher environments. And bad luck can play a role. But independent experts say the pervasiveness of BP’s problems, in multiple locales and different types of facilities, is striking.

“They are a recurring environmental criminal and they do not follow U.S. health safety and environmental policy,” said Jeanne Pascal, a former EPA debarment attorney who led the investigations into BP. “At what point are we going to say we are not going to do business with you any more, bye? None of the other supermajors have an environmental criminal record like they do.”

Add all this up and the worst-case fears for BP offered this morning by the New York Times don’t seem so preposterous.

It seems unthinkable, even now, that the disastrous oil spill in the Gulf of Mexico could bring down the mighty BP. But investment bankers get paid to think the unthinkable — and that is just what they are doing.
The idea that BP might one day file for bankruptcy, particularly as part of a merger that would enable it to cordon off its liabilities from the spill, is starting to percolate on Wall Street. Bankers and lawyers are already sizing up potential deals (and counting their potential fees).

It seems unthinkable, even now, that the disastrous oil spill in the Gulf of Mexico could bring down the mighty BP. But investment bankers get paid to think the unthinkable — and that is just what they are doing.

The idea that BP might one day file for bankruptcy, particularly as part of a merger that would enable it to cordon off its liabilities from the spill, is starting to percolate on Wall Street. Bankers and lawyers are already sizing up potential deals (and counting their potential fees).

And even if bankruptcy and takeover is overstated the oil conglomerate’s fate, there are certainly those that agree that the company’s reputation will never recover.

There are many people — besides BP — who think even discussing the possibility of a bankruptcy or takeover is silly. But looking out a few years, that may be BP’s best, last hope.

“Even with a prepackaged bankruptcy, BP’s brand is permanently tainted,” said Robert Bryce, a senior fellow at the Manhattan Institute and author of “Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future.” Yes, BP is financially sound now. It is unlikely to go bust near term, he said.

“Instead, BP will spend the coming decades circling the drain, mired in endless litigation, its reputation irreparably damaged, and its finances weakened,” Mr. Bryce said.

That, if you believe the bankers, is the optimistic outcome.

Yikes.

And, oh yeah, then there’s this latest “smoking gun” report of the company lying to the public. Plus, right, that whole President of the United States launching a quest to find out “whose ass to kick” thing.

Add it all together and, sure, just going bankrupt starts to sound like an even more and more optimistic outcome by the day. For other BP execs who are culpable in what is now likely to be the worst environment disaster in U.S. history, efforts to sidestep reputation damage may eventually pale in comparison to  efforts sidestep jail.

How Not to Manage Your Reputation

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The other day I wrote about how BP CEO Tony Hayward caught some heat for suggesting that food poisoning, not a reaction to chemical dispersants, was the culprit behind the illnesses that have befallen workers involved in the oil spill clean up.

Well it turns out that unfortunate comments have become a bit of a habit for Mr.

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Hayward and Newsweek took the time to compile some of the “best” ones.

On April 29, The New York Times reported that Hayward, apparently exasperated, turned to fellow executives in his London office and asked, “What the hell did we do to deserve this?” (A possible answer might be the company’s 760 safety violations over the last three years. ExxonMobil, in contrast, has had just one.)

On May 14, Hayward attempted to persuade The Guardian that “the Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume.”

Only a few days later, he told Sky News that “the environmental impact of this disaster is likely to be very, very modest.” That might surprise the many scientists who see the spill as a true environmental calamity, the full extent of which remains unclear.

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Obviously it’s bad enough for BP that they haven’t been able to stop the leaking oil.

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Their stock price is taking a beating and they have become an object of ridicule and disdain (as exemplified by this series of satirical billboards). But a CEO that can’t stop putting his foot in his mouth is certainly not helping. As they saying goes,”If you don’t have anything nice to say, don’t say anything at all.”

Gulf Oil Spill, Day 44

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As the Gulf oil spill enters its 44th day, BP officials are now fearing that it may be impossible to stop the flow of oil until relief wells are completed in August. The company is now hoping to stem the flow by using underwater robots that will attempt to cut the leaking riser pipe and install a custom fitted cap that will allow them to siphon the gushing oil the surface. It is a risky procedure that, if unsuccessful, could actually cause the flow of oil to increase, but it seems that this may be the only option left.

Meanwhile, the Obama administration has begun civil and criminal investigations into the circumstances surrounding the spill, intending to prosecute any responsible parties to the “fullest extent of the law.”

One person briefed on the inquiry said it was in an early stage and that no subpoenas had been issued yet to BP, the owner of the well. It was unclear whether any had gone to Transocean, which leased the Deepwater Horizon, the nine-year-old drilling rig that exploded and sank in April, to BP; Cameron, the company that manufactured a “blowout preventer” that failed to function after the explosion; or Halliburton, which performed drilling services like cementing.

Administration officials said they were reviewing violations of the Clean Water Act, which carries criminal and civil penalties and fines; the Oil Pollution Act of 1990, which can be used to hold parties responsible for cleanup costs; the Migratory Bird Treaty Act and the Endangered Species Act, which provide penalties for injury and death of wildlife.

In addition to its inability to stop the oil from gushing into the the Gulf, some of BP’s comments have not helped it to garner public sympathy. When reports recently surfaced that cleanup workers were experiencing nosebleeds, headaches, nausea, vomiting and shortness of breath – symptoms that are evidently similar to exposure to the chemical dispersant that BP is using – BP CEO Tony Hayward dismissed the illness as food poisoning. Food poisoning experts have disagreed with Hayward’s assessment and have pointed to a lack of proper safety equipment.

“These do not sound like the symptoms my clients typically suffer, ” said nationally-known food safety attorney Bill Marler. “It’s not that I wouldn’t mind suing BP.”

Of greater concern perhaps is the long-term environmental and economic impact this disaster will have. Although the outcome is still unknown, it is almost certain to be devastating. For businesses in the Gulf area it will be important to understand their insurance coverage . To that end, be sure to check out Anderson Kill & Olick’s latest online Fine Print column in Risk Management magazine. Originally the subject of an AKO Policyholder Alert, the article discusses the policies that could be in play for your company.

The massive losses are covered by a variety of insurance policies already purchased by those being harmed. First party property and business interruption (BI) insurance certainly will provide coverage for certain losses. Liability insurance, both general liability and pollution liability policies, will provide defense and indemnity for lawsuits. Directors and officers insurance also will provide coverage for derivative lawsuits against directors and officers.

Be sure to check it out and stay tuned to the Risk Management Monitor for more updates.

Oil Leak Could Take 90 Days to Repair

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Oil has been spewing out into the Gulf of Mexico at an alarming rate soon after the oil rig, The Deepwater Horizon, first sank on April 20. Since then, an estimated 5,000 gallons barrels per day have been let loose into the Gulf, polluting ecosystems and putting commercial fisherman out of work. It is a situation that worsens with every day that passes.

Speaking on the Sunday morning television circuit, Interior Secretary Ken Salazar said it could be 90 days before federal officials and BP, which was leasing the well when a fire broke out April 20, manage to stanch the oil–although he also said it could be stopped much sooner.

Much sooner, only if BP is able to quickly fabricate giant steel domes to be placed over the leaks, and only if the robots responsible for placing the domes can successfully do so in extremely murky conditions where visibility is limited. If this process is not completed soon, this will end up being the worst oil spill in American history, even eclipsing the Exxon Valdez incident in 1989. The local paper of New Orleans, The Times-Picayune, has a great animation of oil spill here.

This incident comes at a bad time for the Obama administration. He recently signed a bill allowing an increase in offshore drilling — and as exploratory drilling increases, accidents like these are likely to follow. Obama visited southeast New Orleans yesterday, telling those listening that, “BP is responsible for this leak. BP will be paying the bill. But as president of the United States, I’m going to spare no effort to respond to this crisis for as long as it continues.”

But Obama may have a larger crisis on his hands than he immediately realizes. As New York Times opinion column writer Stephen J. Dubner put it:

Could the Gulf disaster be just the kind of tragic, visible, easy-to-comprehend event that crystallizes the already-growing rush to de-petroleum our economy? As with TMI [Three Mile Island], it won’t do much to change the facts on the ground about how energy is made. But as we’ve seen before, public sentiment can generate an awful lot of energy on its own, for better or worse.

Comparing this oil spill, and the reaction that follows, to what happened on Three Mile Island may be a bit of exaggeration . . . or maybe not. We will wait and see.