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BP still under pressure 20 months after Deepwater Horizon

It’s 20 months since the Deepwater Horizon tragedy. Anthea Pitt and Kwok W Wan ask: has BP really turned the corner?

Spare a thought for Bob Dudley. In the aftermath of last year’s Macondo disaster, the BP chief executive’s every public appearance needs to be the ne plus ultra of public-relations master strokes. In his plenary address at December’s World Petroleum Congress (WPC) in Doha, Dudley – yet again – went to great lengths to reassure the industry that the firm had learned hard lessons from the Deepwater Horizon disaster.

Much of what Dudley had to say had been said before: the supermajor had changed for the better; it has restructured its operations to ensure best practice and improved oversight; it is committed to meeting the most stringent of safety standards; it will ensure a similar catastrophe cannot happen again.

This time, the PR effort went further – Dudley took his turn at manning BP’s stand at the WPC, meeting and greeting punters on the exhibition floor; another step designed to help reassure both the industry and the general public that while he is at the helm of a chastened supermajor, it has a brighter, better future. By any standards, it is obvious that the affable Mississippian – and the company he leads – still walk in the long shadow cast by the 2010 blowout and spill.

It’s been 20 months since Macondo. An exploration well on the high-pressure/high-temperature prospect, in Mississippi Canyon block 252, hit hydrocarbons and was being completed as a producer when it blew out. Methane rushed from the reservoir to the surface, where it ignited, engulfing Transocean’s Deepwater Horizon semi-submersible drilling rig in a fireball, claiming the lives of 11 crew.

As the blown-out well spewed an estimated 4.5 million barrels of crude into the Gulf of Mexico, public opprobrium rained down on BP. The firm – already under a cloud after the fatal explosion at its Texas City refinery in 2005 and a spill from its Alaska pipeline – has yet to shake off the stigma of presiding over the worst spill in US history.

Crisis in corporate culture

Reuters’ energy specialist Tom Bergin followed Macondo closer than most. The former oil trader-turned-journalist has written what is, official reports aside, one of the most comprehensive accounts of the disaster. But Bergin’s book, Spills and Spin – The Inside Story of BP, offers a different perspective to US government reports. Bergin argues that while operational deficiencies were the immediate cause of the blowout, those deficiencies stemmed in large part from BP’s corporate culture.

To prove this thesis, Bergin takes readers on a journey through former chief executive John Browne’s tenure at the top of the company. While Browne revitalised BP, transforming it from a "two-pipeline company", with a narrow geographical focus, into a player with genuine global reach and considerable muscle, the transformation fundamentally altered the company’s culture. Decision-making was, in large part, decentralised; BP gained a more youthful profile. Local managers were given a great deal of autonomy – in other words, they had the latitude to take risks that may not have previously been countenanced – and were rewarded for meeting financial targets.

These two innovations combined, Bergin argues, to create a corporate culture that did not merely accept operational risk-taking and corner-cutting; both were tacitly, if not actively, encouraged. While Tony Hayward, who took over as chief executive in 2007, restructured the supermajor, he did nothing to sate BP’s enormous appetite for risk. Indeed, Bergin argues that decisions made during Hayward’s term – the loss of a cohort of experienced field staff and a wave of operational outsourcing, for example – contributed to the spill.

But Bergin is at his best describing BP’s PR manoeuvres and the atmosphere and top-level in-fighting within the firm as it struggled to cap the well. While the narrative loses some momentum as the Macondo crisis drags on – not unlike public interest in the spill a month or so into the disaster – Bergin offers a clear and concise picture of a company in crisis. While there is no doubt that BP staffers working on killing the well pushed technological boundaries, their achievements were overshadowed – perhaps unintentionally sabotaged – by ill-judged PR moves. He argues, too, that BP’s handling of the spill has created a PR problem for the entire industry, in the US at least.

"Longer lasting than the zeal for offshore safety will likely be increased public distrust in the oil and gas industry," Bergin told Petroleum Economist. "The Congressional hearings and dissections of BP’s PR campaign left the US public feeling that oil companies were reckless."

Bergin recalls one incident in particular. "I remember standing outside one of the offices, where Tony Hayward, Bob Dudley, US energy secretary Steven Chu, Andy Inglis (BP’s then exploration and production chief) and others were going over the data to assess if it was safe to proceed [with an attempted top-kill of the blown-out bore]," he says.

"A couple of dozen engineers involved in the subsea effort were standing outside waiting for the cue to go ahead. There was an eerie silence. All of the US and much of the world were watching that room to see signs the men inside had decided to proceed with top kill."

The top kill, which involved pumping heavy drilling fluid into the crippled blowout preventer in an attempt to slow the oil flow before sealing the well bore with cement, failed. And it seems, despite Hayward claiming the operation had a two in three chance of succeeding, BP also knew a top kill would not work.

"It turned out that for all the drama, top kill was little more than a PR exercise. BP’s lead advisors had told it the measure would invariably fail, but no one outside knew that then," Bergin says.

Speaking after Dudley declared in his third-quarter results presentation – BP booked a profit of $5.1 billion – that the company had reached a definite turning point, Bergin casts doubt on whether the firm has really put Macondo behind it. "Dudley’s declaration that BP has ‘turned a corner’ brought to mind George Bush landing on the aircraft carrier USS Abraham Lincoln and declaring mission accomplished in Iraq, only for the country to fall back into chaos," Bergin said.

"Can you really remedy structural weaknesses built up over many years in 12 months? I’m not sure; and the natural opacity of big companies means it will take time to assess whether BP is a safer place and whether any improved operational performance is sustainable.

"It’s a risky strategy and given that this is an industry where people like to under-promise and over-deliver, one feels it’s a reflection of the pressure Dudley feels from shareholders," he added.

Bergin argues, too, that while BP has, on paper at least, recovered some of its momentum – it is set to resume drilling in the Gulf of Mexico – it still is still struggling to balance the urgent need to address operational shortfalls with the demands of its shareholders.

"One would have expected, after Deepwater Horizon, that shareholders would clamour for BP to invest more to become safer. But when BP doubled the number of maintenance outages at its facilities to address safety, all investors seemed to see was the hit to production, and consequently the shares languished. If markets took a longer-term view, it would certainly help BP, and others, invest in safety."

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