Bryan Walsh’s magazine cover story this week takes another look at the Gulf of Mexico disaster, assessing the state of the spill and unpacking its causes and ramifications. Many industry insiders and people familiar with BP’s corporate practices have echoed a strikingly similar thought: that this tragedy was far more likely to befall BP than its competitors. If you’re interested in reading beyond the cover story, here’s some reporting I did on BP’s spotty safety history and why its company culture is partly to blame. Some of it is in the cover piece, but much is not.
—
Accidents happen. This gentle cliché was invoked repeatedly in the days after the Deepwater Horizon disaster, before the scope of the spill became apparent–by Sen. Joe Lieberman; by libertarian bomb-thrower Rand Paul, who called President Obama’s attack on private enterprise “un-American”; and by Barry Williamson, former director of the Minerals Management Service, the regulatory agency that failed to regulate. If the refrain was overly forgiving, it was nevertheless true. But accidents have a way of happening to BP, and they are happening for a reason.
As the blown well spews thousands of gallons of crude a day into the Gulf of Mexico, the British energy giant has vowed “make things right,” as CEO Tony Hayward has put it—to cap the well, clean up the spreading slick and compensate locals strafed by its economic impact. Maybe it will. The next step is getting its own house in order—a renovation Hayward has been unable to engineer since inheriting a company for whom safety has sometimes been a casualty of the quest to cut costs.
Just ask the residents of Texas City, Tex., a deepwater port between Houston and Galveston where refinery equipment stretches toward the sky like rusting cornstalks. On March 23, 2005, the blowdown drum in an isomerization unit at the city’s BP refinery—the nation’s third largest—was overfilled, causing highly flammable liquid and vapors to shoot into the air. Ignited by a spark, the resulting fireball killed 15 people and wounded more than 170. It was the worst domestic industrial accident since 1990, and in its aftermath BP was skewered for the lax safety measures that caused it—overworked employees, antiquated equipment, a shortage of safeguards and inattention to hazards. (Many of the deceased were working, for example, in trailers situated too close to the unit.) In a speech the following year, a BP executive admitted the disaster was “a process failure, a cultural failure and a management failure.”
It was also just one in a series of recent incidents blighting BP’s safety and engineering records. A few months after the Texas City accident, Hurricane Dennis battered the Gulf of Mexico, causing a 59,500-ton BP offshore platform nicknamed Thunder Horse to list badly and exposing the structure’s shoddy ballast system. The following year, a corroded stretch of pipeline in Prudhoe Bay, Alaska allowed thousands of barrels of oil to seep out onto the tundra. Investigators alleged BP had been aware of the deterioration—caused by bacteria that had collected due to irregular maintenance—but didn’t correct the problem.
Two probes into the Texas City tragedy raised uncomfortable questions about why BP was accident-prone. In one, a panel led by former Secretary of State James Baker concluded that BP’s leaders had failed to create a culture that prized “process safety,” choosing to emphasize low injury rates rather than implement best practices that might have prevented the tragedy. Scathing as they were, the Baker panel’s conclusions were mild compared to a report issued by the U.S. Chemical Safety Board, which assailed BP for declining to act on internal audits that noted the dilapidated condition of the refinery’s equipment and its sagging safety standards. “We were absolutely terrified that such a culture could exist at BP,” CEO Carolyn Merritt recalled later.
Others say employees had similar concerns. “What workers didn’t understand was why this company, which was making millions of dollars a day on [Alaska’s North] Slope, was nickel-and-diming everywhere they went.” says Scott West, a former EPA investigator who worked on the Alaska probe. “They kept issuing cost-cutting directives from above. That meant maintenance and regular preventive care was pushed to the sidelines.” According to West, BP employees dubbed this an “operate to failure” culture—one in which warnings went unheeded and problems were left to languish until they were pressing. By then, it was often too late.
This culture was the creation of John Browne, the CEO who transformed BP from a second-tier outfit into a multinational juggernaut after taking the reins in 1995. An interloper in the hail-fellow society of Texas oilmen, Browne was attuned to the revulsion for Big Oil triggered by the 1989 Exxon Valdez disaster, and in the late ‘90s spent $200 million recasting BP as a green-energy company, introducing a new tagline—“Beyond Petroleum”—and its pastel-helix logo. But beyond the branding efforts, he was a numbers whiz who drove his managers to pare spending and hit financial benchmarks. Under Browne’s stewardship, BP swallowed American oil giants Amoco and Arco, becoming the largest oil producer in the U.S. His regal bearing and green cred earned him the nickname “The Sun King.”
But his relentless push for profit and growth had downsides. “Each company has its culture. BP’s is a mess because of these amalgamations and purchases,” says Tom Bower, whose new book Oil traces BP’s rise. “You either have a culture of safety or you don’t. At ExxonMobil, safety maintenance is a central part of the culture. After Exxon Valdez, they decided to focus on the core business of an oil company, which is drilling for oil. John Browne, on the other hand, was into financial engineering, not oil engineering.”
Browne also presided over BP’s aggressive push to ramp up deepwater drilling in the Gulf of Mexico, where it is leading oil producer. Deepwater drilling is expensive and technically difficult. A succession of barren wells can bust a balance sheet, while a well-placed bet pays off big. With companies vying to tap reserves all over the world, gambling in deep water has become a necessity. “In the shallow water off the Gulf of Mexico, the big stuff has all been found,” says Peter Hitchens, a London-based oil-and-gas analyst. “So the oil companies, in a desperate attempt to get production growing, are going into deeper water, where the big discoveries are still able to be made.”
Much as their counterparts on Wall Street designed ever more exotic financial instruments to uncork new revenue streams, BP embraced risk in its drive for profit. At times this ethos has led employees astray. BP commodity traders have been accused of driving up the cost of crude and manipulating the price of propane. To settle charges for these incidents as well as the Alaska pipeline leak and the Texas City explosion, BP and its subsidiaries paid fines of more than $370 million in 2007. “BP cut corners with disastrous consequences,” declared a Justice Department attorney’s denouement. “They had their own professionals telling them, ‘You’ve got your head up your butt,’” says West, who calls BP “a serial environmental criminal.” “They didn’t listen to their own people.”
By that point Browne had resigned, buffeted by criticism over safety issues and dogged by questions about his personal life. To replace him the company’s board installed Hayward, a geologist who vowed to focus on safety “like a laser.” It hasn’t been enough. “Hayward didn’t have the force of personality or the drive to change the culture,” Bower says. Nor has his propensity for jaw-dropping gaffes (“I’d like my life back,” he infamously told a reporter) stirred confidence. But while he has emerged as a vessel for the nation’s frustrations, “you can’t single out Tony Hayward as the main scapegoat,” says Hitchens.
In some ways, the company has changed. Over the last few years, BP has amplified its presence in Washington, importing a battery of Capitol Hill veterans to help it navigate the shoals of Congress. In 2009 BP spent nearly $16 million to lobbyists, according to the Center for Responsive Politics—up from $1.9 million in 2004. To assuage public rancor, it’s also brought on crisis-management barons and PR specialists to burnish its image.
These pricey spokesmen may not be able to explain why BP hasn’t rectified its errors. As in Alaska and Texas City, cost-cutting measures seem to have played a role in the Deepwater Horizon debacle. Reports suggest that the choices BP made—forgoing tests, opting for a cheaper and riskier casing method—could have contributed to the problems with the rig, which was behind schedule and over budget. “It all goes back to the same thing: how can we maximize our return with the least amount of investment? Just like those commercial derivates they traded on Wall Street,” says Rep. Bart Stupak, a Michigan Democrat who has investigated BP on multiple occasions.
“BP is now at a crossroads,” says Bower. “It needs radical surgery and a new leader to change the culture dramatically.” But the company has been at a crossroads before. After Texas City, it made all the right noises—but failed to correct the problem. In October, the Occupational Safety and Health Administration fined BP a record $87 million for more than 700 violations at the refinery, and an analysis by the Center for Public Integrity found that during the past three years the British giant’s plants committed 97% of flagrant violations in the refining industry.
Perhaps the most chilling indictment of BP’s culture, however, was issued by an unnamed employee in an internal report on the Texas City refinery. The document is dated January 2005—two months before the disaster. “We need to learn from our mistakes,” the employee said. “Our organizational memory is very short. We seem to mourn for short periods of time and then move back to doing what we have always done and no meaningful changes occur.”
Accidents happen. But BP’s ability to live up to its own rhetoric would go a long way toward limiting them.
–With reporting from William Lee Adams / London