BP Ignored the Omens of Disaster By JOE NOCERA

June 18, 2010
BP Ignored the Omens of Disaster By JOE NOCERA
“We have to get the priorities right,” the chief executive of BP said. “And Job 1 is to get to these things that have happened, get them fixed and get them sorted out. We don’t just sort them out on the surface, we get them fixed deeply.”

The executive was speaking to Matthew L. Wald of The New York Times, vowing to recommit his company to a culture of safety. The oil giant was adding $1 billion to the $6 billion it had already set aside to improve safety, the executive told Mr. Wald. It was setting up a safety advisory panel to make recommendations on how the company could improve. It was bringing in a new man to head its American operations — the source of most of the company’s problems — who would make safety his top priority. And on, and on.

That interview didn’t take place this week — a week in which BP was excoriated in Congress for the extraordinary safety lapses that led to the Deepwater Horizon rig disaster, while also being strong-armed by President Obama into putting $20 billion in escrow to compensate victims.

No, the interview took place nearly four years ago, after BP’s previous disaster on American soil, when oil was discovered leaking from a 16-mile stretch of corroded BP pipeline in Prudhoe Bay in Alaska. And that was just a year after a BP refinery explosion in Texas City, Tex., killed 15 workers and injured hundreds more.

Nor was the chief executive in question Tony Hayward, who spent Thursday before a Congressional panel ducking tough questions and evading personal responsibility — while insisting, absurdly, that as head of the company he had been “laser-focused” on safety. No, the interviewee was his predecessor and mentor John Browne, who had spent nearly 10 years at the helm of BP before resigning in May 2007.

Do you remember the Prudhoe Bay leak and the Texas City explosion? They were big news at the time, though they quickly faded from the headlines. BP was fined $21 million for the numerous violations that contributed to the Texas City explosion, and it was forced to endure a phased shutdown of its Alaska operations while it repaired the corroded pipeline, which cost it additional revenue.

In retrospect, though, the two accidents represented something else as well: they were a huge gift to the company. The fact that these two accidents — thousands of miles apart, and involving very different parts of BP — took place within a year showed that something was systemically wrong with BP’s culture. Mr. Browne had built BP by taking over other oil companies, like Amoco in 1998, and then ruthlessly cutting costs, often firing the acquired company’s most experienced engineers. Taking shortcuts was ingrained in the company’s culture, and everyone in the oil business knew it.

The accidents should have been the wake-up call BP needed to change that culture. But the mistakes and negligence that took place on the Deepwater Horizon in the Gulf of Mexico — which are so profound that everyone I spoke to in the oil business found them truly inexplicable — suggest that the two men never did much more than mouth nice-sounding platitudes.

Which also makes the disaster even more unforgivable than it already is. BP executives had four years to fix the company’s problems before an accident took place that was truly catastrophic. And they blew it.

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Before the Deepwater Horizon tragedy, the greatest oil disaster in American history was the Exxon Valdez spill in 1989, which spewed 10.8 million gallons of crude into Prince William Sound in Alaska. (By comparison, the gulf blowout is pouring out that much oil every four or five days.) That experience was searing for the country — but it was also pretty searing for Exxon (now known as Exxon Mobil). “A low point in the history of the company,” Exxon Mobil’s chief executive, Rex Tillerson, called it when he testified before Congress on Tuesday.

There is a reason Exxon Mobil has not had a serious accident in the subsequent 21 years. Unlike BP, it used the accident to transform itself.

Immediately after the spill, Exxon pulled together some of its most respected executives and gave them a new assignment: figure out how to embed safety into the core of the company. The message was reiterated by the top brass, including the chief executive, whenever they visited a rig or a refinery. Processes were put in place that had to be followed at any Exxon facility anywhere in the world. Redundancies were built in. Workers were encouraged to bring safety concerns to their bosses. And the statistics bear out the genuineness of this cultural change: by every measure, Exxon Mobil has by far the best safety record in the industry. The company has become so safety-crazed that an Exxon Mobil cafeteria worker takes the temperature of the lettuce in the salad bar.

Compare that to BP’s record these last four years. On Thursday, during his day before an angry House energy subcommittee, Mr. Hayward was confronted with the fact that BP had been cited by the Occupational Safety and Health Administration for 760 “egregious willful” safety violations in its refineries. Mr. Hayward tried to slough this off by claiming that the violations had taken place in 2005 and 2006 — before, that is, he became chief executive and brought his “laser focus” on safety.

But Mr. Hayward was not telling the truth. According to the Center for Public Integrity, which obtained the data under the Freedom of Information Act, the violations all took place between 2007 and 2010, very much on Mr. Hayward’s watch. What’s more, the company violated something called O.S.H.A.’s “process safety management standard” — which is precisely what that BP advisory panel had been charged with examining after the Texas City explosion. In October 2009, O.S.H.A. fined BP an additional $87 million for refinery deficiencies. It doesn’t sound like the company took its advisory panel’s recommendations very seriously, does it?

Or take the Deepwater Horizon disaster itself, which was preceded by so many instances of corner-cutting and poor decision-making that an accident was practically preordained. Drilling one of the deepest wells in history, the project used only one strand of steel casing, when it should have used at least two. Halliburton recommended that BP use 21 “centralizers,” which help ensure that the well doesn’t veer off course as it goes deeper into the earth, but the company used just a half-dozen. BP failed to conduct a crucial test to make sure that the cement holding the well at the bottom of the sea was sturdy enough.

And the engineers for BP on board consistently ran roughshod over subcontractors like Halliburton, who openly worried that BP was making decisions that could have catastrophic consequences. “This is how it’s going to be,” one BP engineer reportedly said, overruling a contractor on the critical question of when to replace the drilling mud — which keeps explosive natural gas from flowing out of the well — with seawater.

What makes this all the more shocking is that BP was drilling what’s called a wildcat well, meaning it was drilling in an area that no other company had drilled before, so it had no knowledge of the conditions. For most oil companies, that would be all the more reason to take extra precautions. Yet BP did just the opposite.

Listening to Mr. Hayward’s responses on Thursday only reinforced the feeling that the company still didn’t understand what it took to instill a culture of safety. He kept saying that the blowout preventer was supposed to be a fail-safe mechanism that would keep the well from raging out of control. But other companies know that it is far too dangerous to depend on the blowout preventer alone and they build in additional safeguards, so that a problem can be dealt with long before the blowout preventer is needed. Asked about the lack of that important cement bonding test, Mr. Hayward blithely replied that he wasn’t a cement engineer so he couldn’t make a judgment about the decision.

Most telling of all, Mr. Hayward consistently denied knowing of any problems on the rig. As far as he knew everything was fine — until it wasn’t. But drilling a well offshore, miles into the earth, is one of the most dangerous activities in the world. Most companies will shut down a well at the first sign of serious trouble and kick the decision-making up to top management. The price of making a big mistake is simply too high. If Exxon Mobil had been running the Deepwater Horizon well, it is implausible that Mr. Tillerson would not have been informed of the problems. And he would also have had to approve any fix. That Mr. Hayward and his top deputies knew nothing about the problems on the Deepwater Horizon well is, by itself, a serious act of negligence.

Changing a company’s culture is always hard, no doubt about it. And it is especially hard for a company like BP, which has had such enormous success these last few years, reaping $14 billion in profits last year alone. For such companies, it often requires a crisis to change. Microsoft changed after its antitrust trial a decade ago. Tyco International changed after its chief executive, Dennis Kozlowski, went to jail. And chances are, BP is now going to change, too.

This time, the world’s attention will not quickly fade, as it did after the Prudhoe Bay spill. The financial hit, which several Wall Street analysts believe could top $100 billion, is going to be severe. The pressure from the United States government will be unrelenting.

All of this, of course, could have been avoided if the company had truly taken safety to heart four years ago. But it didn’t, and the Gulf Coast is suffering the consequences. Normally, I’d say “better late than never.” But it’s not. Not even close.