British Petroleum (BP) Continues to Reveal Mistakes and Poor Decisions in the Gulf of Mexico Disaster

Update 7-30-10:

Tony Hayward remains unrepentant about BP’s response to the disaster, as reported in today’s Wall Street Journal:

At the onset more than three months ago, Mr. Hayward was attacked for saying BP could contain the spill and prevent an environmental disaster. That, plus a series of other missteps and failed efforts to stop the runaway well, made Mr. Hayward a toxic symbol in the U.S. for the unfolding mess.

“I became a villain for doing the right thing,” Mr. Hayward said in the interview. “But I understand that people find it easier to vilify an individual more than a company.” He said he feels some of his comments, particularly “I’d like my life back,” were “wrong.”

Mr. Hayward made clear he wanted to stay, but decided it would hurt BP as its works to permanently cap the well, and repair the Gulf coastline and the company’s public image. “I didn’t want to leave BP, because I love the company,” Mr. Hayward said in the interview. “Because I love the company, I must leave BP.” Earlier this week, BP announced he would step down as its leader Oct. 1

He added: “In America, the road back will be long but I believe achievable when the whole truth of the accident finally emerges and the Gulf coast is restored….BP can rebuild faster in America without Tony Hayward as its CEO.”

Mr. Hayward’s comments were greeted with skepticism from BP’s critics. The CEO has undergone withering attacks in the U.S., most notably during a daylong grilling by lawmakers in Congress over the spill and cleanup efforts.

“Mr. Hayward should be less concerned about his vindication, and more concerned about what BP will do to end the victimization of families and businesses in the Gulf,” said Rep. Edward J. Markey (D., Mass.). “It will take years of continued commitment to the restoration of the Gulf before BP has the legitimacy to engage in historical revisionism.”

Update 7-25-10:

Now BP’s CEO is out of his job, according to the New York Times:

Tony Hayward, the embattled chief executive of BP, has agreed to step down and be replaced by Robert Dudley, the company’s most senior American executive who is now in charge of BP’s operations in the Gulf of Mexico, according to a person close to the company’s board.

BP Chief Executive Officer Tony Hayward, left, will be replaced by Managing Director Bob Dudley, right, if the company’s directors ratifies the agreement, according to a person close to the board.  Susan Walsh/Associated Press.
Robert Dudley.  Steven Senne/Associated Press

The change in leadership will be discussed by the board of directors on Monday and may be announced Tuesday if the board ratifies the decision. Mr. Hayward would probably be replaced in the fall, the person said, but a decision has already been made by mutual agreement between Mr. Hayward and senior BP management.

“It is in the best interest of the company to go forward with fresh leadership,” the person said.

Mr. Hayward, who has been running BP since 2007, is the first senior executive at BP to pay the price for the largest oil spill in the United States, after the Deepwater Horizon blew up on April 20. His handling of the crisis has infuriated Gulf Coast residents and government officials alike, especially after a series of public gaffes forced him to retreat from the spotlight.

Update 6-30-10:

As my colleagues at Competing Values have stated for years based on their extensive research and consulting, there are real tradeoffs when it comes to leading change.  One of those tradeoffs is cutting costs versus maintaining safety, as evidenced by BP as reported in today’s Wall Street Journal:

BP’s Texas City, Texas refinery, shown after a fire in 2004, was the site of a deadly explosion in 2005.
Associated Press

In an internal communication in early 2009, Neil Shaw, then-head of BP’s Gulf of Mexico unit, lauded Atlantis’ operating efficiency, saying it was “4% better than plan” in its first year of production. It was part of a success story that Mr. Shaw said had enabled BP to become the No. 1 oil producer in the Gulf.

Early on June 5, 2008, a piece of steel tubing ruptured on BP PLC’s vast Atlantis oil platform in the Gulf of Mexico. The tubing was attached to a defective pipeline pump that BP had put off repairing, in what an internal report later described as “the context of a tight cost budget.”

The rupture caused a minor spill, just 193 barrels of oil, but BP investigators identified bigger concerns.

They found the deferred repair was a “critical factor” in the incident, but “leadership did not clearly question” the safety impact of the delay. The budget for Atlantis—one of BP’s most sophisticated facilities— was “underestimated,” resulting in “conflicting directions/demands.”

As investigators were questioning Atlantis’ lean operation, top executives were praising it.

In an internal communication in early 2009, Neil Shaw, then-head of BP’s Gulf of Mexico unit, lauded Atlantis’ operating efficiency, saying it was “4% better than plan” in its first year of production. It was part of a success story that Mr. Shaw said had enabled BP to become the No. 1 oil producer in the Gulf.

The budget squeeze on one of the British oil giant’s most challenging projects underscores a tension at the heart of BP under Chief Executive Officer Tony Hayward.

Until the April 20 explosion of the Deepwater Horizon oil rig in the Gulf, Mr. Hayward repeatedly said he was slaying two dragons at once: safety lapses that led to major accidents, including a deadly 2005 Texas refinery explosion; and bloated costs that left BP lagging rivals Royal Dutch Shell PLC and Exxon Mobil Corp.

A Wall Street Journal examination of internal BP documents, legal filings, official investigations and reports by federal inspectors, as well as interviews with regulators, shows a record that doesn’t always match Mr. Hayward’s reports of safety improvements.

Update 6-18-10 from the Wall Street Journal shows that BP’s CEO Tony Hayward’s apology and placing $20 billion of BP’s money into an escrow fund didn’t work:

[0617hayward02] Associated PressBP CEO Tony Hayward arrives on Capitol Hill June 17 to testify before the House Oversight and Investigations subcommittee hearing.

WASHINGTON—BP PLC Chief Executive Tony Hayward went to Capitol Hill to apologize for the disaster caused by his company’s gushing Gulf of Mexico oil well, and to absorb the blows as American politics requires when business leaders stumble into tragedy or scandal.

Mr. Hayward stuck to his plan. He sat for hours on Thursday, alone at a witness table, parrying questions from indignant members of the House Energy and Commerce Committee in a deliberate monotone.

Over and over, he said he wasn’t involved in the decisions preceding the accident and declined to speculate on causes until investigations were complete.

He soon found that $20 billion and an apology weren’t going to make his day better.

“The explosion and fire aboard the Deepwater Horizon and the resulting oil spill in the Gulf of Mexico never should have happened—and I am deeply sorry that they did,” Mr. Hayward said in an 11-page written statement.

Members of the House Energy and Commerce Subcommittee on Oversight and Investigations were having none of it. They grew increasingly frustrated as Mr. Hayward dodged specific questions aimed at pinning blame for the explosion on specific BP decisions and on him as the company’s leader.

Update 6-15-10 from the Wall Street Journal outlines how an excessive focus on cost-cutting may have contributed to the disaster:

WASHINGTON— BP PLC engineers made a series of cost-conscious decisions that ran counter to the advice of key contractors in the days leading up to the April 20 Deepwater Horizon rig explosion, according to documents released Monday by a congressional panel.

In one case, BP engineers decided on April 16 to use just six so-called “centralizers” to stabilize the well before cementing it, instead of 21 as recommended by contractor Halliburton Corp. according to BP internal emails made public by the panel.

In their letter, the lawmakers say that BP’s well team leader, John Guide, “raised objections to the use of the additional centralizers” in an April 16 email released by the panel. “It will take 10 hrs to install them…I do not like this,” Mr. Guide wrote.

The lawmakers cited another BP email as an indication that “Mr. Guide’s perspective prevailed.” A BP official wrote in an April 16 email: “Who cares, it’s done, end of story, will probably be fine.”

In a separate email, a BP drilling engineer complains to a colleague six days before the explosion that the well “has been [a] nightmare well which has everyone all over the place.”

The explosion and fire aboard the Deepwater Horizon rig in the Gulf of Mexico triggered a spill now estimated at 20,000 to 40,000 barrels a day.

Update 6-10-10 from the Wall Street Journal documents BP’s falling share price and BP’s reaction:


LONDON—BP PLC said Thursday it sees no justification for the collapse in its share price, even as the U.K. oil major admitted that the cost of the Gulf of Mexico oil spill has risen to $1.43 billion and U.S. politicians pushed for the company to assume even greater liabilities.

BP shares opened down 11% in London Thursday, taking the company’s value to a 13-year low, following a 16% fall in its U.S.-listed shares Wednesday. Shares, however, rebounded and were recently 3.8% lower at 377 pence ($5.48), on a slightly higher London market.

The company has lost almost £58 billion in market capitalization since the April 20 disaster, when an explosion aboard the Transocean Ltd. drilling rig Deepwater Horizon killed eleven men and triggered the massive oil spill.

Traders in credit default swaps, used to insure BP debt, were equally spooked. BP five-year CDS widened 1.95 percentage points from Wednesday’s close to 5.70 points, equivalent to junk credit, said Markit. BP still has an double-A credit rating.

“The company is not aware of any reason which justifies this share price movement,” BP said in a statement.

But ever-harsher rhetoric from the U.S. administration is worrying investors. There is immense political pressure for BP to halt dividend payments; the U.S. Justice Department said Wednesday it is investigating the company’s dividend plans. The Obama Administration also demanded that BP pay millions of dollars in salaries of oil-industry workers laid off because of the federal moratorium on deepwater drilling.

This 6-9-10 update from the New York Time’s Dealbook hypothesizes that BP could even declare bankruptcy eventually:

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).

Given the plunge in BP’s share price — the company has lost more than a third of its value since Deepwater Horizon blew — some bankers and analysts say BP is starting to look like takeover bait. The question is, who would buy BP, given its enormous potential liabilities?

Shell and Exxon Mobil are both said to be licking their chops. And already, flinty legal minds are dreaming up scenarios in which BP would file a prepackaged bankruptcy and separate the costs of the cleanup — and potentially billions of dollars in legal claims — into a separate corporate entity.

Update 5-28-10 from the Wall Street Journal:

In the minutes after a cascade of gas explosions crippled the Deepwater Horizon on April 20, confusion reigned on the drilling platform. Flames were spreading rapidly, power was out, and terrified workers were leaping into the dark, oil-coated sea. Capt. Curt Kuchta, the vessel’s commander, huddled on the bridge with about 10 other managers and crew members.

Andrea Fleytas, a 23-year-old worker who helped operate the rig’s sophisticated navigation machinery, suddenly noticed a glaring oversight: No one had issued a distress signal to the outside world, she recalls in an interview. Ms. Fleytas grabbed the radio and began calling over a signal monitored by the Coast Guard and other vessels.

“Mayday, Mayday. This is Deepwater Horizon. We have an uncontrollable fire.”

When Capt. Kuchta realized what she had done, he reprimanded her, she says.

“I didn’t give you authority to do that,” he said, according to Ms. Fleytas, who says she responded: “I’m sorry.”

An examination by The Wall Street Journal of what happened aboard the Deepwater Horizon just before and after the explosions suggests the rig was unprepared for the kind of disaster that struck and was overwhelmed when it occurred. The events on the bridge raise questions about whether the rig’s leaders were prepared for handling such a fast-moving emergency and for evacuating the rig—and, more broadly, whether the U.S. has sufficient safety rules for such complex drilling operations in very deep water.

Update 5-27-10 from Miguel Bustillo of the Wall Street Journal:

KENNER, La.—More details emerged Wednesday about a disagreement between employees of rig operator Transocean Ltd. and oil giant BP PLC over how to begin shutting down the well just hours before it exploded in the Gulf of Mexico last month.

Douglas H. Brown, Transocean’s chief mechanic on the Deepwater Horizon rig, said key representatives from both companies had a “skirmish” during an 11 a.m. meeting on April 20. Less than 11 hours later, the well had a blowout, an uncontrolled release of oil and gas, killing 11 workers.

Mr. Brown said Transocean’s crew leaders—including the rig operator’s top manager, Jimmy W. Harrell—strongly objected to a decision by BP’s top representative, or “company man,” over how to start removing heavy drilling fluid and replacing it with lighter seawater from a riser pipe connected to the well head. Such pipes act as conduits between the rig and the wellhead at the ocean floor, and carry drilling fluid in and out of the well.

Removing heavy drilling fluid prior to temporarily sealing up a well and abandoning it is normal, but questions have emerged about whether the crew started the process without taking other precautionary measures against gas rising into the pipe.

It wasn’t clear what Mr. Harrell objected to specifically about BP’s instructions, but the rig’s primary driller, Dewey Revette, and tool pusher, Miles Randall Ezell, both of Transocean, also disagreed with BP, Mr. Brown said. However, BP was in charge of the operation and the BP representative prevailed, Mr. Brown said.

“The company man was basically saying, ‘This is how it’s gonna be,’ ” said Mr. Brown, who didn’t recall the name of the BP representative in question.

Would a female CEO and more female executives at BP do a better job?  Here’s a provocative but thoughtful take on it by fellow U-M Ph.D. alum CV Harquail.

Original Post 5-26-10:

British Petroleum (BP) continues to reveal an array of poor decisions and mistakes that will require significant efforts on its part to repair the trust with the American public its has destroyed.  According to Stephen Power in today’s Wall Street Journal today:

Oil giant BP PLC told congressional investigators that a decision to continue work on an oil well in the Gulf of Mexico after a test warned that something was wrong may have been a “fundamental mistake,” according to a memo released by two lawmakers Tuesday.

The document describes a wide array of mistakes in the fateful final hours aboard the Deepwater Horizon—but the main revelation is that BP now says there was a clear warning sign of a “very large abnormality” in the well, but work proceeded anyway.

The rig exploded about two hours later.

The congressional memo outlines what the lawmakers say was a briefing for congressional staff by BP officials early Tuesday. Company representatives provided a preliminary report on their internal investigation of the April 20 disaster, which killed 11 workers and continues to spill thousands of barrels of oil daily into the Gulf of Mexico.

According to the memo, BP identified several other mistakes aboard the rig, including possible contamination of the cement meant to seal off the well from volatile natural gas and the apparent failure to monitor the well closely for signs that gas was leaking in, the congressmen wrote in their post-meeting memo. An immense column of natural gas, erupting from the oil well, fueled the fireball that destroyed the rig.

BP is simply repeating a pattern from its Texas City oil refinery disaster, in which 15 died and 180 were injured.

Rutgers sociologist and disaster expert Lee Clarke also discusses how BP’s failure to do proper scenario planning and worst-case prevention contributed to the current disaster.