The Frontline report, “The Spill”, which focused on British Petroleum's problematic management culture and its catastrophic effects, aired on October 26, 2010. Around then, the oil giant BP had suffered a crisis with its latest off-shore oil rig, the Deepwater Horizon. However, this was just the latest in accidents concerning its oil operations. In the years before the Deepwater Horizon accident, BP had also suffered major accidents in its oil production fields in Texas and Alaska. Its CEO, Lord John Browne, had greatly expanded the company by buying off other oil companies and cutting costs. Unfortunately, Frontline’s report suggests the company's sole focus on expansion and cost reduction was what caused the fatalities of BP’s workers.
BP started out as a small joint British Persian oil company in the 1970s. However, a revolution in Iran had cut off BP’s oil supply, cutting stock values and ultimately crippling the company. The 1980s and early 1990s were no better for the company, for it did not gain any new oil fields. It was then that a small board of managers attempted to revive the company. One of the new managers was John Browne. Young and energetic, Browne was a zealous cost cutter. His management style helped to partly revive the company and so, in 1995, Browne was elected CEO of BP by the management board. Now that the company was stabilizing, Browne focused on the company's growth.
He needed to increase the stock value of his company, but his company lacked the assets to do so. By acquiring several major oil corporations, including Amoco and Arco, and incorporating their oil assets into BP, Browne had quadrupled the value of BP’s stocks. By the early twenty-first century, it seemed that Browne's aggressive cost-cutting and acquisition methods had saved and expanded BP. However, Browne’s management methods did not come without a heavy price. The first of a series of disasters happened on March 23, 2005, as a section of BP's Texas City Refinery exploded in a ball of fire.
The explosion occurred in the isomerization unit of the refinery which was used to chemically boost the octane level of gasoline. By noon of that day, workers had accidentally overfilled the isomerization unit with flammable hydrocarbons fifteen times over. Since the gauges and alarms that were meant to prevent the hydrocarbons from overflowing were not working, the only emergency device left was to re-route the excess fluids to the blowdown drum. Unfortunately, the blowdown drum was rapidly filled, and without a flare to handle the oil, the hydrocarbons exploded in a flurry of gas and fire, killing fifteen workers. Despite the accidental nature of the explosion, it was no accident.
The Texas City Refinery was in disrepair by the time BP had acquired it in 1999 from Amoco. Built in the 1930s, pipes and gauges of the old refinery were corroded. In addition, the technology used was outdated, for example, the blowdown drums. Today, modern flares do a much better job at handling excess fluids in emergencies as they burn excess oil off rather than store it. Despite corroded and dangerous infrastructure, BP never replaced it because of cost cuts Browne instituted after buying Amoco.
This twenty-five percent cost cut prompted lower BP executives to cancel any proposed infrastructure improvements. This move proved deadly for BP, as demonstrated in the Texas City Refinery accident. However, Texas City was not the only disaster to affect BP.
According to Frontline, on March 23, 2006, a pipeline at BP Prudhoe Bay in Alaska leaked 260,000 gallons of crude oil. The spill was the worst ever on the North Slope, creating large pools of oil all over the slope. Fortunately, it was winter and the cold weather had made it possible for workers to remove most of the spill. Browne himself visited the site a day later. After reviews made by BP's chief environmental advisers, Browne announced that the spill was an isolated incident. However, just two days after the first incident, another pipeline on the North Slope burst.
The BP Prudhoe Bay oil field was built in the early 1970s. Its infrastructure was designed to last until 1987. However, BP still used the outdated equipment well into the twenty-first century. It was obviously cheaper for the company to mine for oil rather than replace the aging equipment. According to Frontline, BP had only hired around three hundred contractors to inspect the pipes on the immense oil field. However, even with so few contractors to survey the pipes, the results were appalling: most if not all the pipes were dangerously corroded and unsafe for oil transport.
In a Washington Post article, BP Alaska Remains at Risk, Frontline co-reporter Abrahm Lustgarten went into detail about the severity of pipeline corrosion and BP’s disregard for safety on the North Slope. BP pipe examiners had found that over eighty percent of the pipes could rupture. Some pipes were so corroded that they were a few thousandths of an inch from leaking. Most of the pipes carried highly reactive hydrocarbons, risking explosion should there be a rupture. Even with so much old pipes, BP never renovated them.
Mark Kovac, a BP engineer, depicted BP’s zealous cost cutting and safety ignorance by saying, “They're going to run this out as far as they can without leaving one dollar on the table when they leave” (qtd. in Lustgarten). The dangerous work conditions of the Prudhoe Bay field prompted workers and their unions to file complaints to BP’s management board. However, the management never followed through with the worker's complaints.
Kovac described BP's disregard for safety: “Normally we'd get a nice answer back, but no action.” Likewise, another BP engineer, Kris Dye, shows his frustrations with the company's lackluster safety performance: “When you make a complaint about it, rather than fix it right, they come up with another Band-Aid...It’s very frustrating” (qtd. in Lustgarten). Normally, oil pipes would be pigged, a process of cleaning oil pipes of deposits by inserting a moving washer through them, every other year. However, the pipelines at Prudhoe Bay had not been pigged for over a decade. With so much sediment and corrosion, it seemed inevitable that leaks or explosions would occur.
And unfortunately, it did. Although neglecting oil field infrastructure and maintenance helped BP cut costs, it created more costlier disasters. Even with its huge oil assets in Texas and Alaska, BP's powerhouse oil supply was in the Gulf of Mexico. By 2006, BP extracted twenty-five percent of the Gulf's oil, making it the largest operator there. The company was also discovering more rights for drilling. With that, BP even felt confident to overtake Exxon in terms of oil production. However, the Gulf of Mexico had some of the deepest waters in the world. In fact, Ronald Freeman, an adviser for BP, had said on Frontline that putting up oil platforms and drilling in the Gulf was geologically very difficult.
Despite such risks, BP became overconfident with its progress, and underestimated the dangers of deep sea oil extraction. Instead of worker safety, the company focused on market expansion. Once again, the company's management culture of cost reduction and growth expansion created ecological disasters and worker fatalities in the Gulf. In 2005, BP constructed the Thunder Horse. It was the biggest and most powerful rig ever constructed, and it was a symbol of BP’s technological prowess.
After a week of being tugged into the deep Gulf, the rig floated proudly on the sea, a towering forty-three stories of steel against the horizon. However, on July 4, 2005, Hurricane Dennis struck, wreaking havoc on the Thunder Horse. After the hurricane subsided, engineers were appalled that the rig had tipped over, for it was designed to withstand hurricane-force winds. It was greatly embarrassing for BP that its showcase rig was ruined. However, engineers later discovered it was not the storm that toppled the Thunder Horse.
After a thorough investigation, they discovered that several buoyancy valves were incorrectly installed, which made the rig take in water during the storm instead of shedding it. Gordon Aacker, a senior BP engineer, said: “...[the] safety valve was installed backwards...and all of that was caused by being in a hurry and not rechecking things over.” And so, the Thunder Horse incident became yet another example of BP’s lust for growth and ignorance for safety. Back in London, the string of accidents had caused BP's management board to loose faith in Browne.
He resigned in 2007. With its CEO gone, the board looked to Browne’s top executives for a replacement. Three executives were considered: Bob Dudley, John Manzoni, and Tony Hayward. In the end, Tony Hayward was chosen to be the new CEO of BP because of his relatively untarnished reputation. A well-liked BP engineer, Hayward set about fixing BP's operational integrity. To accomplish that goal, he allocated fourteen billion dollars and a safety support board to improve safety and communication. The changes were well received by the workers.
However, by the end of that year, Hayward came under pressure by BP stockholders to cut costs and expand, as the company lagged in stock performance. So, BP layed off several thousand workers and withheld funds meant for infrastructure renovation. Once again, workers were forced to do more with less, which only increased the risks for disasters. That disaster came on April 20, 2010. After drilling in the Macondo well for over a month, the oil rig Deepwater Horizon exploded into gas and fire. Eleven workers were killed in the blast, making this BP incident the second deadliest in terms of lives lost. Before the explosion occurred, workers had deemed the rig a “nightmare”.
One worker even called the project, “the well from hell”. According to Aacker, the installation of the Deepwater Horizon was already ten million dollars over-budget. So, to cut costs, BP canceled a remedial cement job, which helped it save a million dollars. BP also removed a number of other cement jobs and valves, saving seven million dollars in the end. So, when the rig's drill punched into the Macondo well, the weak cement plugs and tube lining eventually gave way to the pressure of the undersea oil, causing the leak and explosion. Many scholars and investigators agreed that BP's disregard for safety and cost cuts caused the oil spill.
In a Topeka Capital Journal article, Panel Outlines Gulf Oil Spill, journalist Seth Borenstein interviewed several scholars and investigators working on the Deepwater Horizon incident to better understand the situation. In the article, Borenstein reported that scholars and U.S. Department of Energy investigators found many of the same errors Aacker had addressed earlier, from weak cement plugs to the incompetent tube lining on the Deepwater Horizon.
After hearing those reports, Democrats in Congress concluded: “...the company [BP] made decisions that sacrificed safety to save millions of dollars...[which] included running a single piece of pipe from the seafloor to the bottom of the well...[and using] fewer centralizers, devices that hold the pipe down the center of the well for cementing...” (qtd. in Borenstein).
It would appear from the investigations presented in the Topeka Capital Journal article that the fatalities were caused by the risky drilling, which was caused by BP's cost cuts. Many of the scholars and investigators were not surprised by their discoveries. Charles Perrow, a Yale University professor who studied BP's track record, said: “There's a long history of dollars versus safety at this organization.” Similarly, U.S. Department of Energy investigator Edward J.
Markey remarked: When the culture of a company favors risk-taking and cutting corners above other concerns, systemic failures like this oil spill disaster result without direct decisions being made or trade-offs being considered...what is fully evident, from BP's pipeline spill in Alaska and the Texas city refinery disaster, to the Deepwater Horizon well failure, is that BP has a long and sordid history of cutting costs and pushing the limits in search of higher profits. (qtd. in Borenstein)
A week after the Deepwater Horizon incident, executives from four of the world's biggest oil companies and U.S. Department of Energy officials met in a U.S. Court to discuss the situation. All of them concluded that it was BP's cost cuts that caused the incident. A week later, Hayward was summoned by the oil and U.S. energy executives to explain why BP had jeopardized the safety of the workers through cost cuts, Hayward answered: “...
I have worked towards safety and occupational excellence...however, I am not a cementing engineer...I didn't know anything about the centrifuging...” Being the CEO, Hayward was supposed to know about the decision making and safety of BP's operations. By saying he did not know anything about the design flaws suggests that Hayward was not focusing enough on creating safer operations. Many more trials were held in the following months to review the full scope of the accident. In all cases, it had appeared that BP had failed to address safety violations of the rig operation. What followed was a bill levied on July 2010 by the U.S.
House of Representatives that would ban BP from drilling new deep water oil wells in the Gulf for seven years. Similarly, in Texas City, the House of Representatives fined BP fifteen million dollars for failed renovation promises. Finally, BP had paid the price for its disregard for safety. For Hayward, this was the end. The fledgeling CEO was replaced by another of Browne's formers top executives, Bob Dudley. A former executive from Amoco, it remains to be seen whether Dudley can do what Browne and Hayward failed: to reform BP's management culture and increase operational integrity.
Works Cited Borenstein, Seth . "Panel outlines cause of Gulf oil spill."Topeka Capital Journal 9 Nov.2010, ProQuest Newsstand, ProQuest. Web. 6 Dec. 2010. Lustgarten, Abrahm. "With eyes on Gulf, BP Alaska pipes remain at risk."The Washington Post 3 Nov.2010,Washington Post, ProQuest. Web. 1 Dec. 2010.