Inside BP: A giant wounded
By James Boxell and Ed Crooks
Published: July 15 2010 22:25 | Last updated: July 15 2010 22:25
A mile down and 40 miles out to sea off the coast of Louisiana, a BP-led team has been achieving unprecedented feats of engineering.
Bolting a new sealing cap to the top of the company’s blown-out Macondo well in the Gulf of Mexico and stopping the leak this week was the latest in a succession of efforts that have pushed back the frontiers of what is possible on the seabed in deep water. BP’s battle to staunch the spill have tested the expertise of its engineers to the limit. The operation has been compared to brain surgery, in the dark, from 5,000ft.
For staff steeped in a culture that prizes technical capability, the skill and creativity of the Houston-based team working on the spill have been a source of pride.
Other aspects of the crisis, however, have sown fear, despondency and anger. BP, once the pride of corporate UK, one of the country’s few global champions, is now a wounded giant.
Conversations with present and former staff, all of whom wanted to remain anonymous, reveal a company where many are fearful about jobs and savings, dismayed at their employer’s part in another terrible accident, and furious at management’s handling of the crisis. As one senior insider puts it: “There is a complete discrepancy between the formidable technical effort in trying to fix this leak and what has been a communications catastrophe.”
Safety culture
Inquiries look into BP’s role in causing the Deepwater disaster
One looming issue for BP staff is the internal investigation into the Deepwater Horizon disaster, led by Mark Bly, group head of safety and operations, writes Ed Crooks.
Tony Hayward, chief executive, told staff in an e-mail last week that initial results would be available in August, with the full report likely to be out later in the year.
If the group’s own inquiry finds decisions were taken on the rig that compromised safety to save money, it will be a huge blow to confidence in its flagship operations, both inside the company and externally.
A letter from Henry Waxman and Bart Stupak of the energy committee of the US House of Representatives last month attacked the safety culture created by BP’s managers.
“In effect, it appears that BP repeatedly chose risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk,” the lawmakers wrote.
Some of the evidence assembled by the committee does not look good for the group – such as an e-mail from an engineer querying a decision about the design of the well but suggesting it would “probably be fine”.
BP believes it will be able to mount a strong defence against any accusations that the decisions its engineers made about the Macondo well amounted to gross negligence. But it has given up the attempt it made early in the crisis to claim that the accident was solely the responsibility of Transocean, the drilling contractor.
Giving evidence last month to the investigations subcommittee of that energy committee, Mr Hayward said it was too soon to know the cause of the disaster, but conceded: “This is a complex accident, caused by an unprecedented combination of failures. A number of companies are involved, including BP.”
Critics have already heard enough to feel sure where the blame should lie. One former BP employee in the Gulf of Mexico says management are guilty of “arrogance and conceit”. He adds: “They’ve talked themselves out of any risks. It was – and is – a faulty exercise ... Their culture has not changed a bit.”
That view is shared elsewhere. “Everybody is really angry,” says an employee at the London headquarters in St James’s Square. “There is some sympathy that this may be down to bad luck. But [chief executive] Tony Hayward has made the situation a million times worse.”
Another worker in the highly profitable trading division that buys and sells oil and gas, says: “Staff believe the actions taken since the spill to mop it up have been appropriate and honourable, but the public relations and positioning of the company have been diabolical.”
In the past two weeks, financial markets have begun to hope that the worst may be over. On Thursday night, BP announced the new cap had stopped the leak altogether for the first time since the blow-out – at least temporarily. The first relief well, being drilled into the bottom of the Macondo well to allow it to be plugged with cement, is only about two weeks away from its target.
Yet even if Macondo is finally sealed, great uncertainty will remain over BP’s future strategy, its financial health, the threat of a takeover bid, and its responsibility for the explosion on the Deepwater Horizon rig on April 20 that killed 11 men.
For the leadership – likely to include a new chief executive and chairman – there will be a huge task ahead. Not only will they have to rebuild the company’s profile and reputation, they will also have to restore shattered internal morale and avoid an exodus of the most talented staff.
For the 80,000 employees worldwide, and for the sought-after engineering and science graduates that are the lifeblood of any oil company, BP’s future is a troubling prospect.
The group has traditionally been among the most attractive of employers, offering job security, the prospect of an exciting global career, a generous pension and the sense of being part of a company that boasted world-beating skills and technology.
The “Beyond Petroleum” initiative launched by Lord Browne, former chief executive, in 2000 added to its appeal. Although Mr Hayward dismissed the idea that the group was working to “save the world”, many staff took it very seriously. Today, the image of technical competence and environmental responsibility has been tarnished.
The reaction of many staff has been “pretty much a mirror” of that of the outside world, according to a senior company official. “It’s not that people believe the apocalypse stories, but they all hear the grave allegations made against BP and they want to hear our defence. The question they are asking is: am I working for the company I thought I was working for, with the right values?”
Beside these moral questions, the company faces a direct financial impact. The biggest source of staff anger is the plummeting value of options and shares held by employees. “BP people generally don’t get paid a huge amount, so over time they have invested a lot in share schemes,” says the staff member at the head office. “They had a massive sense of depression when the price collapsed. You’ve got people trying to put kids through university on BP share options.” In spite of their recent rally, shares remain 39 per cent below their peak on the day of the accident.
As well as staff worries, the crisis is casting a shadow over worldwide operations. Staff in the secretive trading division worry that deals are being constrained as counterparties fret about whether the company can meet its obligations.
There are also concerns about whether BP’s potential liabilities will hold back crucial investment in other parts of the world, such as the Russian joint venture, TNK-BP. “The question from the Russians will be: ‘Are you good for capital calls?’,” says one external adviser. Mr Hayward has expressed the group’s continued commitment to its business in Russia.
The biggest internal worry is how any festering disillusionment will hamper its ability to retain and recruit talent. Engineers and scientists are a scarce resource, hotly fought over by BP and its rivals ExxonMobil, Shell and Chevron.
Recruiters think the company will struggle to attract staff because of its travails. “I’ve not seen it yet, but we are expecting it,” says Johnathan Johnson of Fircroft – an international recruiter of white collar exploration and production staff. “With all the costs they are incurring, are they going to have to start paying less?”
Stewart Johnston, an oil and gas consultant for Molten Group, warns the consequences of staff shortages could be dire. “They have 40 major projects coming on stream over the next five to seven years to replace 1m barrels of daily production. If they don’t have the in-house people they will need to outsource, and that will cost.”
. . .
The situation is made worse for BP by the fact that its all-important E&P division, which relies on hiring the best engineers, is where the crisis hit. The division was placed front and centre by Mr Hayward in his effort to transform the company’s fortunes after the departure of Lord Browne.
Mr Hayward was head of E&P before becoming CEO in 2007. Staff there are seen very much as “Tony’s people”, and often better paid than those elsewhere in the company. The strategic performance unit for the Gulf of Mexico, in particular, was BP’s praetorian guard: the elite division that could achieve feats beyond the reach of ordinary engineers. Last year they drilled the world’s deepest commercial exploration well, in the Gulf of Mexico, using the Deepwater Horizon rig.
The exact causes of the accident are not yet clear. The rig was owned and operated by Transocean, a drilling contractor, but BP led the project.
“Everyone in the division is devastated,” says the St James’s Square staff member. “For the screw-up to be in the top asset in the top bit of the company means we have to say: ‘Sorry, maybe we are not so good after all’.”
There is also resentment from other parts of the world about why BP America has staggered from one crisis to another. There have been recurrent problems in the US, including the 2005 Texas City refinery explosion, which killed 15 people, and leaks from pipelines in Alaska.
Mr Hayward was appointed with a mission to be a different kind of leader from his ambitious, visionary predecessor. The safety problems demanded a CEO focused on detail and operational excellence, and he appeared to fit the bill.
Safety had always been set as the first priority, but Mr Hayward redoubled efforts to improve it, introducing what the company calls its Operating Management System that sets out standardised procedures for all activities carried out by BP worldwide.
Staff are set targets for the number of “stop cards” highlighting unsafe practices that they hand out, and are reprimanded for carrying hot drinks on the stairs in St James’s Square and other company offices.
However, Mr Hayward also slashed costs to improve financial performance. “Every dollar counts,” he said last year.
Company insiders are reluctant to prejudge the inquiries into the disaster, but suggest it is unlikely that a link could be established between cost cuts and the accident.
“I don’t know if this is about cost-cutting,” says one head office employee. “There just seems to be something about BP America, something about the combination of BP’s attitude to risk and the US attitude to risk.”
The US oil business is more lightly regulated than Britain’s, putting more responsibility on the industry to ensure procedures are safe. Some BP insiders suggest that, in America, the company has suffered from having a looser, more decentralised management style than Exxon, its leading American rival.
Most of the reported indicators for safety performance were showing improvements under Mr Hayward, but insiders admit it can take decades to change a corporate culture.
The sense that the company has been hit by another disaster just as it seemed to be heading in the right direction has made the blow to employees’ morale all the harder.
In the airy high-ceilinged restaurant area of BP’s glass and steel Sunbury campus in London’s western suburbs, Mr Hayward attempted to rally the troops late last month with a message of hope. The company was in “intensive care”, he said, but he stressed that its underlying business was sound.
Some of those gathered among the potted trees were cheered by the upbeat message. But many of those present at this and a series of other “town hall” meetings were left angry by the apparent failure to confront the reality of the crisis engulfing the company.
On the same day as the Sunbury meeting, Mr Hayward addressed staff at BP’s trading arm in Canary Wharf, the vibrant outpost of London’s financial district, opening with a “bizarre message about being excited about the future”, according to a person present. “This is a major problem,” the person adds. “It creates a dissonance for staff, who are far from upbeat.”
In fairness to Mr Hayward, some workers have been more open to his optimism. An engineer at Sunbury says: “We’re not exactly celebrating but it’s a strong company and we will come through it. I don’t think morale here is particularly bad.”
Many employees are equally angry about the way the media and US politicians, including President Barack Obama, have demonised their company.
An external BP adviser defends Mr Hayward’s approach, even as he says the chief executive is probably doomed to the sack. “What else can he do?” he asks. “It’s been a catastrophe of unprecedented proportions but senior management can only put on a brave face. I can assure you they are not disconnected from the reality of what is going on in the gulf. The problem is, it’s really not in their control any more; the US has taken over.”
However, he is scathing about the role played by Carl-Henric Svanberg, chairman, last month in negotiations with Mr Obama, when he agreed that the company would pay $20bn to a fund to compensate victims of the spill.
“BP still has a lot of leverage in the US, it employs thousands of people, pays a lot of tax and is a serious heavyweight machine. Did it fight its corner hard enough or were they so beaten down they just caved in?” the adviser asks. “You have to ask would it have been different if Peter Sutherland was still chairman.”
Regardless of who is to blame, all eyes are now on whether BP can finally cap the well. If it succeeds, then the long slow work of shoring up the company can begin. On the board, plans are being drawn up for showing a way forward, with new business relationships, new management and restored finances.
As those announcements come, which could start on or around the time the second-quarter results are announced on July 27, then the mood of staff should lift a little.
But everything depends on plugging the blown-out well. As the company adviser puts it: “If they cannot close the well, then they move into darker and darker versions of Hades.”
Additional reporting by Sheila McNulty
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