Oberon Houston: Beyond Petroleum - Events in the Gulf of Mexico affect us all
Oberon Houston is a Petroleum Engineering Manager for an international oil and gas company and an external examiner at one of the world's most prestigious Petroleum Engineering schools. A keen interest in politics and the Conservative Party has made him a regular contributor to ConservativeHome over the years. In this Platform piece he looks at the oil spill in the Gulf of Mexico and the potential consequences for BP and Britain.
I was sitting in my office beneath the helideck of the Forties Alpha oil platform when I heard the tannoy call for a production technician to attend the gas compressor which had tripped. This was the first compressor trip in months, an unusually long period of trouble-free production had finally come to an end. This meant lower revenues from the once mighty Forties field, but by then in 2003 a much depleted and tired work horse.
I was the number two in command of the BP operated production platform, the deputy 'Offshore Installation Manager', and was busy working out the upcoming maintenance plans for the weeks ahead, a task commonly referred to as 'scrapheap challenge' because of the vast size and age of the platform and limited resources we had available.
That was when the gas line ruptured. Tons of gas escaped at supersonic velocities from a pipe which had become pressurised because of the compressor trip. Unknown to us, it was dangerously corroded and had finally reached the limit of its strength. The sonic boom was staggering, debris flew into the air, it felt like an artillery shell had just hit the platform. Unlike a similar incident on the ill-fated Piper Alpha platform, the gas did not ignite, so what could have been a major disaster for myself and everyone else on board was averted by sheer luck. BP was subsequently fined in late 2004 for two breaches of Health and Safety legislation over the incident.
For some time I had been dissatisfied with the way senior BP management focused so heavily on the easy part of safety, holding the hand rails, spending hours discussing the merits of reverse parking and the dangers of not having a lid on a coffee cup, but were less enthusiastic about the hard stuff, investing in and maintaining their complex facilities.
A continual focus on costs and an undoubted commercial savvy was not complimented with similar expertise, or enthusiasm, for the nuts and bolts of the job. Management listened intently to the views of market analysts, who knew little about the technical detail of the oil business, but instead were driven by quarterly results; encouraging and cheering on managements relentless drive to reduce costs. This resulted in a chronic short term view at the very top of the company, obsession with performance metrics became the business for management, not the informed outcome.
Engineers were regularly teased for wanting to "gold-plate everything", or reminded that "we are not building a Rolls Royce here". It felt that senior management in BP commonly thought we were more concerned about the elegance of a solution rather than the costs involved, and therefore we were not really trusted. These concerns were voiced at all levels, but found little understanding or sympathy. I therefore felt that resigning from the company was the best option, something which was very difficult to do. All my professional career I had longed to work for BP, I was one of only 1% of BP staff who were on the talent management scheme, and I left many valued friends and colleagues behind.
This attitude by management to the business at BP was to have tragic consequences just months after the fine for the Forties Alpha gas leak was paid. In March 2005 an explosion at the BP operated Texas City refinery in the United States killed 15 workers and injured 170 others. Payments to victims and their families is running into billions of dollars, the company was fined $50 million for breaches of safety law which led to the explosion, and BP was later fined a further (and record) $87 million for failing to implement required safety improvements, something BP is challenging. This was not the end of the problems for BP in North America. Major project problems and a serious pipeline leak in Alaska further angered authorities and attracted large fines, and the company was also fined a further $303 million for manipulating the Propane market.
BP is not the only major oil company to encounter a serious setback in recent years. After the Valdez disaster, Exxon introduced common processes, strictly enforced across the business, and relentlessly focused on technical competency and discipline excellence to improve the company. Subsequent results have been impressive in both share price and safety performance. Shell completely rebuilt the senior leadership team from the top down after their reserves reporting scandal. Both Exxon and Shell bounced back stronger and better as a result, both are now the biggest companies in the world.
The stepping down of the BP CEO, Sir John Browne, in 2007 offered a golden opportunity to change tack and reorganise. Unfortunately little changed, the company simply carried on largely as before with the acolytes of John Brown at the helm, focusing on quarterly results and costs. The explosion on BP operated Horizon rig and subsequent oil leak into the Gulf of Mexico has changed all that.
The impact on the environment of the Gulf region, and those who rely on it is already shocking. The toll on those killed and injured in the initial explosion dreadful, everyone's worst fears when working offshore on a rig were realised that day. Only the ongoing official inquiry will reveal the detail of what went wrong, however the reputation of BP in the United States is already a tarnished one and many, including myself, look on at the political, as well as the environmental ramifications of these events with mounting alarm. Evidence is emergeing that critical decisions taken immediately prior to the deadly blast were influenced by cost concerns, when a belt and braces approach to safety should have been the only watchword.
I have just returned from a trip to the US, and watched coverage of events closely. BP is now referred to as 'British Petroleum' by officials, in a marked deviation from the previously usual 'BP'. The Obama administration is also ratcheting-up the rhetoric too, talking about "holding a boot to the neck of BP" and being 'enraged' at events. The media are continually covering the story all day in a very aggressive manner. Comments by the Chief Executive of BP Tony Hayward, such as the leak is a "drop in the ocean", and that he wants this fixed so he can "get his life back" are incredibly insensitive to the national mood, and smack of arrogance.
President Obama and his administration are right to be upset at what has happened, but the vehemence in the rhetoric from the White House is remarkable. Scripted live speeches, photo-ops on the beaches of Louisiana and emotive words may provide the veneer of action, but also cloud the full ramifications of this incident. That BP is in trouble there is no doubt, but we here in Britain should be aware that there is a very real political edge to all this. BP owns vast and very profitable acreage in the Gulf and across the globe, acreage many countries and oil companies covet. Events in the United States could spark a global crisis for the company, and this would have a serious affect on us all in Britain.
BP is vitally important to our interests both here at home and across the globe, much of BP's shares are held by UK pension funds, its contribution to the Treasury in taxes is huge, as is its importance as an employer and to the British economy as a whole. BP has lost 35% of its share price value since the incident, and it is still falling fast. In the depths of this recession we need BP not only survive, but prosper. We are all relying on the biggest companies in the FTSE to pull us out of this recession, to protect jobs in the public sector as well as provide a stable economy for all of us. This is a concern far from the mind of President Obama, but one that should be very much in the mind of David Cameron.
Once the oil has stopped flowing, the beaches are cleaned and the victims compensated, there is no doubt that the BP of the future will need to change radically. BP does not lack the talent and ability to do this, it has great people who are dedicated to their profession. It does however lack a senior management team who understand that an oil company thrives on discipline excellence and strong business processes, not cutting costs and the next set of quarterly results. The key to success for BP lies in a new direction driven by a new management team with the right understanding and skills for the job. But it is vitally important to our national interest that the British government does all it can to ensure that there is a BP in the future. The vultures are circling.