BP has a history of 'flying close to the wind'
Quick payouts BP's goal
Published 6:30 am, Thursday, December 9, 2010
The following is an excerpt from Drowning in Oil: BP and the Reckless Pursuit of Profit by Houston Chronicle business columnist Loren Steffy and published this month by McGraw-Hill.
The North Sea is the stuff of Gothic legend. Its weather is cold and terrifying, roiled by relentless gales and massive undulating waves that roll toward the coast like a giant gray blanket unfurled by an angry maid. Its bitter, powerful currents and frequent storm-force winds can make the most hardened sailor or pilot anxious. Against this inhospitable backdrop 250 miles north of Scotland, BP found oil in 1965. Five years later, it discovered the Forties field, touching off a North Sea oil boom and enabling BP to shift its reserve base from the Middle East, where countries were nationalizing their oil fields. The Forties, along with Alaska, became the cornerstone of BP's reserve base. By 2003, however, the Forties field was in decline. Production had peaked in 1979, and most of the easy oil had been pumped out long ago. Now it was costing more and more to get less and less from the reservoir deep below the tumultuous seas. It wasn't the sort of field that BP wanted to hang onto. Under (chief executive) John Browne, the company wanted big new discoveries with fast payouts. It didn't want to squeeze reluctant reserves from old, lingering fields. BP planned to sell its interest in the Forties field and all its platforms to Apache Corporation, a Houston-based oil company.
Early in the afternoon in late November 2003, as winter loomed on the North Sea, Oberon Houston sat in his office below the helicopter landing pad of the oldest of BP's five platforms in the Forties field, the Forties Alpha. The Deepwater Horizon was a rig, a mobile piece of equipment that drilled exploratory wells. The Forties Alpha was a platform, fixed in place, to pump oil from under the sea. The Alpha, far smaller than the Horizon, represented the cutting-edge technology of a past era, the oil-drilling equivalent of a Betamax videotape player. Houston was the sort of hotshot young engineer that BP cultivated under Browne. He'd joined the company in 1999, and was placed in the fast-track leadership program. Four years later, he found himself in training as an offshore installations manager, the second in command of an aging platform with a crew of almost 200. He was working on maintenance plans for a major overhaul of the platform in the weeks ahead, a process referred to on the rig as the "scrap-heap challenge" because of the magnitude of the maintenance and the limited resources available to complete it.
As he pored over maintenance schedules, a call came across the rig's loudspeaker for a technician to fix a compressor that had tripped offline. On an old platform like the Forties Alpha, such maintenance problems were annoyingly routine — another glitch that would chip away at the falling revenue from the declining field. Suddenly, Houston's office was shaken by what felt like "an artillery shell (that) had just hit the platform." He staggered to remain upright in his office as debris crashed around him.
It wasn't an explosion. It was a sonic boom. Because of the broken compressor, an aging gas line became pressurized and, weakened by corrosion, ripped apart. Natural gas was shooting from the gash in the line at supersonic velocity. The entire platform was one spark away from becoming a floating inferno. That scenario was what had happened on another North Sea platform, Occidental Petroleum's Piper Alpha, in 1988. Gas from a ruptured line had ignited, engulfing the rig in flames and killing 167 men. Only 59 crew members survived. Even after the Deepwater Horizon explosion, Piper Alpha remains the industry's shorthand for horror - its worst offshore disaster.
Fortunately, the Forties Alpha had a different outcome. No one died that day, thanks in part to the high winds of the blustery late autumn in the North Sea. Disaster was averted by what Houston attributed to "sheer luck." BP later admitted to breaching health and safety regulations and was fined £200,000. Houston left the company a few months later, disenchanted with a senior management that seemed to see safety as a game. The company and its executives were "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."
What Houston saw aboard the Forties Alpha, though, went beyond a misplaced understanding of safety. As BP prepared to sell the depleted field, it began to resist spending money to maintain the platform. "They flew very close to the wind," Houston said. "It was being run for the minimum cost and the maximum profit right up until the sale." John Browne may have fancied himself a problem solver, but by the time he became chief executive, his concerns were primarily financial. He responded to the siren call of market analysts who cheered a rising stock price and strong quarterly earnings but understood little about the difficulty of running machinery as complex as an offshore drilling rig.
Managers like Houston were constantly under pressure to cut costs, and this message overrode all other concerns. "The focus on controlling costs was acute at BP, to the point that it became a distraction," Houston said. "They just go after it with a ferocity that's mind-numbing and terrifying. No one's ever asked to cut corners or take a risk, but it often ends up like that."
Browne appeared blind to the technical challenges the company was embracing, seeing all the engineering and design work involved as overhead - a roadblock impeding the company's progress toward his singular focus, the big payout. He built a management structure that reinforced his message, running off many of the experienced managers who might have challenged him. As one rival put it, "Browne didn't want a strong bench." He assembled a group of young executives who would implement his agenda without question. Known as "the turtles" - after the Teenage Mutant Ninja Turtles cartoon characters - they were on the fast track to succeed Browne as CEO. The turtles were shifted frequently, often staying in charge of a particular division for as little as a year or two. The constant shuffling kept any one of them from assembling a power base that could challenge Browne directly, but it also reduced their accountability. They did what had to be done to meet the cost-cutting goals for a particular division and then moved on. The consequences were the next guy's problem. Among the turtles was a young geologist with the looks of a British schoolboy named Tony Hayward, who not only would inherit the consequences of Browne's management, but would become the most hated man in America.
Excerpted fromDrowning in Oilby Loren C. Steffy, reprinted with permission from McGraw-Hill Professional, copyright 2011.