THE FAILED TRANSFORMATION OF BP

In 2000, the chief executive of British Petroleum (BP), Lord John Browne, who had transformed the company from a small

oil producer into a global giant with the acquisitions of Amoco and Atlantic Richfield, rebranded the company as "Beyond

Petroleum" to portray a company that was environmentally conscious

and committed to the development of alternative energy sources

such as wind and solar power. The new "blooming flower" corporate

logo was intended to convey a company that was responsive to

growing public concerns about climate change.

However, that commitment to environmental awareness did not

seem to extend to the safe operation of BP facilities around the world.

In 2005 an explosion at an oil refinery in Texas City, Texas, killed

15 workers and injured hundreds more. The Occupational Safety

and Health Administration (OSHA) fined BP a record $21 million for

failing to correct safety violations. In 2006, a leaking BP pipeline in

Alaska forced the shutdown of one of the nation's biggest oil fields.

Prosecutors later fined BP $20 million for failing to correct corroding

pipelines.

Browne's replacement, Tony Hayward, a geologist who had pre-

viously overseen BP's exploration and oil production, promised to

refocus the company on safety, committing to spending $500 million

to address the problems at the Texas City refinery and settling a series of criminal charges against BP operations total-

ing $370 million. Unfortunately, an emissions release at the refinery in early 2010 confirmed OSHA suspicions that the

changes promised as part of the 2005 settlement were not being addressed, and BP was fined another $50.6 million that

the company paid without an admission of violations.

Critics have argued that BP's aggressive acquisition strategy under Browne created a focus on cost containment as

a means to maximize profit margins. That mentality is now ingrained in the corporate culture to the extent that fines are

simply addressed as a cost of doing business. April 20, 2010, brought yet another example of this argument and the larg-

est oil spill in history.

The explosion on the newly completed Deepwater Horizon rig in the Gulf of Mexico resulted in 11 deaths and broke

open the Macondo well, allowing an estimated 19 million gallons of crude oil to flow into the Gulf of Mexico, threatening a

fragile ecosystem and the livelihoods of thousands of businesses along the entire Gulf Coast. The terrifying scale of this

event only becomes clear when the size of the Exxon Valdez spill in Prince William Sound in Alaska in 1989 is considered.

That tanker spill released an estimated 500,000 gallons of oil.

To some extent the practice of drilling in the deep water of the Gulf of Mexico brings extreme operational risksrisks

that environmentalists believe should prompt a nationwide move away from a clear dependence on oil. However, what

the Gulf spill made clear was just how unprepared oil companies appear to be to handle any miscalculations in these

risks. BP's response to the Deepwater Horizon explosion was described by all the agencies involved as "a scramble." A

succession of attempts with strange names like "junk shot," "top hat," and "kill shot" delayed the eventual capping of the

Macondo well until July 15a total of 87 days. Estimates of how much oil was allowed to flow remain under dispute, with

scientists arguing that access to the video footage of the wellhead (which they would need to calculate flow rates of the

oil) had been restricted by BP.

Inevitably, accurate accounts of BP's response to the spill were marred by global media outlets enjoying the biggest

story since Hurricane Katrina. BP committed to "putting everything right" and doing "whatever it takes" to restore the Gulf

region to the same condition it was in before the spill. However, alongside those promises came legal posturing to spread

the blame as much as possible. BP was the majority owner of the Macondo well, with Anadarko and Mitsui as minority

partners; the Deepwater Horizon was owned by Transocean (and leased to BP); Cameron International was the manufac-

turer of the "blowout preventer" that was alleged to have failed, causing the explosion; and Halliburton engineers worked

on the rig equipment the day before the explosion. Multiple lawsuits were settled in the next two years between all the

parties involved, though none included any admission of accountability as part of the settlement.

The question remains, however, as to how well Tony Hayward delivered on his commitment to a safer BP. At the time of

the Deepwater Horizon spill, Exxon, the former poster child for reckless oil companies, had only one OSHA fine in place.

BP, by comparison, had 760. Hayward was reassigned during the response to the spill to a nonexecutive role with BP's

Russian joint venture TNK-BP. The terms of his departure included immediate access to his pension of $1 million annually

and full entitlement to a compensation package estimated to be $18 million.

For BP, the spill continued to dominate the company's operations. A total of $42 billion was set aside for the payment of

fines, compensation to victims, and ongoing cleanup operations in the Gulf of Mexico. Of that amount, almost $36 billion

has already been paid out or earmarked in settled lawsuits. However, the U.S. government was asking for $21 billion in

compensation for its costs in the cleanup, and the Gulf states impacted by the spill (Florida, Alabama, Louisiana, and

Mississippi) were seeking another $34 billion for economic losses and property damage. Under the Clean Water Act, the

federal government could have fined BP between $1,100 and $4,300 per barrel of oil spilled. Since no accurate figure

existed for the total size of the spill, that fine could have run BP between $5 billion and $21 billion.

In July 2015, BP announced an $18.7 billion settlement of all federal, state, and local claims arising from the 2010 spill

the largest single settlement with any civil entity in the nation's history. Of that $18.7 billion, $5.5 billion represented a civil

penalty under the Clean Water Act, to be paid over 15 years, $7.1 billion under a Natural Resource Damage Assessment,

with the remainder going to settle outstanding economic damage claims.

Critics argued that BP's willingness to settle was driven more by the economic reality of lower oil prices than by any com-

mitment to safer operations or ethical conduct. In an April 2015 interview with National Public Radio (NPR), Geoff Morrell, BP

senior vice president, attempted to draw a line under the event by stating that the signs were good for a healthy Gulf: "There

is nothing to suggest other than that the Gulf is a resilient body of water that has bounced back strongly . . . the Gulf has

not been damaged anywhere near the degree some people feared it would have in the midst of the spill." Marine scientists

disagree with such a rosy assessment, arguing that the impact may continue to be felt for generations to come.

1. What evidence is there in this case that BP simply addresses fines "as a cost of doing business"?

2. BP Chief Executive Officer Tony Hayward argued that "changing the culture of a 100,000-person company

couldn't happen overnight." He had been in charge for three years before the Deepwater Horizon spill. Were

critics right to expect more change than they saw?

3. Has BP been successful in its move "Beyond Petroleum"?

4. How can BP begin to restore its reputation going forward?