Storm clouds gathering over BP

By Julian Rogers, Deputy Editor

Shortly after 1pm on March 23, 2005, flammable liquids began escaping from an overfilled tower that splits hydrocarbons. The vapors were probably ignited by a truck parked nearby, which caused a blast so violent that homes up to three-quarters of a mile away from BP’s Texas City facility were damaged. All of the 15 fatalities were discovered in or around temporary office trailers positioned as close as 120 feet from the source of the explosion. The blast caused extensive damage to the refinery – BP’s largest – and left production crippled. As the worst industrial accident in the US since 1990, investigators vowed to leave no stone unturned in their efforts to find the cause and establish if the management was to blame.

Two years later and the US Chemical Safety and Hazard Investigations Board (CSB) published its long-awaited 335-page report into the blast. As had been predicted, the CSB was stinging it its criticism of BP’s slapdash attitude towards safety. Carolyn Merritt, Chairman of the CSB, revealed in a speech that the board had been “absolutely terrified” by the poor safety culture at the refinery. Investigators found that cost cutting, worker fatigue and failure by BP chiefs to address repeated safety warnings contributed to the accident. The board said operators had worked 12-hour shifts for 29 or more consecutive days with just six hours sleep, safety training at the refinery was inadequate and staffing budget cuts had left operations undermanned. The refinery itself was found to be in serious need of repair.

The CSB also discovered that staff were not encouraged to report safety problems, while the managers at the plant had a “check the box” mentality “where personnel completed paperwork and checked off on safety policy and procedural requirements even when those requirements had not been met”. The UK oil giant was said to have blatantly ignored repeated safety warnings as far back as 2002. The CSB said BP slashed budgets by a quarter between 1999 and 2005, even though large parts of the refinery were in disrepair. The board said BP management’s efforts to tackle the problems were “too little, too late”.

Vulnerable

Before 1999, Amoco owned the refinery but after the firm’s merger with BP, the British oil company took over operations. The CSB noted: “Cost-cutting by Amoco and then BP left the Texas City refinery vulnerable to a catastrophe.” The board added: “Decisions to cut budgets were made at the highest levels of BP, despite serious safety deficiencies at Texas City.” The CSB also found faulty alarms, wrongly calibrated gauges and dials caked in dirt.

In response to the CSB’s findings, BP announced that it had accepted responsibility for the incident. In a statement BP said: “In the two years since the accident, BP has taken significant steps to identify and address the causes of the explosion in order to reduce risk and improve process safety management and performance at its five US refineries. This effort continues. BP is committed to preventing such a tragedy from occurring again.”

BP’s own report published earlier this year into the incident, led by former Secretary of State James Baker, also heavily criticized the company over safety concerns at Texas City and its other four US refineries. Baker said he was “not so naive” to believe that there were similar safety concerns at other oil and gas companies. BP said it was implementing the full recommendations of Baker’s study and pledged to spend around $1.7 billion a year to boost safety at its US refineries.

After the accident the US Occupational Safety and Health Administration (OSHA) found 301 safety violations relating to the explosion and hit BP with a $21-million fine – the largest in the agency’s history. More than 1700 lawsuits have been launched and BP has set aside $1.6 billion for claims. The company said it was doing all it could to speed up compensation for the victims’ families and for those injured. “While we cannot change the past or repair all the damage that the blast caused, we have worked diligently to provide fair compensation, without the need for lengthy court proceedings, to those who were injured and to the families of those who died.” The US Justice Department is currently investigating whether BP was criminally responsible for the explosion.

Repercussions

In terms of BP’s reputation in the US, the CSB report has been extremely damaging. To rub salt into BP’s wounds, two further incidents occurred at the plant in the months following the 2005 blast. Pipe failure caused a reported $30 million in damage while the other incident resulted in a $2 million property loss. The CSB findings also come hard on the heels of other embarrassing scandals, including the oil leak at Alaska’s Prudhoe Bay and allegations that traders working for a BP subsidiary in the US manipulated the propane market in order to drive up the price.

Recently, reports surfaced to suggest the CSB investigation and Baker report created tensions within the upper echelons of BP. It was alleged that a leaked internal report said that John Manzoni, the head of refining operations, should have been aware of mounting safety problems at Texas City. Another BP chief with overall responsibility for Texas City was Mike Hoffman, but he retired earlier this year from his post as global VP for Refining and Marketing. And a management reshuffle has seen Bob Malone replace Ross Pilari as head of US operations.

Without a doubt, the shockwave of the Texas City explosion has reverberated throughout BP’s London headquarters. Lord Browne of Madingley, the outgoing CEO, has announced that he is retiring in the summer – 18 months ahead of his scheduled step down. The 59-year-old BP veteran, who joined the company as an apprentice in 1966, has said that he feels “deeply responsible” for the accident. Lord Browne is one of the highest paid UK executives. However, his salary and bonuses in 2006 was slashed to UK£4.5 million ¬– down from UK£6.3 the previous year. It’s not all bad news for the cigar-puffing boss – as part of his retirement deal he will receive a UK£22 pension pot and more than UK£1 million a year as retirement income.

Despite scandals in the US, Lord Browne is credited with reviving BP fortunes and transforming it into one of the world’s biggest and most profitable oil and gas companies. Indeed, the business made a profit of $22.5 billion in 2006. Waiting in the wings is Lord Browne’s heir apparent – Tony Hayward, head of exploration and production. Hayward, 49, knows he has to put BP’s house in order and turn around its reputation in the US – sooner, rather than later. For the time being dark clouds have gathered over the oil firm, which employs 36,000 in the US. Shareholders are crossing their fingers that company-lifer Hayward is the man to weather the storm.