~ BP and the Art of ‘Just Business’ Practices for Profit Containment

Friday night, the containment box that was the best hope for slowing down and funneling oil from BP’s Deepwater well failed.  At least for now.  There are other options like the “junk shot” being considered, but all have considerable risks and other down sides.  Like needing a lot more time to implement. The most dependable solution is the relief well. Work continues, but completion is still a month or more away.

So now we are rapidly facing the worse case scenario.  For most Americans, that means more worries about prolonged and spreading (now Alabama’s Dauphin Island) ecological and environmental devastation along with the ripple out effect to the economy, food supplies, gas prices, and human health.

For BP and it’s chief officer and much the oil industry, worse case means worries about less profits.  Analysts say the total bill could exceed $14 billion (I’m guessing higher). That means stemming the out flow of dollars by what ever means possible becomes a priority.  But unlike the response to the spill itself, the mechanisms for this containment system are well maintained, the plan is many pronged, activation is set with hair triggers and incentives for success are great.

And not to worry, ‘just business’ practices for profit containment are well under way.

Last week, when Tony Hayward, BP’s chief executive talked to The Times

He urged the US Government to pursue a policy of “absolute co-operation” with BP. “We will only succeed if we work together,” he said — a day after President Obama’s press secretary promised that the White House would “keep a boot to the throat of BP” to ensure that it fulfilled its responsibilities.

Now, I’m fairly sure Mr. Hayward is not really concerned about President Obama’s boot at BP’s throat.  After all, we have all seen the president’s fuzzy bunny boot slippers in action when he took on the health care, health insurance, and financial industries.  So we all know how light the pressure is behind those those fuzzy bunnies and how quickly and easily even that pressure can slip away.

No, the government through the exemptions issued by its Minerals Management Service (MMS) is and was as culpable of promoting ‘just business’ practices for profit containment as the industry itself.  Mr. Hayward was simply giving the President a friendly reminder.

The real concern and threat for BP and Mr. Hayward is the greedy American people.  More from The Times:

An army of lawyers has descended on the Gulf Coast, determined to cripple BP with lawsuits on behalf of property owners and fishermen whose livelihoods they say could be ruined. Robert Kennedy Jr, son of the former presidential candidate and a prominent environmental lawyer, is suing BP.

Mr Hayward reiterated a promise that BP “will honour all legitimate claims for business interruption”. Asked for examples of illegitimate claims, he said: “I could give you lots of examples. This is America — come on. We’re going to have lots of illegitimate claims. We all know that.”

Yes, we have all been told (ad nauseum) about how lawsuit loving we American’s are. Though I might point out that it wasn’t lawsuits (but possibly the lack of lawsuits) that ruined Wall Street, health care, and our government. (And in the light of recent events, one can only hope that lawsuits will be the ruin of every good and upstanding corporatist institution that we have as a nation.  Because our government sure doesn’t seem capable of bringing them down or even cutting them down to size.)

One of BP’s first profit containment efforts was to stem the flow of lawsuits by issuing contracts to Alabama fishermen being hired to help fight the Gulf of Mexico oil spill that included waiver clauses for payments of up to $5,000 to people affected by the oil spill who agreed not to sue the company.

“That was an early misstep,” BP Chief Executive Tony Hayward told National Public Radio, …”It was a standard contract the team was using,”

So why are lawsuits such a huge concern? Because, they are costly to fight and costly to settle. But more importantly, lawsuits have a way of exposing the “storytelling” side of a company’s history.

It is no coincident that BP with its sunburst over green logo is considered the most environmentally friendly of major oil companies. BP has worked for years and spent tens of millions annually to create a green image and brand by touting it’s investment in solar, wind and biofuels. Never mind that:

BP hasn’t gone much beyond its core business of petroleum. Of its $73 billion in revenue in the first quarter, about $72.3 billion of that came from the exploration, production, refining and marketing of oil and natural gas. The rest came from “other businesses” such as solar and wind energy.

And never mind the number of very recent and significant BP accidents.

— An explosion at a BP refinery in Texas City in 2005 killed 15 people and injured 170. Regulators in October hit BP with a record $87 million fine for failing to correct safety hazards at the plant. BP has formally contested the fine.

— More than 200,000 gallons of oil spilled from a BP pipeline in Alaska in March 2006, the largest-ever spill on Alaska’s oil-rich North Slope. BP paid about $20 million in fines, including $4 million to the National Fish and Wildlife Foundation for Arctic environmental research.

— Last year, BP paid nearly $2 million in fines for not operating with the proper equipment at oil fields along the North Slope.

And according to Greg Palast, who in 1989 was a fraud investigator hired to dig into the cause of the Exxon Valdez disaster, BP’s less than clean history goes back to the Valdez accident in Alaska.  From Slick Operator: The BP I’ve Known Too Well (h/t helenk):

Both in Alaska, when the Exxon Valdez grounded, and in the Gulf last week, when the Deepwater Horizon platform blew, it was British Petroleum that was charged with carrying out the Oil Spill Response Plans (OSRP), which the company itself drafted and filed with the government.

To contain a spill, the main thing you need is a lot of rubber, long skirts of it called a “boom.” Quickly surround a spill, leak or burst, then pump it out into skimmers, or disperse it, sink it or burn it. Simple.

But there’s one thing about the rubber skirts: you’ve got to have lots of them at the ready, with crews on standby in helicopters and on containment barges ready to roll. They have to be in place round the clock, all the time, just like a fire department, even when all is operating A-O.K. Because rapid response is the key. In Alaska, that was BP’s job, as principal owner of the pipeline consortium Alyeska. It is, as well, BP’s job in the Gulf, as principal lessee of the deepwater oil concession.

Simple to do on the front end.  Hard to do on the back end.  But profits lie in between.  So it’s just business.  I’m sure we will find the history of the Deepwater well’s blowout and spill will be repelet with such practices.  But it is hard to beat those standard ‘just business’ practices. Especially when, they are business practices for profit containment.

Of course, ideally, the role of government was to step in and protect the American peoples interest.  Unfortunately, that isn’t the way our government worked then and isn’t how it works now.

As Paul Krugman points out:

… the common theme in all these stories is the degradation of effective government by antigovernment ideology.

Mr. Obama understands this: he gave an especially eloquent defense of government at the University of Michigan’s commencement, declaring among other things that “government is what ensures that mines adhere to safety standards and that oil spills are cleaned up by the companies that caused them.”

But as this McClatchy article highlights.  It is not a defensive of government that we need.  But an effective government that defends it’s citizenry.  And so far, despite President Obama’s eloquence it’s not happening:

Since the Deepwater Horizon oil drilling rig exploded on April 20, the Obama administration has granted oil and gas companies at least 27 exemptions from doing in-depth environmental studies of oil exploration and production in the Gulf of Mexico.

The waivers were granted despite President Barack Obama’s vow that his administration would launch a “relentless response effort” to stop the leak and prevent more damage to the gulf. One of them [waiver] was dated Friday — the day after Interior Secretary Ken Salazar said he was temporarily halting offshore drilling

The exemptions, known as “categorical exclusions,” were granted by the Interior Department’s Minerals Management Service (MMS) and included waiving detailed environmental studies for a BP exploration plan to be conducted at a depth of more than 4,000 feet and an Anadarko Petroleum Corp. exploration plan at more 9,000 feet.

So maybe the tea party people can be forgiven for their skeptism, Mr. Krugman.  After all, actions do speak louder than words.


[Cross posted at No Quarter]


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