T-shirt design from Despair.com
In elementary school in Virginia, we could get an “A” for effort. By middle school, grading was all about results–you had to actually perform. The same holds for BP.
Even before the April 2010 explosion and spill that will likely become the worst U.S. oil disaster in history, BP p.l.c. seemed to be a company that was trying really hard…but it just wasn’t working.
I didn’t cover the company at the crunchy-granola mutual fund but I’ve kept up with the energy giant informally since 2006.
On paper, BP always seemed to be doing everything right:
- Above-average commitment to alternative energy.
- Strong programs regarding communities and the environment.
- Responsive PR and investor relations staff.
But again and again, things fell apart when it came to actually executing. Prior to the 2010 Gulf of Mexico oil spill, here are three notable examples of incidents that hurt stakeholders–employees, the environment, customers, and investors.
1.) Texas City Refinery Explosion in 2005
The March 2005 Texas City refinery explosion killed 15 workers and injured 170 others. Critics assailed BP (and Amoco, the facility’s owner prior to 1998) for failing to invest in modern pressure-relief equipment at the country’s third-largest refinery.
Many of the employees and contractors killed were in portable trailers parked next to hazmat storage tanks, contrary to recommendations after a 1995 Pennzoil explosion. In October 2009, OSHA fined BP a record $87 million for safety violations that contributed to the explosion and its aftermath. The company is appealing the fine.
As of February 2008, BP reported it had paid more than $1.6 billion to victims and their families. Even if those settlements are covered by insurance, enormous payouts aren’t exactly preserving shareholder value.
2.) Prudhoe Bay Pipeline Spill in 2006
In March 2006, a corroded BP pipeline spilled over 200,000 gallons of oil in Prudhoe Bay, Alaska–the largest spill to date on Alaska’s north slope.
In 2007, the company pleaded guilty to negligent discharge of oil and paid a $20 million fine. Further, it appears the incident fit a pattern:
Carolyn Merritt, chief executive officer of the U.S. Chemical Safety and Hazard Investigation Board, told the committee that “virtually all” of the root causes of the problems at Prudhoe Bay had “strong echoes” of those that led to the 2005 explosion in Houston. These had included cost cutting and a failure to invest in the plant. The committee was also told that the spillage happened at a time when BP was making huge profits.
3.) Fine in 2007 for Propane Market Manipulations in 2003 and 2004
In October 2007, BP agreed to pay a $303 million fine to settle charges that the company had manipulated propane prices in 2003 and 2004. Actions by one or more of the company’s traders had “inflated heating and cooking costs for about 7 million mostly rural American households.”
The energy company agreed to three years’ probation. A former BP trader had already pleaded guilty to related conspiracy charges in 2006.
And so it continued, one high-profile incident after another. Even to me as a casual observer, it was like, “What next, BP?”
Gulf of Mexico Explosion and Oil Spill in 2010
"Little Engine That Couldn't" cartoon by Gary Larson
We have the answer today. It’s the currently-unfolding Gulf of Mexico oil spill at a floating rig leased by BP from Transocean. At least 11 workers died in the Deepwater Horizon explosion, and 17 more were injured.
Almost a month later, no one’s been able to stop the oil from flowing out of the wellhead. The oil is expanding into a 10-mile underwater plume and a 2,500-square mile spill that threatens coasts and fisheries.
Sure, when a company is that big–more than 80,000 employees, exploration & production in 30 countries, 16 refineries, and 18.3 billion barrels of proved oil equivalent reserves–things are going to go wrong occasionally. But the appearance of a pattern of high-profile public problems? That’s not good.
Reputational Damage = Financial Damage
The Wall Street Journal reports that BP’s public relations problem in the Gulf of Mexico has become a financial problem:
When you consider that analysts’ worst case scenarios put the eventual cost to BP at around $8 billion, yet $30 billion has been wiped off the company’s market capitalization since the crisis began, it becomes clear that this reputational damage has a value.
All the PR in the world doesn’t help over the long-term if a company has systemic operational problems. And you know you’ve got a publicity problem when Despair.com has not just one but two t-shirts ridiculing your company (see above for one of them).
Given its track record to date, do you think BP will ever be able to permanently “fix” its public reputation?
Image credits: BP t-shirt page at Despair.com. “Little Engine That Couldn’t” cartoon by Gary Larson.
