BP’s Deepwater Horizon and Loren Steffy, Drowning in oil

BP became so obsessed with irrational management practices and petty health-and-safety measures that it overlooked the real safety of its workers

On the afternoon of 21 January 2011, in a little-noticed accident near Great Yarmouth, four workers at Claxton Engineering, an oil services company, were crushed to death by a steel structure. In today’s capitalism, oil is a big, dangerous business; not as dangerous to life and limb as the mining of coal in, say, China, but much more prone to fatalities than nuclear power.

Much of the world’s media seem to have forgotten that fact after last month’s explosions at Fukushima in north-east Japan.

The deaths at Great Yarmouth underline one of the many aspects of oil discovery, extraction and refinement that Loren Steffy, the business columnist for the Houston Chronicle, draws out in this brilliant account of BP before, during and after last year’s disaster, on 20 April, at the giant Gulf of Mexico drilling rig, Deepwater Horizon. Claxton Engineering isn’t really an example of that leftie bogeyman, Big Oil. It is one of the myriad medium and small suppliers to companies like BP. As in other sectors, much is outsourced in the oil industry. But as Steffy makes clear, the multi-firm diffusion of management responsibility, including responsibility for safety, goes a long way on oil projects.

A long-time observer of BP and a useful blogger, Steffy displays an excellent grasp of the management issues at stake with Deepwater Horizon. Technically a four-knot ship, Horizon was built and owned by Transocean. It cost $500million to construct, in Korea in 2001, and boasted a derrick 20 storeys above its main deck. Along with two smaller firms, BP leased the platform from Transocean and, after the accident, issued press statements saying that it offered its ‘full support’ to the offshore drilling contractor, which is the world’s largest. That was BP’s way of trying to shrug off its legal responsibility, as the majority lease owner, for any pollution caused by its development of the Macondo prospect – a huge strip of oilfield, 112 kilometres by six kilometres, 60kilometres off the coast of Louisiana. Even now BP, Transocean and other contractors have begun a massive round of lawsuits against each other over who, a year ago, did what when.

Wherever the final blame is judged to lie, a general abdication of responsibility extended right to the heart of BP itself. BP’s use of teams of employees, so often lauded in the literature of management, ensured that contractors found it difficult to determine who was ultimately in charge of a project. In hearings after Horizon blew up, co-chairman Captain Hung Nguyen, of the US Coast Guard, ‘appeared exasperated by the lack of clear procedures and clear chain of command’ aboard the drilling platform. BP managers were, Steffy writes, ‘lost in a maze of feelgood, consultant-driven programmes and policies, many of which overlapped’. Of the firm’s 18 ‘group values’, only one mentioned safety – and that in the same sentence as it insisted on ‘no harm’ to the environment.

BP, in Steffy’s book, is a lash-up of many acquisitions. That led to a fragmented corporate structure. After the completion of its mergers with Amoco and Arco in 2000, the number of business units inside BP, each with own profit and loss accounts, ballooned to no fewer than 300. Business-unit leaders were constantly moved: if you met a financial target on one project, you could quickly move on to another challenge. And the targets were financial, not about safety.

John Browne’s body

Steffy lays much of the blame for the disaster on the regime of endless cost-cutting embarked upon by John Browne, who became CEO of BP in 1995. Once we disregard his passages on Browne’s gay lovelife, Steffy’s description of Browne is revealing. It shows that he was much more than a simple hatchet man.

Browne joined BP straight after graduating in physics at Cambridge. A posting to Alaska in the late 1960s made him enamoured of the competitive culture in the US oil sector, and this was later reinforced by a business degree taken at Stanford University. Browne became BP group treasurer in the early 1980s, and, by 1986, developed a second predilection: outsourcing engineers, rather than employing them in-house, and hiring what Steffy describes as ‘legions’ of accountants.

To some extent, BP’s philosophy of breeding business units like rabbits grew out of Browne’s time at Stanford. But Browne had another influence, too – his fondness for bringing in the consultants McKinsey to streamline operations. That may not have been such a good idea: when, for example, one McKinsey team once came to BP’s oilfield in the North Sea, it did so straight after advising Toyota about how to run a car plant. Clearly, neither BP nor McKinsey then thought that industry-specific knowledge was very relevant.

Mergers and acquisitions (M&A), not the nitty-gritty, also dominated Browne’s worldview. Yet his clout became enormous. In 1997, he set up, within BP, a system by which permits to pollute were allocated to the company’s business units worldwide. Somehow that cut BP’s emissions of carbon dioxide by 10 per cent. Delighted, Browne pitched a regime now known as cap-and-trade to Tony Blair and to the Clinton administration. In the UK, this accountants’ way of dealing with greenhouse gases featured in the private market for carbon trading that was set up in 2002. Later, capping and trading emissions of CO2 became a central part of Barack Obama’s election programme for the US presidency.

Continuing in an environmentalist spirit, Browne went out of his way to flout old oil industry norms in a 1997 speech. In a Stanford University open-air amphitheatre bedecked with solar panels made by BP, he accepted, rather than rejected, the link between manmade CO2 emissions and global warming, and announced, with a straight face, a piddling ($20million) research programme into renewable energy. Then, not content with this, he turned to branding BP anew, as Beyond Petroleum. How did he get this idea? By doing a stint on the board of ‘Intel Inside’ Intel, the chip-making company.

Though the change was entirely cosmetic, it did Browne a lot of favours. The UK Labour government knighted him in 1998 and sent him to the House of Lords in 2001. After the recession of that year made Browne turn the screws on BP costs more than ever before, he became known at BP’s worldwide HQ in 1 St James’s Square, London, as ‘Elf’ – ‘evil little fucker’. That, however, did not prevent him receiving an accolade even more desirable than a knighthood and a life peerage. In May 2006, the glossy fashion monthly Vanity Fair, a meeting place for Democratic Party celebs, anointed Browne ‘the oilman with a conscience’.

Steffy deserves congratulations for highlighting how Browne’s ideas about management went further than his mantra of ‘more with less’. All of John Browne’s passions, from outsourcing, cost-cutting and competitive culture, through consultants and M&A, to greenwash and branding, were and remain central to general Western management theory and practice today. Applied to the oil industry, however, they led to a whole series of deaths around BP facilities, culminating in the 11 workers – nine of them employed by Transocean – who lost their lives when Deepwater Horizon exploded.

Where Steffy errs is in thinking that the oil industry is completely special. He writes: ‘The production of energy is an odd form of capitalism. The concept of competition is distorted, unlike the common rivalries among, say, retailers or restaurants that are familiar to consumers. Prices at all levels of the industry ultimately are based on oil prices, which are set not by the companies involved, but by the futures market, a global exchange of contracts among buyers and sellers… Oil companies themselves collaborate more than they compete.’

We may leave aside the fact that oil is by no means the only basic commodity subject to the vagaries of futures markets. The more important point is that, since 1989, it has been an accepted part of management doctrine, regardless of industrial sector, that one should collaborate with one’s rivals in order to triumphover them (1). Thus when, in 1998, BP bought a 29 per cent stake in a Shell project in the Gulf of Mexico, what it learned from its arch enemy about deepwater drilling allowed it to become, by 2004, the largest holder of US government leases in the region, producing more oil there than any other company. Yet there was nothing specific to the oil industry in this join-them-then-beat-them turn of events. There is nothing fundamentally collaborative about capitalism.

An amnesiac approach to safety

There was certainly nothing collaborative about BP’s safety regime. In the usual style, workers were intimidated into not reporting their worries about dangers on the job. What Steffy’s book makes clear, however, is how much BP revelled in the wrong kind of safety measures. According to a senior BP man on the North Sea, BP chiefs were ‘focused so heavily on the easy part of safety, holding the handrails, 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.’

Transocean banned crew from carrying pocketknives, something that prevented workers from cutting a life raft free of Deepwater Horizon when the rig went up in flames. For their part, BP’s Houston employees were banned from driving at more than eight kilometres per hour in the office car park, and were forbidden to use mobile phones while driving on company business. Yet again and again, for years before the Gulf blowout, BP let its real-world operations make major safety mistakes. In 2000 there were three incidents in Grangemouth, Scotland, but no lessons were learned. In 2003, BP’s Forties Alpha platform, the oldest of five run by the company in the North Sea area, exploded, though there were no casualties. In 2005, 21 workers died at BP’s Texas City refinery, 50 miles south of Houston, after both an external report and an internal inquiry had warned of the dangers there. Indeed, the internal inquiry found that 23 workers had died at Texas City in the previous 30 years, even though, as Steffy notes, ‘no one in the company seemed to know the plant’s fatal history’.

The disaster at Deepwater Horizon, then, was part of a pattern. After all, three deaths occurred at Texas City in years since the explosion, and leaks abounded on BP’s pipeline in Alaska.

Steffy’s opening 24 pages, noisy, shattering and packed with action, convey what it must have been like when the Horizon blowout took place. They are utterly gripping. So is his fifth chapter, which deals with the Texas City explosion, and his thirteenth, which, among other details, chronicles the fatal difficulties BP had with cement laid by contractors Halliburton. One example of the author’s vividness: in the run-up to the proposed capping of the Horizon well, Steffy says, an hour of BP indecision over mud leakage test results there led to laughter among Transocean staff. Why? Because they knew that an hour-long failure to moveHorizon on to another assignment meant an extra hour spent keeping it in its place. Cost of that extra hour? A cool half a million dollars.

At Texas City, the incompetence had been just as great. There, BP ran 500 hectares of ageing and corroding pipes and tanks, hot fluids under high pressure, and thousands of litres of hazardous chemicals. Some parts of the refinery, which is the third largest in the US, were 70 years old, and a husband and wife team labouring for one of BP’s outside contractors was, no doubt, not alone in each working 16-hour shifts.

In the refinery’s isomerisation unit, dedicated to making linear molecules into more complex, higher-octane branched ones, workers filled the distillation tower with the volatile chemicals used to make gasoline so as to restart the unit after it had been shut down for maintenance and repairs. In the distillation tower, excessive levels of those chemicals were not detected. A key monitor, the transmitter that measured fluid levels inside the isomerisation unit, didn’t work; a fluid level alarm didn’t work; the final fail-safe, a level-sight glass that let workers actually see the fluid levels, was ‘dirty and unreadable’.

At Texas City, BP brought trailers right up close to operating units, to allow quick on-site meetings. Likewise, a sign in one of the control rooms read ‘keep shutdowns to a minimum’. As we know from Fukushima, many factors combine to produce a major energy industry accident. It seems, however, that shutdowns, maintenance, repairs, restarts and significant changes in routine, such as the drive to move Deepwater Horizon on to pastures new, make oil capitalists conduct intolerable efforts to cut corners. Steffy does not mention it, but when Occidental Petroleum’s North Sea rig Piper Alpha exploded in 1988, a failure to complete maintenance work, and an incoming night shift’s ignorance of this fact, were to blame (2).

It is not oil, or even its depth, that directly leads to death at work, but rather difficult changeovers done in haste, and with an unprofessional regime. As Steffy points out, no fewer than 700 of the 50,000 wells in the Gulf of Mexico are ultra-deep – that is, stretch down more than 1,500 metres of water, where, on the seafloor, pressures can run to 30 atmospheres. Yet between the late 1970s and the fire on Deepwater Horizon, a total of 18 workers were killed across the entirety of US offshore oil installations – and there was only one significant oil spill, from a well in Mexican waters. Of course, 18 dead workers is 18 too many, even over 30 years; but the figure does show that death is not intrinsic to oil or to the technology of its extraction. In fact offshore technology is, according to Steffy, ‘ever-improving and safer’. Where death comes from is from the drive for profit, which is mediated by many management irrationalities.

What, then, is now to be done about safety in the oil industry? State regulation in the US was ineffectual before the Horizon affair. Most major oil companies, Steffy reminds his audience, used the same environmental impact statement to outline the size and potential damage from a spill. Filled out, a typical statement would run to a socking 500-800 pages. Yet if regulation was modest and irrational beforeHorizon, it has since turned into a grandiose and even more irrational vendetta. A month back, for example, the US state authorities were talking up the chances of prosecuting John Browne’s successor, the hapless Tony Hayward, on charges of perjury.

A sense of proportion about human life

Right after the Horizon inferno, those who survived it were confronted with corporate drug tests, the instruction that they could contact nobody, and a paper for signature saying they were not witnesses to the incident. Ten days later, Transocean tried, unsuccessfully, to give one battered worker $5,000 in exchange for a signed waiver to say he hadn’t been injured.

Not much change from past form there, then.

Nevertheless, much has been learned, even if, as Steffy makes abundantly clear, BP remains true to itself by learning very little. The multi-company team which BP assembled from its own resources and from rival firms worked round the clock for a long time, and gained a lot of experience in disaster management and the drilling of relief wells. That experience is vital: drilling three kilometres under the sea bed, the margin of error is just nine centimetres. Since that episode, too,Petrobras, the Brazilian state-owned oil company, has said that it wants to dispense with oil platforms and instead build, on the seabed but partly controlled from the surface, oil ‘cities’ of machines, giant equipment and inspection robots.

Especially given the few short months in which it was compiled, Steffy’s book itself represents a heroic contribution to learning. His technical paragraphs are clear, even if some diagrams might have helped. His textual research is terrific, and the vignettes his interviews elicit from BP and Transocean operatives are funny, sad and telling in equal measure.

Drowning in Oil is sober, and displays few prejudices. In the inside flap, we learn of our old friend, the ‘unwritten bargain between oil producers and consumers, whose insatiable appetites drive the search for new supplies faster, farther, and deeper’. However, this batch of glib clichés does not appear to be the work of the author.

Steffy also tilts in the direction of conspiracy theory when, with merciful briefness, he outlines the ‘revolving doors’ linking BP and BP-related managers to the Obama administration. Well, it’s true, as Steffy complains, that the oil industry is in cahoots with the regulators. But what’s new? All sectors of industry, not just demonised Big Oil, have for decades enjoyed extensive financial and personal connections with the state.

Steffy’s blemishes are minor. He is right to say that new regulatory measures have tended or will tend to raise oil industry costs, hit platform owners more than oil companies, and make life bearable only for the largest of the latter. And his overall focus is right, too, for it rests with management and workers’ lives much more than it does with what BP did to marine species, or to the fishing trade in Louisiana.

Steffy has a sense of proportion that is devastatingly absent from liberal analyses of Deepwater Horizon (3), and absent, too, from liberal analyses of the earthquake, tsunami and radiation that befell Japan in March 2011. His book is recommended.

FOOTNOTES AND REFERENCES

(1) See Gary Hamel, Yves Doz and CK Prahalad, ‘Collaborate with your competitors – and win’, Harvard Business Review, January-February 1989

(2) Charles Woolfson, John Foster and Matthias Beck, Paying for the Piper: Capital and Labour in Britain’s Offshore Oil Industry (1996), Routledge, 1997, p238. See also James Woudhuysen, Remembering Piper Alpha, the next step, 15 July 1988

(3) See for example, Rebecca Solnit, Diary, London Review of Books, 5 August 2010. In this 6442-word litany of the consequences of Deepwater Horizon, the loss of human life around the platform is mentioned only once – and that is when the author chooses to say that if Hurricane Katrina killed more people than Horizon, the effects of the latter will be worse in terms of how to clean up and when to declare, definitively, that impacts are over. As with many other commentators on Deepwater Horizon, Solnit and the London Review of Books give their space over to environmental and economic damage.