Furious Growth and Cost Cuts Led to BP Accidents Past and Present
This story was provided by the nonprofit investigative news service ProPublica. "The Spill," a PBS FRONTLINE documentary drawn from this reporting, airs tonight.
Jeanne Pascal turned on her TV April 21 to see a towering spindle of black smoke slithering into the sky from an oil platform on the oceanic expanse of the Gulf of Mexico. For hours she sat, transfixed on an overstuffed couch in her Seattle home, her feelings shifting from shock to anger.
Pascal, a career Environmental Protection Agency attorney only seven weeks into her retirement, knew as much as anyone in the federal government about BP, the company that owned the well. She understood in an instant what it would take others months to grasp: In BP’s 15-year quest to compete with the world’s biggest oil companies, its managers had become deaf to risk and systematically gambled with safety at hundreds of facilities and with thousands of employees’ lives.
"God, they just don’t learn," she remembers thinking.
Just weeks before the explosion, President Obama had announced a historic expansion of deep-water drilling in the Gulf, where BP held the majority of the drilling leases. The administration considered the environmental record of drilling companies in the Gulf to be excellent. It didn’t ask questions about BP, and it didn’t consider that the company’s long record of safety violations and environmental accidents might be important, according to Carol Browner, the White House environmental adviser.
They could have asked Jeanne Pascal.
For 12 years, Pascal had wrestled with whether BP’s pattern of misconduct should disqualify it from receiving billions of dollars in government contracts and other benefits. Federal law empowers government officials to "debar" -- ban from government business -- companies that commit fraud or break the law too many times. Pascal was a senior EPA debarment attorney for the Northwest, and her job was to act as a sort of behind-the-scenes babysitter for companies facing debarment. She worked with their top management, reviewed records and made sure they were good corporate citizens entitled to government contracts.
At first, Pascal thought BP would be another routine assignment. Over the years she’d persuaded hundreds of troubled energy, mining and waste-disposal companies to quickly change their behavior. But BP was in its own league. On her watch she would see BP charged with four federal crimes -- more than any other oil company in her experience -- and demonstrate what she described as a pattern of disregard for regulations and for the EPA. By late 2009 she was warning the government and BP executives themselves that the company’s approach to safety and environmental issues made another disaster likely.
A close look by ProPublica and PBS FRONTLINE at BP’s explosive growth corroborated and expanded on Pascal’s concerns. The investigation found that as BP transformed itself into the world’s third largest private oil company it methodically emphasized a culture of austerity in pursuit of corporate efficiency, lean budgets and shareholder profits. It acquired large companies that it could not integrate smoothly. Current and former workers and executives said the company repeatedly cut corners, let alarm and safety systems languish and skipped essential maintenance that could have prevented a number of explosions and spills. Internal BP documents support these claims.
A ProPublica analysis of state and federal records revealed that BP has fared far worse in the United States than the rest of the industry in terms of spills and serious safety violations.
In Alaska, home to one of BP’s longest-standing and most important business units, the company produced nearly twice as much oil as ConocoPhillips, the other major company operating there, but since 2000 it has also recorded nearly four times as many large spills of oil, chemicals or waste. In the Gulf of Mexico, BP had more spills than Shell between 2000 and 2009, even though Shell produced more oil there.
BP’s workers also appear to be more at risk. In Alaska, it has had 52 worker-safety violations since 1990, compared with ConocoPhillips’ seven. Nationally, according to an extensive analysis of data from the Occupational Safety and Health Administration, BP had 518 safety violations over the last two decades, compared with 240 for Chevron and even fewer for its other competitors. Since those statistics were compiled, in 2009, OSA has announced 745 more violations at two BP refineries, one near Toledo, Ohio, and the other in Texas City, Texas, where 15 people were killed and 170 injured in a 2005 explosion.
"They just weren't getting it," Jordan Barab, OSHA’s deputy assistant secretary of labor, told ProPublica and FRONTLINE. In the last decade, OSHA records show that BP has been levied 300 times more in fines for refinery violations than any other oil company.
"BP's cost-cutting measures had really cut into their plant maintenance, into their training, into their investment in new and safer equipment," Barab said. "When you start finding the same problems over and over again, I think you are pretty safe in saying they've got a systematic problem."
According to documents obtained exclusively by ProPublica and FRONTLINE, some of the inspectors BP was using to monitor its pipelines in Alaska, where two serious spills occurred in 2006, weren’t properly certified or trained.
Even today, four years after former CEO Tony Hayward pledged to keep a "laser-like" focus on safety, maintenance on the massive turbines that run the company’s Alaska plants has been deferred. Many of these facilities operate without fire and gas detectors, because theirs are outdated and are expensive to replace. Workers in Alaska told ProPublica they fear another deadly BP accident could happen at any moment.
The pattern extended to BP’s Gulf of Mexico operations. BP’s flagship $1 billion Thunder Horse drilling platform nearly sank in 2005 after engineers installed ballast valves backward. And a federal lawsuit over safety concerns on another BP rig, Atlantis, was making its way through the courts even as the Deepwater Horizon exploded.
BP declined repeated requests for comment and for an interview with its new CEO, Robert Dudley. When sent a list of more than 30 questions, it replied with a three-paragraph statement saying that BP will establish a new safety division reporting directly to the CEO. Monday, in a press conference in London, Dudley said that he did not believe that BP is an unsafe company, and warned that the ProPublica and FRONTLINE report would be unflattering.
For Pascal, the explosion in the Gulf heightened the frustration she’d felt in the last months of her job. BP’s Prudhoe Bay and Texas City units had been automatically blocked from government work on her watch -- that’s the minimum debarment action after a prominent air or water pollution crime in the United States -- but she’d never been able get the company to change. She’d used all the normal tools to bring BP into what the government calls "compliance."
The only thing she hadn’t done was bring down the big hammer: the EPA’s power to ban an entire company from doing business with the federal government.
Many companies have been debarred, but never has one as large as BP, or as important to the U.S. economy and security. Debarment would have severed BP’s contracts with the American military and jeopardized the company’s long-term access to reserves that generated nearly $16 billion in revenue for the company last year. BP’s stock price would likely have gone into a tailspin.
Now, with the Deepwater Horizon disaster unfolding on her TV screen, Pascal believed such a move was finally warranted.
Curious for more news, she called her old office in downtown Seattle. But the EPA was already in lockdown. Just weeks out of a 26-year EPA career, she was told she couldn’t talk to her old team. She’d have to call the public affairs office if she wanted information.
Pascal then dialed another number, for Scott West, a retired EPA criminal investigator who had also worked the BP case. He, too, was enraged by what he saw happening in the Gulf, and reporters were pressing both of them for information. Together they decided they had an obligation to tell people what they knew about the company at the core of this unfolding tragedy. If the public had known sooner, Pascal thought, perhaps the Deepwater Horizon disaster might have been prevented.
BP’s Historic Ambition
BP’s ascent to the top tiers of the oil industry hit full stride in 1995, when John Browne became CEO. The company was founded as the Anglo Persian Oil Company in 1909 but languished after Middle Eastern countries nationalized their oil in the 1970s. By the time Browne took over, it was so far behind Exxon and Shell, the world’s largest independent oil companies, that it could hardly feel their tailwind.
Browne was an engineer who had practically been raised in BP’s business. But with a passion for art and the London Opera, he was hardly a typical oilman. He did, however, have a vision for a bigger, sleeker BP.
In 1998 he put together what was at the time the largest merger in corporate history -- the $61 billion buyout of Amoco Corporation. By mid-2001 he had also bought ARCO and four other companies.
"We’ll be the largest producer of oil in the non-OPEC world," Browne said when he announced the ARCO merger.
On paper, the company quadrupled in value and became a huge global competitor overnight. Browne was hailed in Britain as the "Sun King," and in 1999 BP’s stock soared to what was then an all-time high.
BP’s next challenge was not only to integrate its thousands of new employees and numerous industrial facilities, but to do it without increasing the company’s already-significant debt.
Fadel Gheit, a managing director at the investment bank Oppenheimer, said that during the time of the mergers BP's debt ratio was at least 10 percentage points higher than was normal for the company.
"BP has historically maintained higher debt levels and debt ratios than its peers," he said. "It believed that debt is the cheapest source of capital." In contrast, he said, "U.S. majors Exxon and Chevron believe in low debt, or even no debt, and investors seem to like that."
Browne, with little wiggle room, brought the companies into the fold by slashing jobs and cutting costs. He squeezed out $2 billion in savings from the Amoco merger alone.
At the same time he steamed ahead with extracurricular projects that Tony Hayward would later describe as distractions. Browne delivered speeches on climate change. He rebranded the company from British Petroleum to BP and added the "Beyond Petroleum" tagline to put it in a more cosmopolitan, ecological light.
But Browne and other senior managers weren’t deeply engaged in the day-to-day operations of their facilities, and the disparate corporations they acquired were never fully integrated. More than a decade later, employees still identified themselves as ARCO, or Amoco, or wherever else they came from. And each of those cultures approached safety and maintenance differently.
"Growth creates challenges to management," said Ronald Freeman, a former managing director for Salomon Smith Barney. "BP in this case just grows beyond its management ability to watch everything they need to watch when they need to watch it."
While Browne reveled in the spotlight -- he was even knighted by Queen Elizabeth -- cracks began to appear in his burgeoning company, cracks that Jeanne Pascal would be among the first to spot.
The Government Was Warned
Pascal was assigned to BP in 1998, when the company’s Alaska division was settling a criminal case involving a contractor who had illegally dumped hundreds of gallons of toxic waste back into a well hole. It was the company’s first federal felony, Pascal’s first assignment to BP and the first dot in a crude portrait of what would shape up to look like a repeat offender.
Pascal was 49 at the time. An affable woman, with carefully coiffed hair and residual southern charm, she grew up in Tennessee and got a law degree from University of Memphis. After graduation she landed a job as a prosecutor in a small town north of Seattle and married a sheriff’s deputy.
But Pascal wanted to "make a difference," and she decided to move into environmental law. She set her sights on getting a job with the EPA, and after sending her resume to the agency every month for a year, she was finally hired in 1984.
"I actually put the memo of hiring into a scrapbook," she said.
By the time she was assigned to the BP case, Pascal had handled at least 600 EPA cases against large and small companies, usually juggling 25 to 50 at a time.
Almost any time a company is convicted of a crime it faces the possibility of a ban on federal contracts, or debarment. When debarment kicks in -- or in some cases to avoid it in the first place -- companies reach a settlement with the EPA that establishes benchmarks they must meet, so the government can eventually lift the sanctions.
In Pascal’s experience, most companies settled quickly and in good faith, and at first BP seemed to be following that path. After pleading guilty to felony charges, it avoided debarment by signing a settlement agreeing to five years of probation and promising to institute a "revised corporate attitude." It pledged not to punish employees who reported environmental concerns and said it would spend $15 million on an environmental management program for its operations in Alaska, Texas and the Gulf.
As part of the agreement, BP Exploration, the company’s Alaska division, also agreed that its Health, Safety and Environment director would report directly to the division president, so top executives couldn’t avoid hearing about serious safety concerns. The EPA identified this as one of the most important things BP could do to reform its safety culture in Alaska.
For several years, BP appeared to be complying with the agreement.
The monthly reports it sent to Pascal detailed the success of its maintenance and safety programs. Senior managers assured her personally of the company’s progress when they met in the conference room of Seattle’s Fairmont Hotel. There were a couple of accidents, but executives blamed irresponsible employees or assured her the problems had been fixed.
Then, in early 2004, Pascal was sitting at her desk at the EPA when she got a phone call from a BP mechanic who was a member of the United Steelworkers Union on Alaska’s North Slope.
"There are awful things happening on this oilfield," Marc Kovac told her.
Kovac was referring to the facilities where he was working near the shore of the Arctic Ocean.
He described serious corrosion in some sections of pipeline and said BP was manipulating environmental inspection reports to show that the pipelines were fine. He told her that workers who complained about the problems had been fired. And he said that a leak -- or worse, an explosion -- could happen any day.
"I’m scared for my life," Pascal recalls Kovac telling her. "If you have a case against BP Alaska you don’t want to let them go."
Pascal’s phone kept ringing, and workers began sending her documents and internal company e-mails to support their claims. Among them were documents from the mid 1990s describing BP’s decision to put off or cancel corrosion maintenance in order to save money and meet John Browne’s budget targets. Other documents showed that BP had delayed replacing the gas detectors that warn of a potential explosion.
Pascal learned that a BP oil worker, Don Shugak, had been severely burned in 2002 after a well exploded in his face -- and that BP had misled investigators about the cause of the accident. And she discovered that in 2003 the company had failed to report a small oil spill until after it had begun cleaning it up.
The BP case was turning into a case unlike any other she had handled. "I’d had whistleblowers come forth before, like one or two, maybe three," she said. "I’ve never had 35 to 40 people come before me."
Pascal was furious. It appeared that BP had deliberately misled her and had violated its compliance agreement, but she needed an investigation to find out for sure.
"I tend to take people at face value," she said. "One of the hardest moments of my life with BP was in the first six months of 2004 when I realized that I had been managed, and that I had been so easily manageable. They lied. I had swallowed their line hook, line and sinker."
Losing trust in BP was a hard lesson for Pascal, and the events of 2004 changed the way she approached the company in the six years that followed. For the first time she thought she might have to actually debar this company.
Pascal demanded that BP investigate the workers’ claims. In a meeting in Seattle in late 2004, the company’s lawyers from the firm Vinson & Elkins showed the EPA an internal investigation that -- while critical of BP in some aspects -- dismissed many of the concerns.
"We did not find any evidence that the allegations regarding data fraud in the CIC program had merit," the report stated, referring to the corrosion maintenance program.
Pascal remained convinced that an accident was inevitable. She shared her fears with the EPA’s Criminal Investigation Division but said she was told that until an accident occurred, there was nothing to investigate.
Pascal then took her material to the Department of Justice.
"I said I had documents which showed the pipelines were in bad shape and that sooner or later there was going to be some kind of a failure," she said.
An agent from the Federal Bureau of Investigation traveled to the North Slope to poke around but found nothing that could be knitted into a prosecution. The federal government, Pascal was again told, didn’t have jurisdiction to interfere with oil and gas infrastructure unless a crime had been committed or an accident had already happened. In the meantime BP’s five-year probation period had run out, taking most of Pascal’s leverage with it.
"I explored that with all kinds of people and I couldn’t find a jurisdictional way in, other than to let it happen," she said. "So we had to wait."
