Tony’s a no-show

The spectre of the Gulf of Mexico extended to an annual conference in London this week – the World National Oil Company Congress – at which many of the top executives from national oil companies, such as Saudi Aramco, gather annually to mingle with their counterparts from the big international oil companies.

This year, industry folk lined up to offer BP sympathy, including the head of Libya’s state oil company and OPEC president, Shokri Ghanem, who even went so far as postulating that the spill may have been “exaggerated somewhat“. Surely, this was the perfect setting for BP’s beleaguered chief executive, Tony Hayward, to make an appearance? But no, Mr Hayward cancelled at late notice, leaving delegates, the press pack and environmental group Greenpeace disappointed. Steve Westwell, BP’s “chief of staff” stepped into the breach and did his best, offering BP’s condolences and expressing the company’s sorrow, but his address was interrupted twice by Greenpeace protesters (see the full video here).

Mr Hayward no-show sparked much debate. As the PR gaffs continue – an ill-advised sailing trip over weekend had caused another wave of outrage in the US – the official line was that Mr Hayward’s revised schedule prevented his attendance. It is possible that Mr Hayward was on route to Russia. Having navigated the company through a difficult dispute with its Russian shareholders in joint-venture company TNK-BP, Russia is now seeking assurances from Mr Hayward that BP’s investment in Russia will not be hit by the fallout from the spill. If Mr Hayward fails to convince the Kremlin as spectacularly as he failed to convince the US Congress last week, BP might find it has even more trouble on its plate.


Accused again

BP now has to cope with yet another accusation about its behaviour prior to the Deepwater Horizon disaster. This will not help the company’s attempts to emphasise that it was not alone in running operations.

BP’s battle with the series of damaging revelations that have emerged over the last two months has been almost as tough as its struggle with the Deepwater Horizon leak itself. Now, the company has to deal with accusations from a survivor of the original accident that BP and Transocean executives were told of a fault with the oil rig’s safety equipment weeks before the explosion.

A leak on one of the control pods, which help control the blowout preventer (the piece of equipment that was designed to mitigate a leak but which failed) was not fixed, according to rig worker Tyrone Benton. Instead, the device was shut down and a second one relied on in order to avoid a costly shutdown of operations, which at the time were costing BP around $500,000 a day. In other words, this development adds to the pile of accusations that BP wilfully put profit over safety. To cap off the PR nightmare, Mr Benton is now suing both companies.

BP has laid responsibility for the equipment on Transocean, while Transocean have countered that they tested the device successfully prior to the accident. However, such details may get lost amid the increasing tendency of the public to focus blame on the British company.

Minerals mismanagement

An article in Rolling Stone has criticised the scale of corruption in the Minerals Management Service, the body responsible for regulating the oil industry, and accused the Obama administration of failing to act despite knowing of problems.

Barack Obama has been keen to lay criticism for the Deepwater Horizon disaster firmly on BP’s doorstep (to the extent that he was accused of xenophobia by one British ex-minister, now a lord). But a lengthy article in Rolling Stone magazine now claims that the reason for this is not mere political expediency, but awareness that his administration is directly responsible for failing to deal with the very cronyism and corruption at the Minerals and Management Service (MMS) that Obama himself has criticised, and which contributed to the failure of regulation of Deepwater Horizon.

While recognising that BP was at fault, the article is scathing about the MMS, which has already been accused of being too close to the industry it regulates. According to Rolling Stone, the Bush years saw the MMS descend “into rank criminality” where “MMS managers were awarded cash bonuses for pushing through risky offshore leases, auditors were ordered not to investigate shady deals, and safety staffers routinely accepted gifts from the industry”. The MMS apparently provided the Deepwater Horizon operation with a “categorical exclusion” – an exemption from environmental review that is supposedly applicable only to activities that have “no significant effect on the human environment.”

But the article is also critical of the Obama administration, including Secretary of the Interior Ken Salazar, for failing to deal with a corrupt culture of which they were aware, and for pushing through an increase in offshore drilling. It cites MMS employees who referred to their working practices as being like “a third Bush term”, despite the new president’s rhetoric. Although the administration was fairly quick to condemn corruption at the MMS and seek distance from it after Deepwater Horizon (the body is due to be broken up by the administration, separating its royalty-collection personnel from its safety and environmental regulators), Rolling Stone charges that lapses in standards were already known about, and that “a top-to-bottom restructuring of MMS didn’t require anything more than Ken Salazar’s will: The agency only exists by order of the Interior secretary.”

Obama used part of his recent Oval Office address to argue that the accident has highlighted the incentives of ending “America’s century-long addiction to fossil fuels”. But if this article is correct, then Obama’s idealistic rhetoric is worth very little. And even if that view is a little one-sided, the administration will struggle more than ever to get its energy policy accepted if the public can be convinced that their President’s words are not in step with his actions.

Are you sitting comfortably?

Tony Hayward, chief executive of BP, yesterday faced the congressional energy and commerce sub-committee. It made for painful viewing.

“The American government working at its best” was how Congressman Edward Markey described hauling Mr Hayward up in front of a congressional sub-committee for a grilling that left even the fresh-faced CEO looking haggard. The opening statements were brutal political theatre at its very best. Mr Hayward sat stoically. He had little choice.

All of BP’s dirty laundry was aired in this most public arena. History weighs heavily on BP’s charge sheet: from the Texas City disaster, to the oil spill in Alaska and, now, the failings leading up to the blow-out on the Deepwater Horizon rig. Incriminating emails from managers prior to this latest accident will haunt the company but Mr Hayward certainly bears some responsibility for the hostility. He will long rue his off-the-cuff comments in the immediate aftermath – the infamous “I want my life back comment” was thrown back at him with interest as was his pledge to focus on safety “like a laser”. In context the latter now look unfortunately prophetic.

Particularly harrowing was the footage of widows of workers on the Deepwater Horizon well. So too was the litany of stats reeled off in almost all opening statements. Criticism was not confined to BP. The Obama administration and the MMS also came in for a fair share of criticism from the sub-committee. Clearly scoring political points was not off the agenda. Congressman Joe Barton described the US$20bn fund established by BP as a “shakedown”. This led to swift rebuke from other members of the hearing.

Some perspective was offered by one congressman who said that the oil spill was not the “worst thing that’s happened to America”. That dubious honour was reserved for cigarettes. At least BP now knows where it stands in the villain’s gallery. But others echoed the personal nature of President Obama’s attacks on Mr Hayward. Peter Welch was particularly brutal implying that Mr Hayward should consider his position as CEO.

Lie back and think of England

A spectacular scene then occurred when a tar-soaked woman at the back of the room interrupted Mr Hayward’s opening address (see the full opening address here). Measured in tone Mr Hayward said he was “devastated”, and that he understood and was sympathetic to the anger expressed by the people of the Gulf Coast and all Americans.

How the hearing now progresses remains to be seen. But the committee seems intent on pressing Mr Hayward with questions that, in all likelihood, even he does not know the answers too. His visit to Washington D.C. has already yielded concrete results. The highlight was the US$20bn fund that BP will set aside to compensate those affected by the spill. BP will stagger payments into the fund, the cost of which will be covered by cutting its dividend, reducing capital expenditure and selling non-core upstream assets. What BP will emerge at the end of this process? Until the well is plugged this is nearly an impossible question to answer but, political theatre aside, it looks set to be decided not in Congress but in the courts.

Hydrogen’s long road ahead

A hydrogen-powered version of London’s black cab was launched today, with plans for a small fleet by 2012. Although there is optimism surrounding the prospects for the technology, there are still plenty of hurdles to leap before it becomes viable.

Hopes for an eco-vehicle revolution have taken another step forward with the recent launch of a hydrogen fuel cell hybrid version of London’s iconic black cab. But although a number of concerns have been dealt with, there is still a long way to go to fulfil a pledge by London’s mayor, Boris Johnson, to see all of the city’s taxis operating with zero emissions by 2020, and even further before hybrids can begin to challenge traditional fuel sources on the road.

The hydrogen fuel cell works in tandem with rechargeable lithium batteries. Either can power the cab’s engine and the fuel cell recharges the batteries as well as providing power directly. The prototype has plenty going for it. The main attraction is the absence of the traditional cough and splutter of an exhaust pipe – the hybrid vehicle emits only heat and water vapour. With no emissions of particulates (which contribute to lower air quality) the new cab has the potential to win over Londoners, while its lack of CO2 emissions should prove attractive in the political context of searching for solutions to climate change.

However, there are still several obstacles. The cab’s zero emissions refer to what happens “at point of use” (i.e. what comes directly from the vehicle). The hydrogen itself must be created. If that is not done in a renewable way (and the infrastructure to do so does not currently exist), then the overall saving in carbon emissions will be far lower, since traditional hydrogen manufacture relies on burning fossil fuels.

Transport is also tricky. Natural-gas pipelines cannot be used because hydrogen makes the steel tubing brittle and attacks the welds. Special production processes are needed to make pipes for carrying hydrogen. For that reason, few exist. The alternative is to liquefy the hydrogen at great expense and transport it in road tankers refrigerated with liquid nitrogen, at great expense.

Problems with a lack of infrastructure do not end at the manufacturing and transport level. Hydrogen hybrids face the same ‘chicken and egg’ problem as plug-in electric vehicles when it comes to fuelling: there are not enough fuelling points to create demand for vehicles, and too few vehicles to justify building fuel stations. London taxis are owned by their drivers, most of whom depend on their vehicles for their livelihoods. Although a great deal of work has been done to make sure the hybrid will be as reliable and durable as its petrol counterpart, a wholesale transfer to hydrogen will need more incentive.

Money is a major obstacle. John Russell, CEO of Manganese Bonds, the holding company for LTI vehicles (which manufactures the traditional black cab), has said that there will be “tremendous funding issues” before a hybrid fleet becomes a reality.  Creating enough fuelling stations to make it worthwhile to own a hydrogen hybrid will take a lot of investment. So will supporting the energy infrastructure that is necessary if the technology is going to have any environmental impact beyond its improvement of air quality. Although that benefit ought not to be taken lightly, it will be difficult to justify expenditure on a “green fuel source” that is in some ways just as polluting as its predecessor.

BP Disaster: Sticking the knife in

Writing the MT Diary in Management Today, a UK magazine, the director of the London School of Economics, Howard Davies, sticks the knife in with some harsh and personal words about BP’s head of communications, a former editor of the Financial Times, Andrew Gowards. Mr Davies writes:

Gowers, you may recall, resigned as editor of the Financial Times at the end of 2005 over ‘strategic differences’ with the board. The differences amounted to the fact that the board wanted the FT to be an authoritative and successful paper, whereas … (it now is once more under Lionel Barber).

Gowers then became head of public relations for Lehman Brothers, required to spin his way through the world’s biggest bankruptcy. Having failed in that task, he wrote a couple of distasteful ‘kiss and tell’ articles in the Sunday Times, which almost made one feel sorry for Dick Fuld. Then he moved on to pastures new and signed up as head of external relations for the new dean of London Business School, Robin Buchanan. Buchanan lasted six months, so Gowers was once again on the market.

You guessed it. He is now running public relations for BP. And it took him little time to work his particular brand of magic. He has become an impeccable leading indicator of disasters ahead. If he turns up next advising the Greek government, you will know what to do.

Plan B

As BP’s share price continues to fall, the company comes up with another attempt to solve the Deepwater Horizon spill.

BP’s share price has plummeted once again, responding to news that the company’s “top kill” approach, which involved pumping drilling fluid into the well in an attempt to plug it, had failed (although the company insisted that the “execution went well”).

With the outlook still uncertain, the inevitable market rumours have begun to circulate about BP’s future, with suggestions that the newly weakened company may be broken up or taken over by a rival such as Shell or Exxon. So far, though, analysts have dismissed the gossip, pointing out that the company is hardly an attractive acquisition at the moment. Moreover, even having taken several blows, BP is still considered big enough to defend itself.

However bad the situation may look, BP hasn’t given up yet. The company continues to work on relief wells, although these will not be ready until August. Its closest plan involves cutting the top off the riser pipe, and then placing a cap (called a lower marine riser package, LMRP) on the top of the failed blowout preventer. The LMRP will then be able to redirect oil through fresh piping to a ship waiting on the surface.

Yet this technique, as with previous attempts, is not without risk. The solution involves the use of a containment dome, a technique which ended in failure three weeks ago. It has also been suggested that the intial cut could increase the flow of oil by up to 20%. BP has said it is confident that this will not happen, but also admitted that the system has never been tested under the conditions it will face, and that its “efficiency and ability to contain the oil and gas cannot be assured”. If the operation is unsuccessful and the rate of flow increases, BP will only have made matters worse.

President Obama has faced a great deal of criticism over his response to the disaster. Now he appears to be distancing himself from the company, sending the Attorney General to meet with prosecutors, which has prompted speculation that a criminal investigation is being considered. The President seems to be in two minds about his response, both asserting the government’s control over the situation by appointing a National Incidence Commander, whose orders BP are “legally bound” to follow, and emphasising his lack of control over BP’s actions.

Of all the potential solutions that have been put forward, probably the most extreme is the suggestion that a nuclear blast might be able to seal the leak. Whatever its potential (apparently the idea has been implemented successfully in Russia before), rejecting this plan is one thing that BP and the administration will almost certainly be able to agree on.