In 2000, the chief executive of British Petroleum (BP), Lord John Browne, who had transformed the company from a small oil producer into a global giant with the acquisitions of Amoco and Atlantic Richfield, rebranded the company as “Beyond Petroleum” to portray a company that was environmentally conscious and committed to the development of alternative energy sources such as wind and solar power. The new “blooming flower” corporate logo was intended to convey a company that was responsive to growing public concerns about climate change. However, that commitment to environmental awareness did not seem to extend to the safe operation of BP facilities around the world. In 2005 an explosion at an oil refinery in Texas City, Texas, killed 15 workers and injured hundreds more. The Occupational Safety and Health Administration (OSHA) fined BP a record $21 million for failing to correct safety violations. In 2006, a leaking BP pipeline in Alaska forced the shutdown of one of the nation’s biggest oil fields. Prosecutors later fined BP $20 million for failing to correct corroding pipelines. Browne’s replacement, Tony Hayward, a geologist who had previously overseen BP’s exploration and oil production, promised to refocus the company on safety, committing to spending $500 million to address the problems at the Texas City refinery and settling a series of criminal charges against BP operations totaling $370 million. Unfortunately, an emissions release at the refinery in early 2010 confirmed OSHA suspicions that the changes promised as part of the 2005 settlement were not being addressed, and BP was fined another $50.6 million that the company paid without an admission of violations. Critics have argued that BP’s aggressive acquisition strategy under Browne created a focus on cost containment as a means to maximize profit margins. That mentality is now ingrained in the corporate culture to the extent that fines are simply addressed as a cost of doing business. April 20, 2010, brought yet another example of this argument and the largest oil spill in history. The explosion on the newly completed Deepwater Horizon rig in the Gulf of Mexico resulted in 11 deaths and broke open the Macondo well, allowing an estimated 19 million gallons of crude oil to flow into the Gulf of Mexico, threatening a fragile ecosystem and the livelihoods of thousands of businesses along the entire Gulf Coast. The terrifying scale of this event only becomes clear when the size of the Exxon Valdez spill in Prince William Sound in Alaska in 1989 is considered. That tanker spill released an estimated 500,000 gallons of oil. To some extent the practice of drilling in the deep water of the Gulf of Mexico brings extreme operational risks—risks that environmentalists believe should prompt a nationwide move away from a clear dependence on oil. However, what the Gulf spill made clear was just how unprepared oil companies appear to be to handle any miscalculations in these risks. BP’s response to the Deepwater Horizon explosion was described by all the agencies involved as “a scramble.” A succession of attempts with strange names like “junk shot,” “top hat,” and “kill shot” delayed the eventual capping of the Macondo well until July 15—a total of 87 days. Estimates of how much oil was allowed to flow remain under dispute, with scientists arguing that access to the video footage of the wellhead (which they would need to calculate flow rates of the oil) had been restricted by BP. Inevitably, accurate accounts of BP’s response to the spill were marred by global media outlets enjoying the biggest story since Hurricane Katrina. BP committed to “putting everything right” and doing “whatever it takes” to restore the Gulf region to the same condition it was in before the spill. However, alongside those promises came legal posturing to spread the blame as much as possible. BP was the majority owner of the Macondo well, with Anadarko and Mitsui as minority partners; the Deepwater Horizon was owned by Transocean (and leased to BP); Cameron International was the manufacturer of the “blowout preventer” that was alleged to have failed, causing the explosion; and Halliburton engineers worked on the rig equipment the day before the explosion. Multiple lawsuits were settled in the next two years between all the parties involved, though none included any admission of accountability as part of the settlement. The question remains, however, as to how well Tony Hayward delivered on his commitment to a safer BP. At the time of the Deepwater Horizon spill, Exxon, the former poster child for reckless oil companies, had only one OSHA fine in place. BP, by comparison, had 760. Hayward was reassigned during the response to the spill to a nonexecutive role with BP’s Russian joint venture TNK-BP. The terms of his departure included immediate access to his pension of $1 million annually and full entitlement to a compensation package estimated to be $18 million. For BP, the spill continued to dominate the company’s operations. A total of $42 billion was set aside for the payment of fines, compensation to victims, and ongoing cleanup operations in the Gulf of Mexico. Of that amount, almost $36 billion has already been paid out or earmarked in settled lawsuits. However, the U.S. government was asking for $21 billion in compensation for its costs in the cleanup, and the Gulf states impacted by the spill (Florida, Alabama, Louisiana, and Mississippi) were seeking another $34 billion for economic losses and property damage. Under the Clean Water Act, the federal government could have fined BP between $1,100 and $4,300 per barrel of oil spilled. Since no accurate figure existed for the total size of the spill, that fine could have run BP between $5 billion and $21 billion. In July 2015, BP announced an $18.7 billion settlement of all federal, state, and local claims arising from the 2010 spill— the largest single settlement with any civil entity in the nation’s history. Of that $18.7 billion, $5.5 billion represented a civil penalty under the Clean Water Act, to be paid over 15 years, $7.1 billion under a Natural Resource Damage Assessment, with the remainder going to settle outstanding economic damage claims. Critics argued that BP’s willingness to settle was driven more by the economic reality of lower oil prices than by any commitment to safer operations or ethical conduct. In an April 2015 interview with National Public Radio (NPR), Geoff Morrell, BP senior vice president, attempted to draw a line under the event by stating that the signs were good for a healthy Gulf: “There is nothing to suggest other than that the Gulf is a resilient body of water that has bounced back strongly . . . the Gulf has not been damaged anywhere near the degree some people feared it would have in the midst of the spill.” Marine scientists disagree with such a rosy assessment, arguing that the impact may continue to be felt for generations to come.

QUESTION

1. What evidence is there in this case that BP simply addresses fines “as a cost of doing business”?

2. BP Chief Executive Officer Tony Hayward argued that “changing the culture of a 100,000-person company couldn’t happen overnight.” He had been in charge for three years before the Deepwater Horizon spill. Were critics right to expect more change than they saw?

3. Has BP been successful in its move “Beyond Petroleum”?

4. How can BP begin to restore its reputation going forward?