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Royal Dutch Shell Plc .com: BP’s Latest Problem May Signal A Troublesome Culture of Fear

FROM THE WALL STREET JOURNAL
June 30, 2006

BP has tripped up in the U.S. — again. Last year, an explosion at its Texas City, Texas, refinery killed 15 people, triggering several federal investigations. This year, authorities opened a criminal probe into the company following a large spill from its pipelines in Alaska. And now the European oil company has been charged with cornering the $30 billion-a-year U.S. propane market, forcing up prices for millions of rural Americans in 2004. Other oil majors haven’t suffered a similar string of mishaps in the U.S. What has BP got wrong?

There is no cut-and-dried answer. It is not just because BP is unmanageably big. Other oil majors like Exxon Mobil and Royal Dutch Shell haven’t had a similar run of bad luck in the U.S. Nor has BP had the same problems elsewhere. Something seems to be particularly wrong for the company in the U.S., which is why it has just appointed a new country head to improve matters.

One possible theory is BP didn’t properly integrate Arco and Amoco, the two U.S. firms it bought in the late 1990s, and somehow a “Wild West” mentality continued. But it can’t be that simple, given that BP’s acquisition machine has successfully integrated companies bought elsewhere.

A more likely theory points in the opposite direction. BP did integrate Arco and Amoco successfully, especially in one aspect of the corporate culture — the emphasis on improving financial returns. But that led to corners being cut, especially in assets that weren’t seen as having high profit potential.

For many years, pipelines, refining and distribution all fitted into that category. The status of these unloved orphans was low throughout the oil industry, but it may have been especially low at BP. The company has traditionally focused on exploration and production. As a result, its downstream operations may have attracted less capital and, perhaps, lesser BP managers, too. The only reason similar failings didn’t crop up in Europe or Asia is that BP has relatively little refining capacity there.

The string of mistakes hints at a more serious problem. BP may be increasingly dominated by a “Yes, Lord Browne” culture. This could have led to managers overpromising their chief executive on the results and budgets they can deliver. That is especially tough for underperforming and underinvested areas of the company’s operations. If that is the case, the company’s problems with its downstream U.S. assets were almost inevitable. But it does not bode that well for their solution.

–John Paul Rathbone, John Foley, Edward Chancellor

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