World Energy Source: Can BP Come Clean?

By Richard R. Loomis and Susan Salter
September 2006

“When trust is destroyed, the result is an uncertain world where the future is not just unknowable but frightening, and where people cling to what they have for fear that any change will be for the worse.”
– Lord Browne of Madingley, group chief executive of BP, writing in World Energy magazine, 2003

“Do we need any more examples of how corporate greed is going to cost Americans millions of dollars in higher gasoline prices because of BP’s failure to maintain the Alaskan pipeline? BP made billions of dollars and, apparently, didn’t spend one dime on maintaining a crucial link to the oil fields in Prudhoe. Shame.”
– Letter to the editor, Detroit Free Press, August 2006

A Short List of Bad Press

The energy industry has never been good at communicating with the public, the media or even its shareholders. So it’s not surprising that the industry’s image is largely driven by high-profile characters and events such as:

J.R. Ewing. How can any list of villains be complete without the archetypical Texas oil baron – ruthless, underhanded and very successful. The CBS series “Dallas” ran for 13 seasons, giving America plenty of time to develop a mindset about how the oil industry works. Now, a big-screen adaptation has been announced, with John Travolta taking over as J.R.

Exxon Valdez spill. On March 24, 1989, the tanker struck Prince William Sound, sending some 11 million tons of oil into the bay. Thousands of animals perished, and the widely remembered images of oil-slicked birds became a symbol of Big Oil’s environmental neglect.

Enron meltdown. Even people with little interest in corporate governance can recite the allegations against the former Houston-based oil giant. A new law – the Sarbanes-Oxley Act – was created in the wake of Enron’s accounting fraud.

Lee Raymond’s retirement. With pump prices heading to $3 and above this past spring, the widely publicized golden parachute for the outgoing ExxonMobil CEO – some $400 million in stock and other benefits – did not sit well with the American public.

THE MAIN ARTICLE

If ever Lord Browne needed to regain trust, it is now. Last month’s revelation from Prudhoe Bay – that BP’s transit lines were corroded to the tune of 400,000 barrels a day lost for the next several months – was made even more dismaying to the public when it was learned that BP had gone 14 years without using the “pig” cleaning device to maintain its North Slope lines, believing the procedure was not necessary.

This latest incident follows a string of woes for the London-based oil giant (see sidebar on next page). At first glance, the evidence would point to a serious lack of safety oversight at BP. “These are symptoms of something very wrong,” Carolyn Merritt told the Chicago Tribune. Merritt, chairman and CEO of the U.S. Chemical and Hazard Investigation Board, is involved in investigations into last year’s Texas City accidents. “When you have the lack of maintenance, procedures, oversight and training” at a place like Texas City, she added, “these things are pretty systemic.” However, BP spokesman Scott Dean stressed that the fires, explosions and oil spills are not related. “We take all of them very seriously,” he told the Chicago Tribune. “We take responsibility for them and we act quickly to respond to them.”

Still, the North Slope “was once BP’s jewel in the crown,'” as Daily Telegraph writer Roland Gribben stated. “Now the fallout from oil spills and corrosion is raising question marks over the quality of BP leadership.” “It makes you wonder what the oversight is like at BP,” said an energy analyst to the London Sunday Times. “Maybe the company is just too big.”
 
“Beyond Petroleum”

The Prudhoe Bay incident and the other mishaps follow an extended campaign on the part of BP to promote a positive public image. BP has made a conscious effort to influence public perception and give the initials a new meaning. This has not come without criticism, even from our own industry, and from this very publication. In “BP’s Green Hypocrisy” (World Energy Monthly Review, September 2005), Robert Bryce pointed out that the company’s “Beyond Petroleum” ad campaign seemed ill-conceived and ill-timed. BP launched a new logo – a green sort-of sun, sort-of flower hybrid – and then spent millions on print and television ads highlighting the company’s “green” initiatives. But “a quick look at BP’s January-June 2005 financial report shows that its capital expenditures on renewable projects appears to be falling,” Bryce reported. “During the first half of 2005, BP spent just $72 million on the segment that it calls gas, power and renewables,’ & As well, the company spent nearly $4.8 billion on oil and gas exploration and production in the first six months of 2005. That’s roughly 66 percent more than it spent on renewables.”

According to Lord Browne, BP chose the “Beyond Petroleum” slogan “because it sums up our philosophy and direction. & [It] isn’t about leaving behind our core business,” he continued. “Instead, it is about defining what that core business means to the world in a very different way.”

“Highlighting environmentally friendly products has emerged as a popular way for retailers and consumer-product companies to strengthen bonds with discerning customers,” writes Daniel Gross in Slate. “By running these ads and doing things like powering gas pumps with electricity generated by photovoltaic cells, BP sends a message to conflicted SUV drivers … who sleep better after filling the 14-mile-per-gallon Jeep from an energy-efficient pump.”

But the kicker is & the campaign seems to be working. At a time when others have shied away from the idea of self-promotion, BP has diligently been bolstering its image. Shareholder value is holding. According to BP, this year’s second-quarter dividend is 9.825 cents per share, compared with 8.925 cents per share a year ago. For the half year, the dividend showed an increase of 10 percent.

What BP Is Doing Right

Say what you will about BP’s infrastructure, its oversight and its environmental goals. When the going gets tough, it is one company that puts itself up front to answer questions, acknowledge responsibility and take steps to correct problems. It doesn’t mitigate some of the company’s catastrophic errors, but it does point to a sense of transparency that other energy companies – and other industries in general – don’t always display. When BP “manages” its crisis communications well, the public and the financial community seem to be appreciative.

BP’s Web site lists Frequently Asked Questions about Prudhoe Bay and admits the company’s lack of foresight in not using smart-pig technology: “We instituted a regular program of ultrasonic surveys and other techniques to determine the condition of the lines. At the time, we believed that this would be a good approach since the lines are above ground. In addition, dry oil crude lines are not typically conducive to generating a corrosive environment. Clearly, in hindsight, our program was insufficient and will be rectified going forward.”

BP also lists its top priorities as assuring the safety of its people and the integrity of its infrastructure; minimizing environmental impact; working with state and federal agencies to shut down Prudhoe Bay; and working with those agencies to restore production as soon as it is safe to do so.

The Credibility Factor

For those of us who have pointed out the difference between BP’s business makeup and its advertising and promotion, there is a real lesson to be learned here. Lord Browne and his executive team invested wisely in communicating a positive image to their ultimate consumer. When the Exxon Valdez ran aground, Exxon was already feeling the pinch in the regulatory arena and in the stock market. The company had no public credibility built up to rely upon. In this case, BP has had a string of accidents, but its share price has continued to rise, and its public image has managed to remain intact.

“An organization with strong reputation equity has ‘banked’ positive perceptions that can be drawn on at those times when credibility and reputation are being questioned,” writes crisis-response guru Gerald R. Baron, founder of the information management company Audience Central, in his book Now Is Too Late: Survival in an Era of Instant News. “The more equity in the bank, the better able the organization is to withstand serious accusations and even serious wrongdoing.” BP clearly has “banked” enough goodwill not only to withstand any fallout from its string of accidents, but to emerge strong.

What can be learned from this? The energy industry has consistently shied away from any sort of public image campaign, citing the futility of such efforts in the face of an obviously and overwhelmingly poor public image. BP defied such negativity and began its campaign long before this recent string of woes.

Constancy seems to have paid off in this regard, and the risks of such a campaign have been proven false. Even if peak oil and the current high-price environment don’t lead to a continued public outcry for regulation and changes in the industry, the time is long past for our industry to begin communicating its message to the end user: our consumer, the “general public.” If we ever needed an example to give to our stakeholders on what dividends such a campaign can produce, it is sitting right in front of us. As we write this article, BP is trading at $68, not quite a 52-week high, but close. Three years ago its share price was in the $45 range.

While we have been critical of BP’s marketing claims in the past, our advice to the company today is to keep doing what it’s doing. Its current campaign calls on average consumers to ask questions about supply and environmental issues of the oil industry – an unusual approach for this industry still so shrouded in mystery for so many consumers. And while we’re not sure what a “carbon footprint” is, it certainly is doing more than advertising inexpensive gas.

BP’s Ongoing Problems

September 2, 2004: Two workers are killed and another is seriously injured at the Texas City refinery after they are burned by superheated water. The Occupational Safety and Health Administration slaps the company with a $109,500 fine for multiple safety violations.

March 23, 2005: An explosion in an isomerization unit at the Texas City refinery kills 15, injures 170. An investigation reveals that the unit was restarted even though alarm systems were malfunctioning.

July 28, 2005: An explosion and fire at the Texas City refinery forces BP to shut down all three of its hydrotreating trains. Local residents are told to remain indoors as a precaution. An investigation finds that the explosion was due to lack of maintenance.

August 10, 2005: A leak at the Texas City refinery results in an order for local residents to stay indoors until given an “all clear” notice.

August 10, 2005: A fire at BP’s Chocolate Bayou petrochemical plant forces an emergency shutdown. The fire burns for two days, but no one is injured.

March 2006: A BP worker discovers a large oil spill in Prudhoe Bay. At least 267,000 gallons make up what becomes largest spill to date on the North Slope.

August 6, 2006: BP discloses extensive corrosion in the Prudhoe Bay transit lines, resulting in a shutdown that could cut the North Slope production by half for the next three to four months.

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