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The Wall Street Journal: BP Review of Blast Cites Worry Over Cost Cuts

Some Top Officers See Link
To ’05 Refinery Accident;
Outside Report Is to Come

By CHIP CUMMINS
December 12, 2006; Page A3

Some top BP PLC executives worried that cost cutting at a Texas refinery may have contributed to the plant’s poor state of safety and equipment, according to an internal BP review that is likely to turn up the heat on the company over a deadly explosion at the site.

Documents reviewed by The Wall Street Journal also quote a former senior BP safety executive saying that BP Chief Executive John Browne “showed little interest” in safety issues.

The March 2005 accident at BP’s Texas City, Texas, refinery killed 15 people and injured 180. BP faces a criminal probe into the accident as well as civil claims from victims. The accident, along with a series of other safety and environmental incidents, has undercut BP’s efforts to promote itself as a socially responsible energy company that is “Beyond Petroleum.” High profits from surging oil and gasoline prices over the past three years have added to public pressure.

BP officials have said they believe budgetary decisions didn’t play a critical role in the accident, caused when workers restarted a small gasoline-processing unit. A BP spokesman defended Lord Browne’s safety record and repeated yesterday that the company determined in its own investigations into the accident that spending wasn’t an issue in the blast.

In a series of internal interviews, however, BP executives painted a more complicated picture. Their thinking is laid out in notes and interview summaries that were collected this year as part of an internal BP review of the refinery accident. The interviews were conducted as part of a wide-ranging “accountability” review, designed to determine what led to the accident, according to a BP spokesman.

The documents, which haven’t previously been made public, also show some BP executives laying blame for safety shortfalls with one another and with BP’s management structure.

In several public reports, BP acknowledged wide-ranging safety and management shortfalls. It initially fired a handful of low-level workers and supervisors and reassigned the refinery manager, Don Parus. BP also restructured its health-and-safety organization and replaced the head of U.S. operations after the accident.

Current and former workers at the plant, in interviews with the Journal last year, blamed cost cutting for reducing safety and causing equipment problems at the refinery. In October, the U.S. Chemical Safety and Hazard Investigation Board said it believed cost cutting by senior managers contributed to the explosion. The federal agency cited a 25% cut in fixed costs at the plant between 1998 and 2000. BP bought the Texas City refinery as part of its 1998 acquisition of Amoco Corp.

Insight into the BP review comes as an independent panel of experts led by former Secretary of State James Baker III plans to release in coming weeks a report expected to detail problems with safety processes at BP’s American refinery operations.

In a July interview as part of the accountability review, John Manzoni, BP’s global chief executive of refining and marketing, said he agreed with another executive that “fixed-cost reduction” partly contributed to the “situation” at Texas City, according to notes from the interview. At one point in late 2005, after the accident, Mr. Manzoni said he questioned himself, according to the interview notes: “Have we been underspending?”

The BP spokesman said of Mr. Manzoni’s comments, “It’s a perfectly reasonable and common-sense question to have asked under the circumstance.” But, he added, “The answer was, no, we didn’t underspend.” BP has said that from 2001 to 2004, it sharply increased spending at the plant, including more than doubling the annual average maintenance and turnaround spending at the refinery, to about $115 million a year in 2004 from $40 million a year in 2001.

However, Mr. Parus, who was relieved of his duties as refinery manager immediately after the accident, said he had been ordered to cut costs by 25% as recently as 2005, according to notes of an interview conducted Oct. 12.

He said he had given a slide show to Mr. Manzoni during a visit by the executive in July 2004 showing BP and Amoco had “underinvested” at Texas City for the previous 10 years, according to the interview notes. He said he pleaded for additional funds, citing problem areas such as the poor condition of equipment, and he said he had “exhausted every avenue he had to get the funds and it remained a no,” according to the notes.

An attorney for Mr. Parus said his client stands by what he said in the interviews but wasn’t available to comment.

Ross Pillari, who stepped down as chief executive of BP’s U.S. operations this year, said Texas City had been neglected, according to a BP interview on April 27. Senior BP-Amoco executives at the time of the merger “tried to squeeze as much out of [Texas City], so maintenance was neglected. The directive was to keep expenditures low because of 10 years of lousy refinery margins,” according to a summary of his interview. Refinery margins are an industry measure of profitability. Mr. Pillari declined to comment.

Some executives said they disagreed with the suggestion that cost cutting contributed to safety problems, according to the notes. Pat Gower, vice president of North American refining, told interviewers in April that he didn’t think the accident occurred because of budget restraints. And Mike Hoffman, a vice president of global refining, told interviewers he had never heard a request for funds from Mr. Parus at Texas City: “Don can’t claim that I held back money from him,” he said, according to the notes.

The interview notes also paint a picture of uncertain reporting lines inside BP’s North American operations. Some executives said in their interviews that contributed to a lack of accountability for Texas City’s problems. The BP spokesman said yesterday that the plant’s new management “has simplified the organization, clarified accountabilities.”

In addition to BP’s management structure, one executive also cited Lord Browne’s attitude toward safety. In an interview conducted on June 21, Greg Coleman, who was vice president of BP’s health, safety and environmental programs before he left the company, said Lord Browne “showed little interest” in safety and demonstrated “no passion, no curiosity, no interest” in safety issues, according to his interview notes.

Mr. Coleman couldn’t be reached for comment.

The BP spokesman said: “It is certainly not true that Lord Browne showed little interest in safety. The safety of staff featured prominently in his many messages to the organization.” Safety also was underscored in the company’s code of conduct, the spokesman said.

“The company had achieved a 70% reduction in workplace injury rates at the plant,” the spokesman said. “This significant fall led the company to believe that conditions at the refinery were improving.”

Lord Browne transformed BP into an oil giant through a series of big acquisitions, including the Amoco purchase, in recent years. He also fostered a reputation as an environmental leader, becoming the first oil-industry chief to acknowledge the threat of global warming. BP’s advertising campaign highlighted the company’s alternative-energy projects, like solar and wind.

But BP has faced big setbacks in the U.S. Oil spills and wide-scale corrosion partly shut down BP’s vast Alaska field at Prudhoe Bay over the summer and triggered a federal criminal probe. U.S. officials accused the company of manipulating propane markets, a charge the company denies. The company says it is cooperating with all investigations.

Separately, the Supreme Court ruled 7-0 against BP in a lease-royalty dispute with the government.

The case involves two units of BP that had sued over federal lease-royalty rates that oil and natural-gas companies must pay for coal-bed methane removed from federal land. At issue were whether Interior Department royalty calculations — through administrative actions — ordered the companies to pay a higher rate based on refinement of the methane before it is marketed and sold. The ruling determined that Interior Department royalty orders aren’t subject to a statute of limitations.

(BP America Production Co. v. Watson)

–Mark H. Anderson contributed to this article.

Write to Chip Cummins at [email protected]

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