Interview Carola Hoyos

BP came from a long way down, and it [had a] sort of vertiginous rise over the last decades. Where was it prior to the [CEO John] Browne period really?

BP was in a very dark space before Browne came along. ... BP had had to cut its dividends. [Its] share price was way down, and it was pretty much discredited [among] its peers. So John Browne came at a perfect time for him to be this turnaround artist, which he then became.

“There was this massive disconnect between what was going on on the ground and what was filtering across to London ... Either they weren't hearing it, or they didn’t want to hear it.”

BP and he himself became terribly celebrated as the years progressed and as he turned BP into Europe's largest oil company, and one to emulate rather than one to pity. ...

So BP is in a bad place, and this fellow named John Browne is rising through the ranks? ... What brought notice to him, and why his success within the company?

... It was a time when the national oil companies of the Middle East had the developed world at the throat, and it became absolutely critical that the North Sea was found. It became a new place to pump oil from. So both from a corporate and a political point of view, he was at the right place at the right time, and he was a very clever man.

Very clever man -- why do you say so?

He was good in what he did. But he was also very good ... in a political way, in a business way. He was very cautious about the kind of image he portrayed, and he did that from the beginning. He honed that as he went up the company and eventually became this great statesman and this great businessman before everything went sour. ...

He's not a Texas oilman?

That's right. … He had very refined taste. He enjoyed ... fine wine, and he enjoyed his cigars. He was a very big opera-goer and opera buff and art buff.

... You saw that corporately also rubbing off on BP. BP was sponsoring things eventually like the Tate [art gallery] here [in London] and Opera in the Park and things like that. So it did bleed into the kind of image BP had.

He was very devoted to his mother, which was important. He lived with his mother for a long time, and that was critical in terms of his private life. By now everybody knows -- and even back when it wasn't written about -- that he was gay. But he was very cautious, even at a time when it was pretty much OK, I think, to be gay in the business world, not to allow that to really overshadow what he was doing. ...

... In '97 he gives this speech at Stanford [University]. What's the significance of that, the climate speech?

The speech on climate change was terribly significant. He was really the first guy who said: "Look, the industry can't fight this. They have to come to the table and begin discussing these issues.''

It was at a time when other CEOs were really not doing this, ... so he really broke the ice there. It's not the only time he was one of the first to really take head-on an important humanitarian issue.

Is it sincere?

I think it's sincere. I think it's shrewd more than sincere even. I do believe he believes the science, so he's not one of these guys who said there isn't global warming, and we're not contributing [to] it. ...

But it was shrewd in that I think he saw that BP was going to be affected by this debate whether or not it was on the table, and he felt that it was better if he were part of the discussion rather than not. And in that he actually did a lot of good for the green movement.

On the other hand, he then, when BP wasn't doing so well, [he] looked a little like the fool for having suggested something like "Beyond Petroleum" -- that the name of BP go from British Petroleum to Beyond Petroleum -- not only within a cynical world that was saying, "Oh, you're trying to greenwash BP, and you very much still are an oil company," but also with the national oil companies of the oil-rich nations.

When he went on a trip very shortly after making that decision on Beyond Petroleum, a lot of people laughed at him and said: ''So why are you here if you're Beyond Petroleum? Why are you talking to us?" ...

And for investors, it was very important for BP not to be Beyond Petroleum, because of course the margins on producing oil are still much greater than the margins on solar, wind and renewables.

And he's a pioneer also in the [mergers and acquisition] game?

I think a lot of people thought of him as a banker almost. He really bet the house in the mergers he did. ...

So he gets out front on the acquisition game?

That's absolutely a big part of his legacy. He really saw what was happening. He saw the opportunity for the mergers, and he did them very quickly. BP merged with Amoco and with Arco, and that was copied by a lot of his competitors. ...

Why was it important?

... Oil prices were low, and the industry was seeing that it [needed] to compete with big national oil companies that were coming along. And it was really a moment to do this.

What was critical, in the end, was that he had the vision to do it, and he had the ability to do the deals, and later on also some deals with Russia that nobody else managed to emulate.

But he didn't complete them. The synergies, the creating the company, the big company that had been pulled together with all these companies he put together in the end didn't work. And he wasn't as good at that nitty-gritty, the little stuff that's not as sexy, that's not as exciting. It doesn't grab headlines. Weaving the companies together and making sure they run well was something that other CEOs, in the end, did better than he did.

Why do you think he wasn't as good at the small stuff?

I don't think he enjoyed it as much. This is very much my opinion, but he enjoyed being a statesman, and he enjoyed doing the big deals and thinking the big thoughts. He was very good at it, and he was very celebrated, and I think the media -- including the Financial Times -- probably fed that ego.

You just get a lot more kudos out of taking a company into the U.S., making these big billion-dollar deals, taking on the Russians who have all this oil but are very difficult to deal with, and doing things that other people can't do.

Speaking to other CEOs and speaking to people like [Russian Prime Minister] Vladimir Putin is more fun than going through and being really exact about how you make sure that this company -- in terms of communication, in terms of how it runs, in terms of safety -- really works.

Was there a sense at the time that the Amoco deal was being made, the Arco deal, Burmah Castrol, and then the TNK partnership, that something was being left out here, that the details weren't getting done?

... I think people got swept away in the vision of it, and I don't think there was deep concern yet. I think that began to filter in as we were beginning to get hints that things weren't working as well as they should be.

What were those hints that things weren't working as well as they should be?

... Looking back, I think [a] real telltale sign of what was happening [was] BP had to restate its production targets three times in a row, which gave many others the impression that John Browne wasn't really on top of things. ... Whereas Exxon and others, but Exxon in particular for a long time, had said, "We're going to do the work, and then we'll figure out how much we produce," BP was saying, "We will grow by 5 percent." And the market was getting excited. The analysts loved it.

But then when BP not only once, but two to three times downgraded that target and had to admit it wasn't hitting it, it wasn't only a problem of, "They're not producing enough oil," or "They're not finding oil"; it's "They don't know what they're doing."

Was there a sense that they didn't know what they were doing operationally as well, that the safety culture was slack?

I think that came a bit later.

I'm trying to focus in on the period before Texas City, [Texas,] when things become more obvious. Was there any sense before that that there was a problem operationally?

... There was definitely not a sense that there was a huge problem. And even during the Gulf of Mexico spill, it came as a shock to the peers of BP, who basically just invested their money with BP. ...

For a long time, the industry really, until very recently, thought BP was one of them. You did hear from others that BP was more innovative -- that was the way they'd say it -- and were willing to kind of push the boundaries. ... They were quick movers. And most of the coverage, both from the investment community and from the media, was looking at it from the positive side of that.

But the flip side of that coin was potentially that BP was doing things too quickly, and that they weren't being methodological enough in completing some of these things.

They were heading for the big headlines -- "BP finds the deepest oil field in the Gulf of Mexico" was one last year everybody celebrated greatly -- rather than being the plodding-along horse that is very reliable.

There's a slight contradiction here. ... Browne, on the one hand, is described, I think correctly, as cautious. On the other hand, we're describing a sort of an operator who liked wheeling and dealing, took big risks, and who let some parts of his operation go relatively untended.

I think John Browne was a cautious man in many ways, and I think he was meticulous in many ways, including about his own image and including about how he ran the company. He really did run that company. But that was also part of the problem, because he called the shots, and there wasn't as much of a dialogue, especially late in the years.

It was quite difficult for people like Tony Hayward and others beneath him to be able to go to him and say, "Look, this isn't going to work," or for the refinery guy to go to him and say, "Look, I know you want these cost cuttings, and I know in the current situation it's very important, and refining has always been the black sheep because it doesn't bring in as much money, but there's certain things we have to do on a day-to-day basis to stay safe."

That message didn't seem to be going to the top, and that was a very important disconnect. Once that disconnect happens, it becomes much more difficult for a CEO to really run a company, especially one that does things like refine and produce oil, where 1,000 different decisions can't be made by the CEO but have to be made day in and day out. If too many of those decisions fall incorrectly, you are liable of killing people and causing great environmental harm. ...

When they essentially took over Amoco, they got a lot of old assets such as the Texas City refinery. Was there an awareness of the risk they were taking?

In the end, that will be decided by a court of law. ... It's a very fraught question, and I'm going to dance around it a little bit because it goes to the crux of what was wrong.

Do I think there was a systemic problem at BP in their ability to recognize, and in the communications to the top, what was happening on the ground? Yes. And do I think that that was a problem that was severely affecting everything from safety to investment opportunities and other things? Yes, I do. ... But whether or not that means they were grossly negligent, that's another question.

Just talk about Texas City. They buy Amoco. ... What do they get?

They get a range of assets including some very old refineries, but some very big ones. And refining isn't the sexiest of industries. It's not one that John Browne particularly loved, and it's not one that, other than in certain pockets and moments of history, makes a lot of money for oil companies.

They bought it at a time when cost reduction was very important. They bought a lot of assets, and they were good at buying things, but not necessarily good at integrating them into the company. That can be absolutely devastating when it comes to refining, and especially if your sights are on the more exciting exploration and production side of things.

Refining is: "You guys want more money again for more maintenance, and you guys are not bringing in the money? You need to find places to cut the costs so that you can create your budget and allow for the money that you are asking me for today."

So that was kind of the attitude that was coming out of it. And yeah, there were many volatile assets. The refineries were one. But there were also aging production platforms and things like that that BP needed to deal with and broadly was not seen as dealing with correctly.

BP claims that cost cutting was not a factor in the Texas City accident. Their own internal report points to safety problems, but they claim, although they haven't produced documents to show this, that they were actually increasing the process safety budget.

... At that point, BP culture was "Show me the money," and refining was not showing them the money. So I don't care what label you put on it, whether it's cost cutting or whatever you want. ...

[With] the North Slope [in Alaska], ... they had an asset that was set to run for only a certain number of years. Explain what was happening there.

... It was producing regular profits for BP, but it was an old asset. BP and all the other oil companies were being driven very hard to find new fields, to show that they weren't going to shrink and die within the next 20, 30 years, and to produce more and more oil.

Pushed hard by Wall Street?

By Wall Street, by the analysts, by their investors. And investors are a fickle lot. They're not only looking at how BP is doing versus Exxon; they're looking at how BP is doing versus the latest Internet stock. So everybody, including McKinsey [& Company], was telling the oil companies they needed to change; they needed to move away from this old dinosaur existence that they had.

So the oil companies were looking in different directions at a time when the oil prices were relatively low. They were cutting a lot. But at the same time, they were being pushed to find more oil and more reserves. ...

The legacy assets are still terribly important. They're getting older and older, and the people who run them are screaming and saying, "Look, we really need to do something about this." But really, they're not getting their message across.

Getting older, corroding?

They're getting older, they're not exciting, and they're not going to produce anymore. In fact, the older they get, they'll produce less. Therefore the profits are less, so you're having to pump more money into a system that is producing less, and that's no fun. ...

So there was pressure by Browne to cut maintenance? ...

Don't know if it's cut maintenance, but I think that the overall message from Browne was: "You have to make it work. You have to make it worthwhile that your asset is part of the BP portfolio."

How do you do that? You do that by showing profits. And how do you get profits? By maintaining as low a cost profile as possible, especially when your asset is an old legacy one that is not pumping increasing amounts of oil but decreasing ones.

And this is what he says to the men that are around him?

In not so many words, but it's very much the message and the culture of BP at the time.

How is it structured? Browne sits at the top, and around him are these others? Explain the system.

This is another Browne legacy, how he structured his underlings. ... He created this thing called the "turtles," which was the brightest, and they were generally young British boys. ...

A turtle is a [Teenage Mutant] Ninja Turtle, and he would rotate them through important jobs. One of the most important jobs was to basically be his bag carrier and get to watch, really, how decisions are made, which is fine, except it meant that these guys actually didn't make those very important decisions. ...

One of the other problems of the system was that many of these turtles were potential successors to John Browne, which meant that because they knew that Browne would have a pretty big influence on who in the end would succeed him, they had to be very cautious in terms of making decisions that would potentially impact their possibility of filling their dream and running, at that point, Britain's biggest oil company. ...

So again, that will have made it more difficult for somebody, even if he'd wanted to, like Tony Hayward or [BP's Chief Executive of Refining and Marketing] Iain Conn or others, these guys who were coming up, to say, "John, listen, you're not going to be able to make those targets," and really rattle the cage. And very few of them did. ...

During the depositions of various executives that followed [the Texas City refinery explosion], John Manzoni, one of the turtles in charge of refining, says that he was not aware of any safety problems at the plant. What does that say?

It says that there was this massive disconnect between what was going on on the ground and what was filtering across to London to the top echelons of BP.

Either they weren't hearing it, or they didn't want to hear it. Or the culture was so against people speaking out that people at some point along the chain -- perhaps not at the very beginning, because we heard a lot later in the deposition about people actually flagging this up -- that chain broke, and that communication channel broke down.

He says he never read the Telos [Group] report.

It's shocking, and it was a culture within BP that was companywide and which I think made many of the problems. ...

The big question with Texas City that I had for John Browne was, "Is this your Exxon Valdez?" And he, very tellingly to me, danced around the answer.

He felt that he on the one hand couldn't say yes because it admitted that the company needed a huge overhaul and a complete new way of thinking. On the other hand, if he said no, he would look like he wasn't serious about making that overhaul. That sent, for me, the alarm bells ringing.

When Hayward came along, again that question came up. Is this the moment where you change the culture? And people were saying that he was beginning.

I can't tell you whether he was, but even the Exxon folks you talked to said that there was just not enough time between Texas City and the Macondo well [Deepwater Horizon] disaster for a whole company's culture to be changed.

When Hayward comes in after Browne's demise, he states quite bluntly his diagnosis for the company. Can you recall for us what he said and how it went down?

I can't remember exactly the words he said, but ... he basically for the first time split from John Browne and said that things had been done badly. ...

He said, "The operational performance is dreadful."

He then backed off that, in fact, because we covered that story. But the message he was sending was not only that things had been bad, but that he was splitting away from John Browne. ...

That was the first shot across the bow. But what he then did later on was set expectations incredibly low. He knew he had to be the anti-John Browne. He had to be humble, and he couldn't be this great character, this great guy in the city of London and, for that matter, in the world. ...

What was Hayward saying about the state of the company? You say he was coming in and being the anti-John Browne -- he knew he had to do that -- but what was he saying?

... "Let me start over," is basically what he's saying. "Give me time to start over." And in fact, that's exactly what investors did. They gave him time, and he was very smart at promising cost savings of a certain amount and then, "Oops, actually the cost savings are twice as good as we had expected." In fact, he did that several times, and it was a way of buying himself time and starting with a clean slate.

... He says that "We were a company that wasn't very good at listening."

True, especially to its own people. They were pretty good at listening to the outsiders.

He says, "We lost sight of the fact that we were an operating company" --

Yes, that's a nod to Beyond Petroleum, right?

-- and also that "Our operational performance is dreadful." In other words, we're not tending to our operations on the ground. That's quite an admission that therefore Texas City, Alaska, Thunder Horse were real evidence of a fundamental slackness in the culture.

Yes. ...

Did he believe that? Was he addressing it?

I think he believed it. I think the most interesting thing about this was that he got away with it. People wanted to move on from the John Browne saga. There had been a lot of trouble at the end of John's tenure. In the end, he basically had to be pushed out, and it wasn't a pretty picture. So investors were just ready for BP to get its act together.

They thought Hayward was actually pretty smart. I remember writing a profile of him at that time saying he was very untested. The interesting thing about all these comments that Hayward made was that everybody swallowed hook, line and sinker that yes, BP was a bad company, but that had nothing to do with Hayward.

Excuse me? It had nothing to do with Hayward? Hayward was running exploration and production at that point. He had the ear of John Browne and was his closest confidante.

So what struck me about this was the fact that he managed to, like Teflon clad, shift this all into the past and almost extricate himself from that past. But that was very clever, and that's what people wanted to hear, and that's what he did.

Then he did actually produce results very quickly, and within a couple of years BP's shares were again trading at such a point that it overtook Shell as again Europe's biggest oil company. So investors were seeing the results and were actually pretty pleased with what he was doing.

He said he was going to focus "like a laser" on safety. Did he? How do you do that and cut costs?

It's very hard to know whether he focused like a laser on safety. You can't focus like a laser on safety. ... Safety only happens when you have a culture within a company that allows for safe decisions to be made and for company employees -- everything from a roughneck on a rig to the guy from another company maintaining your refinery -- to know that they will be rewarded and that the most important thing they can do is think about safety. ...

He had to change a culture of a company. Was he endeavoring to do that? Yes, he was. Was safety important for him? Of course; that's not a question. Was he making great inroads? I don't know. He clearly looked like he was from the financial results, but financial results don't generally reflect whether the culture of a company is changing. ...

Time magazine, when the spill happened, listed the top [12] people responsible for the spill. Number one was Browne.

Fair enough.

Browne wasn't even in the company at the time.

Sure, but oil companies are very slow beasts. If you think about how long it takes between the time you make a decision of where to look for oil and you begin to pump that oil, that could be decades. That could be 30 to 40 years.

So there was something wrong with the decision to go so deep in the gulf?

Not necessarily. I think that was the way the industry was going, and BP was going there more quickly than any others. In fact, that's where the U.S. government was going, too. They wanted the deep waters of the Gulf of Mexico to be explored, and BP was the kid in the front of the class putting up a hand before [they] even had an answer.

BP has done that in other places. They like to be at the vanguard. They like to be pushing into Russia. They like to be pushing into ever deeper territory. It's how you get kudos in the industry, and it's hugely impressive what they were doing. But they were moving very quickly, and the U.S. government made it very easy and very attractive for them to move quickly.

For example, their liability cap if there was a spill was $75 million, which is basically 5 cents to you and me. So why would you go drill somewhere else where politically it's more difficult and perhaps the geology isn't as great and your liability is going to be really high? It made sense for BP to be there. ...

They just went very quickly and heeded the call of the government, including, let's remember, that Obama was expanding deep and offshore drilling opportunities for the companies just months before the spill happened. ... Everything was, "Let's reduce our dependency on foreign oil."

America wanted this. They wanted more deepwater drilling. They wanted more oil coming out of their own backyard than out of the Middle East.

Yes, and they were successful. If you look at the last year, it's an amazing statistic. The region that produced the most new oil last year was the U.S., and specifically the deep waters of the Gulf of Mexico -- not Saudi Arabia, not Venezuela or Mexico, but the U.S. That has a lot to do with the kind of regulatory regime that was present in the United States, and that had a lot to do with companies like BP pushing out into these areas probably too quickly in the end.

Given that BP had a troubled safety culture, do you think that it was in some way reckless for the United States to encourage BP, the largest driller in the Gulf of Mexico, to go forward, to put its bet there?

It's easy to say that they were reckless in hindsight.

But it wasn't just hindsight. We had Texas City. We had [Prudhoe Bay,] Alaska. We had evidence and we had admission from the CEO of the company, Hayward, that there were problems in the company that he was trying to address.

It would have been very difficult to single out one company, especially the single biggest company in the deep offshore, and say, "You may no longer do this thing that in fact, politically, we really want you to do."

What about keeping a closer eye on it?

I don't think it was a matter of keeping a closer eye on them. Look, why was BP not prepared to deal with the spill in the Gulf of Mexico? Is it up to BP to be prepared, or is it up to the government of the oil-rich nation to say: "Right, if you want to drill here, you'd better be really prepared in case something happens. You'd better reduce your risk to the possible minimum, and we'll make sure you do. And you'd better be prepared for a spill"?

It doesn't make sense for each individual company -- and there are many that drill in the Gulf of Mexico -- to have enough ships, enough equipment to deal with a big spill. They have to band together as an industry and make sure that as an industry they're ready and flexible to deal with a spill.

And how do you get an industry to band together, in fact an industry where each individual company is beholden to its shareholders, to get together and make sure that this happens? You force them to. You basically create rules and regulations that give them no other choice. You don't leave it up to them.

So I do think it was the responsibility of the government to ensure that the playing field was one in which all these companies could compete in a safe way. And if something went wrong, this stuff happens. This is not a sewing machine company. ...

So it was a regulatory failure?

It was a massive regulatory failure. I think BP was a player, and it was a big deal what BP did. But I think it was an absolutely massive failure of regulations, no doubt.

It was a failure of regulations to be prepared to deal with a spill?

And to reduce the risks of it happening. The regulation was written in such a way that made the companies want to get there and produce this oil as fast as possible. The equations that the bean counters at the company had to do when they looked at the risks and the liabilities were stacked massively in their favor. It's up to the government to make sure that they're balanced.

I'm not sure what you meant by that.

If you put a $75 million liability cap on these companies when they're making their equation of "does it make sense" and their risk assessment of "does it make sense to drill here," they go, "Yeah, it does, because it's not going to cost us that much."

When you look at the way the royalties were structured, they were structured in such a way that enticed companies to go and make these risks. And these monetary risks were huge for the companies. They were betting really big money on that, and the government was making it easy for them to make those bets.

By setting such a low liability.

Yes, and by not saying you have to be prepared and spend this much money on preparedness, and you have to go through all these hoops to get there.

Fundamentally, I think one of the real problems is that oil and gas is a really tricky business, and in the end, the companies hold the information. It's moving technologically very quickly.

And what happened here after Piper Alpha, which was a big explosion [in 1988] in the North Sea that killed 167 men but didn't have the kind of environmental impact that the Gulf of Mexico had, was that the government realized they would never be able to catch up with the companies. They would never be able to have a clipboard long enough to make sure that every single inspection was carried out in exactly the same way for each company and that they would be able to catch everything.

So what they did was they turned everything on their heads. And in fact, this is exactly what the Americans are thinking of doing. First of all, they split the different roles of the regulators, so it was no longer the regulators' role to entice the companies to come and to set the royalties and to collect the royalties and then to look to make sure the companies were acting properly. ...

Is there ever a time when the operator that is drilling has such a bad record that you say, "Wait a minute"?

That's a very good question. It's one of the things we looked into after what happened to BP. We talked to the other oil companies and said: "Are you going to keep working with BP? Are you going to keep handing them your money and in the end your liability? If you're part of this group, you're liable to pay all the damages."

What did they say?

Off the record they said: "We're looking very closely at what we're doing, and we are shocked. We just basically blindly gave BP the money, because it's BP. It's not some strange little Russian company that we don't know. They're one of us." ...

Clearly that gentlemen's club is no longer there. I don't think there will be a kind of fundamental shunning of BP, but they're looking very hard at well design and watching very closely the fingers of BP in the projects that they're in with BP. ...

BP is assuring us, or trying to assure us, that this was unlucky and that this could have happened to anybody and that one cannot connect the dots with Texas City, Alaska, Thunder Horse.

That's very troubling. That's been a line for such a long time. If they believe that internally, then they don't believe that they have a systemic problem. Then they don't believe what Hayward has been saying, or what Hayward said when he came in. Then they are not changing the culture, and then they can talk about safety all they want, but they're not going to become a safer company.

It is possible that they're saying one thing to us -- because of course they have a massive case still to fight -- and doing something else internally, which is pretty much exactly what Exxon was doing after Valdez. They were fighting the claims externally, and internally they had made the admission that things were very wrong and that they needed to work very hard for many years, every single day behind the scenes, on something that would eventually, many years down the line, yield results, not necessarily for the current CEO at that time. I don't know whether BP's doing that. ...

Do you see evidence that they're changing inside?

There is financial evidence that things are getting better, and I think the investors very much felt that things were getting better. ...

... That doesn't mean that their safety culture has improved. ... Do you see any evidence that their safety culture is changing?

... I hesitate to say that they have made big inroads. I think it takes about a decade to change the culture of a company the size and the breadth of BP. I think the message is out there, because at the very least the external message when Hayward came in, which was also in the end an internal message, was: "We have to fundamentally change. We have to fundamentally start again." And I think employees were ready for that.

And was Hayward turning things around, in your opinion?

I think he was beginning to, but he was very early in the process, and that was clear by everything that's come out following the Macondo well disaster and how decisions were made there. In a company that had a different culture, those decisions would have been made differently.

There's some discomfort in the U.K. about the way in which the American president, Obama, has treated the company. Legitimate?

Yes.

In what way? What is it that's bothering people?

I think the fact that an American president [is] looking at whose ass to kick is atrocious. I mean, the language is atrocious.

But I think the thing that really broke the trust in Obama as a kind of considered politician and one who understood the importance of companies, and BP for that matter -- half of its investors, more than half are Americans -- was when he made the decision to put a moratorium on drilling in the Gulf of Mexico.

That's fine, but then after this haggling over the $20 billion liability fund, he then came out and said, "And on top of that, we expect BP to pay the wages of those oil workers who no longer can to go work because we've put a moratorium on drilling." That's when BP's share price began to tank. That's when people said, "Those liabilities will never end."

If you pull it through your logical conclusion, why did he put a moratorium on drilling in the Gulf of Mexico? Not because BP was unsafe. Because BP had shown everybody just how bad the regulatory system run by the Department of Interior of the U.S. was, and that you could no longer trust that the companies drilling in the Gulf of Mexico were doing so safely. ...

I've spoken to [the director of the Office of Energy and Climate Change Policy] Carol Browner at the White House. She told me, "Look, we had no problems in deepwater drilling for 30 years, so why should we have worried?"

... The idea that "Why should we worry because we haven't had an oil spill like this in 30 years?" is crazy. Number one, there was a big blowout off the coast of Australia just a few months beforehand. It was absolutely not a question that we haven't had big blowouts and many near misses. …

Oil companies were really pushing the envelope in parts of the world that were very hard to get to. It was no question that if something went wrong, it would be much more difficult than sending a scuba diver down there and trying to figure out what the problem was. It was just too deep, and you needed a different type of preparedness to deal with any accidents.

There were things that we had seen and we had known that the industry had done over the years in terms of pushing deeper and deeper into the gulf and using more and more sophisticated technology that should have made us aware that there was a potential for really bad things to happen. ...

Aren't we going to face more of this in the future?

It is the future. Deepwater drilling, especially for international oil companies that are being pushed out of the easy fields, whose own easy fields are coming to their life's end, have found that one of the only ways they can survive is by being technologically savvy and going to those places that other companies that are less sophisticated than they are just can't do.

One of the main places is the deep water. And they did that off the coast of Nigeria, off the coast of Angola, in the Gulf of Mexico -- very successfully there -- and off the coast of Brazil.

It's no surprise that BP is in the lead on this.

No.

And we're going to see more accidents like this. Is that a certainty?

I don't think we're necessarily going to see more accidents like this.

Why not?

I would hope we'd learn enough from this accident to reduce the risk of these kinds of accidents happening. But yes, on the flip side of that, as you move more and more into deepwater drilling, statistics would tell you that your risk of increasing accidents in the deep water rises.

... How long have we been doing this, and how fast are we getting deeper?

We are getting deeper very fast. We've been doing this for the last few decades; it's been a very gradual process.

There are two big things that happened for the oil industry in terms of technological breakthrough. One was horizontal drilling, which was this idea that you could drill one well and then drill horizontally to catch the oil in neighboring pockets rather than drilling lots and lots of wells, which environmentally isn't great and also costs a lot more money.

At the same time, little incremental improvements were being made that would allow everything from electronics to steel and other things to withstand greater pressure and greater depth. What you saw was that areas where geologists suspected there was oil, ... they were finally able to get at [it].

Seismic, which is where before you drill you begin to look for oil deposits, was also becoming more sophisticated, so that meant there were new places open to you at a time when very many of the old fields were closing. Venezuela was getting really mean about letting you into their fields.

It also seemed like the clean option to move to, because the other option was to go to unconventional oil, which is pretty much the opposite, the kind of tar sands of Canada where BP is active, Shell is active, Exxon is active.

That's oil that is very high up just below the surface. Some of it you can see in seeps that comes out, and it's at worst a very messy mining operation, and then the oil has to be refined several times, so environmentally it's not very good.

As we've been going deeper, the United States government has been encouraging [this]?

Sure. The U.S. went: "We've got it. The oil is ours. That's fantastic. It's within our borders, so we're encouraging it for many years." At least the last three or four years that I can remember, the State of the Union address had something about wanting to reduce the U.S.'s dependence on foreign oil.

As that was happening, they were finding ever deeper pockets of oil in the U.S. Gulf of Mexico. In fact, it was BP who had found the deepest ever just before, and it was in fact the same rig that exploded in Macondo that found that oil.

So everybody was actually pretty excited about this, and people were just losing sight of the risks. And when you asked CEOs of oil companies what the risks were of X, Y and Z, it was always geological risk -- i.e., not finding the oil you were spending a lot of money to find -- or political risk. The geological risk in the U.S. was reduced by all the success they were having seismically in the Gulf of Mexico, and the political risk compared to Iraq and Russia and Kazakhstan was very small. ... So it was very attractive.

The kind of environmental risk and then the backside of the political risk that comes of making a big spill was not really calculated, because again, just like Carol Browner told you, the attitude was, "We haven't had a big spill in 30 years."

It's kind of crazy to base a policy on. It's like saying the Depression happened in the '20s, so we haven't had a depression.

... It is very difficult, especially when you're beholden to investors and taxpayers and politicians, to argue: "No, we shouldn't do this because there's a one-in-a-million chance we may have an absolutely catastrophic accident."

If a government doesn't force you as a company to say, "If you want to move into this very lucrative-looking, interesting area, you need to do X, Y and Z," it becomes quite difficult for people in business to argue to their investors: "Everybody else is doing it, but I don't think we should do it. I think it's a little too dangerous despite the fact that all our competition are running away from us."

... Did anybody foresee this?

I think people did. ... We were pretty at awe with and had a lot of fun covering how the industry was pushing the envelope.

And all the wow technology.

And all the wow technology. And, "Oh, my God, they're going to the Arctic. Oh, my goodness, they're going this deep? Are you really? And this technology?"

What we weren't doing on the flip side of that was going, "Oh, goodness, this really increases the risks of a spill," in part because that wasn't the story, and that wasn't our role.

I think where we could have done better, and where I think the U.S. press in particular did begin to talk about things, was at the [Minerals Management Service, now called the Bureau of Ocean Energy Management, Regulation and Enforcement]. The regulator in the U.S. was deeply flawed. ...

Did you see that BP was a company still at great risk of another disaster?

I think we knew that BP was early in its process of changing and that you can't change a culture quickly. We felt that it wasn't a huge surprise that it was BP where this explosion had happened.

It was not a surprise.

Not a huge surprise that it was BP. However, kind of like the rest of the oil industry, I think there's a bit of "There but by the grace of God go I." I do think this could have happened at Shell, at Chevron and at Exxon.

They say it was a well design problem, and they would [not] have done it that way.

Doesn't mean something else couldn't have gone wrong, even with their great well designs. ... Oil companies, and especially international oil companies, were moving into greater and greater areas of risk and challenge.

That was very much the trend story that we were reporting in the FT beforehand. We were reporting about how they were trying to get into the Arctic and all the challenges that were associated with that. And we were reporting that they were going to ever deeper waters and the challenges that were associated with that.

But we didn't report, "Those challenges could mean they would create a massive environmental disaster or a massive oil spill," because we in fact don't still know whether this was a massive environmental disaster.

But we do know that 11 people died.

That to me is a real tragedy, that 11 people died and that we've almost lost sight of that.

On the other hand, I've always felt that my responsibility as a journalist was to explain to the mother who is filling up her SUV for relatively little money and not really thinking what goes into that, what actually goes into that, the social cost of that, the environmental cost of that. And those stories had always been the Nigerian problems or the pollution problems and the global warming problems. ...

All those things we absolutely did write about. But what was disappointing to me was just how few people still understood the great somersaults the oil industry was doing to provide them with something that costs less than a bottle of water. ...

That's absurd when you're looking at what the oil companies are doing in the Gulf of Mexico. And it's absurd when you're looking at the external costs of this: the costs to the environment; the costs to the people in Nigeria; and the costs to democracy -- in fact, the costs to global security.

And the costs to the people in the gulf.

And in the end, the costs to the people in the gulf. ...

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posted october 26, 2010

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