Former Shell Oil president John Hofmeister

Former Shell Oil president analyzes BP’s handling of the current crisis and explains the takeaway from his book, Why We Hate the Oil Companies.

The substance of John Hofmeister's newly released book, Why We Hate the Oil Companies, is based on his decades as an industry insider. Before becoming president of Shell Oil, he spent 25 years in executive positions in major energy consuming companies, including GE, Nortel and AlliedSignal. After retiring, he founded the nonprofit group Citizens for Affordable Energy, which advocates changing the way energy is viewed in the U.S. Hofmeister is chairman of the National Urban League and senior advisor to two energy start-ups.

TRANSCRIPT

Tavis: John Hofmeister is the former president of Shell Oil who now heads the nonprofit group Citizens for Affordable Energy. His timely new book is called “Why We Hate the Oil Companies: Straight Talk from an Energy Insider.” He joins us tonight from Houston. Mr. Hofmeister, good to have you on the program, sir.
John Hofmeister: Thank you, Tavis. Nice to be here.
Tavis: As a guy who used to run a major oil company, let me start by asking what you make of how BP has handled or mishandled, as it were, this crisis as a company.
Hofmeister: I think you have to break it into pieces. I think in terms of dealing with the flow at the bottom of the sea they’ve done about as well as any company could. This is a really devastating situation where the engineering, the science, the difficult conditions, nobody has a cookbook to know how to work this at that level of the ocean.
I think what led up to the disaster has to be looked at very hard, honestly, truthfully to find out what actually went wrong. We don’t know how they’re going to handle that yet. If it turns out that somebody was incompetent or made bad decisions and jeopardized all these lives and this rig and all of this environmental disaster, they’re in deep trouble.
With respect to the cleanup, I think it’s been poorly handled both by BP and by the U.S. government. I don’t think they have gone to scale the way they needed to go to scale – in other words, the volume of oil. I think they’re still holding back because of whatever reason from using supertankers or barges.
I think in terms of the public relations effect they really should have had their CEO stay in London and let their U.S. management handle this for them because what Americans don’t want to see is a crisis is somebody from another country who thinks and talks differently, who may not have the empathy and understanding, and I think they’re suffering badly from that.
Tavis: What might have happened, though, had the CEO, the guy who runs the company, not stepped in? It’s one thing to look at what Mr. Haywood has done in terms of all the mistakes he’s made and all the things he’s been taken to task for saying and the way that he said them, but what if the head of the company had not made an appearance, had not made a visit? Might we be criticizing him then if he had taken your advice for not showing up?
Hofmeister: He had two places that he could have visited with good effect. One is the White House. Unfortunately, the White House didn’t choose to speak to him for two months. I think he should have showed up in Congress a lot sooner. And between the two dealing with the political side of this while their executive’s on the beach, their executive’s in the Gulf. They have very competent executives, I know several of them personally, who could have handled all of the issues in the Gulf of Mexico.
Tavis: When you suggested earlier that the science, that no individual, no company has – and I’m paraphrasing what you said – has the wherewithal to deal with this kind of crisis at that depth of sea level, it raises the obvious question for me. If we couldn’t handle a disaster of this kind, why are we drilling that deep in the first place?
Hofmeister: Well, you raise two very good points that I think deserve a broad national discussion. One, why are we in such deep water in the first place? And, I agree that this is a seriously risky business made more risky by the depth of the water. The reason is because the U.S. government opened up those deep waters because they wouldn’t open up shallow water.
Shallow water in 85 percent of the U.S. continental shelf was off limits for the last 30 years, so the companies went where the government allowed them to go, which was the risky deep water.
The second bit is that the contingency plan that every company was using as approved and authorized by the federal government was the blowout protector. Now what happened in this well after drilling 35,000 wells over 40 years, some 2,200 wells in the deep water alone, what happened to this particular blowout protector that it didn’t work?
We really have to find the answer to that, because whatever additional regulations, whatever additional redundancy might be tacked onto this, if it turns out that this blowout protector had been compromised or damaged and that was the problem and why it didn’t work, well, then I think it helps explain that it actually is a robust, multi-redundant system, but not if somebody breaks it and doesn’t fix it.
Tavis: When you say that they went where they could go, that is to say into deep water, because shallow water was off-limits to them, why did the government not allow oil companies to go into shallow water and force them into deep water?
Hofmeister: There’s a very simple explanation which is embarrassing to the nation as it relates to the rest of the world – because people who live near beaches don’t want to see drilling rigs off their beaches. Whether that’s Alaska, California, New Jersey, East Coast, West Coast, eastern Gulf of Mexico.
It’s a very simple exclusion that ever since the Santa Barbara blowout in 1969 there has been an aversion to near-shore drilling and the consequence of that aversion means that the shallow waters of the Gulf of Mexico, western Gulf of Mexico, have been drilled over 35,000 times but there’s still oil out there deeper in the Gulf of Mexico so that’s where the government allowed the companies to pursue more oil drilling.
Tavis: So it sounds to me like there’s some culpability here on the part of our government as well.
Hofmeister: That’s the point of my book, that the politics of energy have driven us to a very precarious state in terms of risk and cost, and what about the future? What will the future hold now that we’ve had this horrific environmental disaster? Does it mean we stop drilling? Tomorrow morning America needs 20 million barrels of oil to get through the day, and every day between now and November elections, every day after November elections to the next elections two years hence, we’re still going to need 20 million barrels a day.
If we’re afraid to go drill, if we’re not allowed to go drill, then America’s going to pay a huge, huge price for its energy.
Tavis: So how does President Obama then – we know, of course, he is in the region today, in the Gulf today. We expect this prime time speech tomorrow night to the nation about what he thinks about this oil spill and what he intends to do, I suspect, in the coming days and weeks and months about the oil spill that so many Americans are concerned about.
But how does the president, to your earlier point, navigate the politics of this? If you’re suggesting to me that we have to drill for oil because of the need that we have and the president is getting more and more pressure every day to shut down deepwater, offshore oil drilling, how does he navigate the politics of this?
Hofmeister: He has to use the words “both,” “and.” This needs a both-and solution. We need to both produce more domestic energy and we need to do so with safety and reliability in that safety. We’ve had reliability in the safety. Let’s find out what exactly happened in this case.
This could have been an accident no different than an airplane that flies into the ground when a pilot misjudges his altitude and doesn’t rely on the close-to-terrain indicator, and we don’t shut down entire airlines and stop people from flying because of an airplane accident despite the tragedy.
This is a tragedy. This is an environmental disaster. But to shut down the entire industry as if they are all guilty of the same human factor misjudgment that may have led to this particular accident I think is premature and ill-advised.
So we have to have both more energy to keep our economy going and we need to have safety and reliability, and that, frankly, should be, in my judgment, the president’s key message.
Tavis: Speaking of the president, since he’s meeting with these BP officials tomorrow and since there are all kinds of suggestions and ideas floating now as to what BP ought to do publicly to ensure that there will be the monies available, that they won’t file for bankruptcy or all the other concerns that are out there – everybody, again, has an idea about how BP ought to ensure the American people that they will have the money to pay, as they say, all legitimate claims.
Again, since you were an insider, what ought they be doing publicly to put that issue to bed, at least?
Hofmeister: Well, if I was advising their board of directors, I would be advising them to impact the dividend, set money aside, so that there is assurance that there is a bank account to meet their responsibilities.
This is a company that not only produces a lot of cash and profit because they produce a lot of oil, but it’s a company that I believe stands by their word. How do I know that? Well, I competed with them for a long time. I watched how they responded to previous tragedies in Texas City, in America.
There’s no hydrocarbon company that is not at risk of some kind of tragedy at some point during their existence. I saw them stand by responsible behavior during those previous tragedies and they have said all the same words – “We will make right by this.”
I think for the elected officials in the U.S. to somehow create some kind of an extra effort to force them into a position for their own political gain when in fact they’re not gaining anything because the company’s already committed to make this right, I think it’s just playing politics with the obvious.
Tavis: How is it that you think that this disaster will, or put another way, should impact the energy conversation in this country?
Hofmeister: What we’re seeing is the negative effect of politics trying to run energy. What we’re seeing is outlandish behavior by elected officials saying, “No more drilling.” Not the president. The president hasn’t said that, but other elected officials.
They’re playing for the political positioning on the issue when in fact we need energy every day. Energy, as I describe in my book, is neither Republican nor Democratic. We shouldn’t be playing politics with it. It’s the source of our economic wellbeing.
I suggest that energy be managed by an independent regulatory agency, not by Congress, not by the White House. They only know how to politicize it. It’s all that’s been done for 40 years since Richard Nixon declared energy independence.
Eight presidents and 18 Congresses haven’t made us more secure. I suggest that an independent regulatory agency is a mechanism by which we can plan our energy future without the day-to-day flavor of the day politics driving it.
Tavis: Isn’t that the job of the EPA, ultimately?
Hofmeister: Well, the EPA looks after the environmental aspect, but you know what? The EPA is politicized. The previous administration says carbon was not an endangerment. We get a new president and a new EPA administrator and now carbon is an endangerment to society.
Is that a political decision or a science decision? I think they have taken hold of that for political reasons rather than for scientific reasons.
Tavis: We will see what President Obama has to say to the nation tomorrow night about these and other related issues. For now, though, we thank John Hofmeister, the former president of the Shell Oil Company for joining us tonight. His new text is “Why We Hate the Oil Companies.” Mr. Hofmeister, thanks for sharing your insight, sir.
Hofmeister: Thank you, Tavis.

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Last modified: April 26, 2011 at 12:28 pm