BP

A corroded culture? How accidents in Alaska forced BP on to the defensive
By Sheila McNulty in Houston

The Financial Times

Published: December 17 2006 22:01 | Last updated: December 17 2006 22:01

It was 2am on August 16 2002 and Don Shugak was making his rounds as a field production operator for British Petroleum in Alaska. He had the radio tuned to public station KBRW and watched for caribou as he drove his pick-up truck across the desolate Arctic tundra of the Prudhoe Bay oilfield. Part of his job was to monitor the restarting of wells shut for maintenance; every so often he would jump out to “check the vitals” on wells spread 25ft to 50ft apart.

After 12 years with BP, the Alaska native knew the routine, checking up to 100 wells, on clusters miles apart, during a 12-hour shift on America’s biggest oilfield. But he was never complacent: “There is always that risk factor when you are dealing with pressure and hydrocarbons.”

Getting out of his truck, the midnight sun slanting long shadows across the snowy plain, he approached well A-22, which had just been restarted after maintenance. But as he opened the door to the steel well house to “bleed” off the excess well pressure the well’s casing ruptured, allowing gas up and out. There it found a spark from the electricity in the shed and exploded.

Audio interview
FT journalist Sheila McNulty speaks to FT.com’s Rob Minto about the recent accidents at BP’s US facilities. Listen to interview
Mr Shugak was engulfed in a fireball that threw him against his truck, smashing both femurs and compressing two vertebrae. The fire scorched his face and everything outside his fire-retardant coveralls; his hair was burnt off, and the skin on his right hand was “de-gloved” up to the elbow. The heat left third-degree scars on his legs and rear. “I remember waking up and being against the side of the truck,” Mr Shugak said.

His legs broken, he managed to crawl on his elbows away from the inferno. A security guard heard the blast and reported it to the control centre, which ­summoned other production operators. Mr Shugak was airlifted out but remembers nothing else; he spent the next two months in a coma. As soon as he was well enough to discuss his future, BP began work on a settlement that bars Mr Shugak from “criticising” the company.

Because of this, the Financial Times has had to piece together what happened from his colleagues. In the hours after Mr Shugak flew off into the night, Nicholas Morson, the field production operator who had preceded Mr Shugak on duty, provided a written statement to BP’s management.

It said that a BP engineer had issued a “temporary waiver” to enable the leaking well to be returned to production. “[The engineer] thought that once the well had heated up from the warm fluids running through the tubing that the leak would probably seal itself off,” according to Mr Morson. BP documents show it often granted waivers to run potentially problematic wells.

As Mr Morson filed his report, Robert Brian, a 10-year veteran of BP Alaska, was working all night to depressurise the well and extinguish the flames. That took six hours and 3,000 gallons of sea water. By the time his colleague Marc Kovac got there in the morning, all that was left of Mr Shugak’s truck was the frame and a melted radiator. “It looked like the devil himself climbed out of that well house,” said Mr Kovac.

Before a settlement with BP that required his silence on this matter, Mr Brian told the FT that an investigator with the US Department of Labor’s Occupational Safety & Health Administration (Osha) came to interview him after the accident. When he told Mr Brian that others had claimed BP had done a mechanical integrity test to ensure the safety of the well before returning it to service, Mr Brian was dumbfounded. “They’re lying,” he said. After the oil worker raised the possibility that BP might take action against him for disagreeing, the investigator suggested Mr Brian file a written complaint with Osha for his own protection.

“At that point I had to make a decision: am I going to be a part of this?” Mr Brian said. “I wasn’t willing to let my personal integrity be subverted.” He filed the complaint, saying the accident was preventable. Mr Brian had long felt regulators needed to tighten oversight of BP; now he believed it imperative. “Because there is no regulation from the state, BP [officials] feel comfortable in giving themselves ‘safety variances’ or ‘waivers’ whenever they don’t have enough people or time to do something right,” he said at the time. “That is exactly what happened with A-22.”

Initially, BP denied Mr Brian’s charges. Ronnie Chappell, BP’s US spokesman, insisted BP had completed a mechanical integrity test on well A-22. But when Mr Brian persisted in challenging that claim, the company recanted, admitting it had been wrong, and cited “some miscommunication or misinformation”.

This accident and a decision by Mr Brian and Mr Kovac to put their names to their accusations to add more weight touched off a four-year investigation by the FT into BP’s US operations. The outcome raises serious questions about BP’s safety culture and its efforts to silence a steadily growing group of whistleblowers. It tarnishes the reputation of a multi­national that this year ranked fourth in the Fortune Global 500, with revenues of $268bn (£137bn, €205bn) and operations in more than 100 countries.

Several BP workers expressed concerns that their management was letting them down by skimping on safety, covering up violations and putting pressure on anyone who spoke out about it. To publicise their plight, a few, such as Mr Brian and Mr Kovac, began to talk to regulators and to the press.

This two-part series is the first time this story has been told from beginning to end – an investigation involving dozens of interviews with BP and government officials in five US states as well as the review of thousands of documents.

This year, BP’s questionable safety and environmental record in the US finally caught up with the company and threatens serious consequences. Following a string of disasters in 2005 and 2006, including Alaska’s largest ever land oil spill in March, the shutdown of half of the US’s biggest oilfield in August and a refinery explosion in Texas City last year that killed 15 – the worst industrial accident in the US in more than a decade – BP was plunged into crisis.

In June. it emerged that two grand juries, one in Texas and one in Alaska, were investigating the company for possible criminal action. In September, the US House of Representatives energy committee subpoenaed BP’s top US management for hearings on how their US assets could have deteriorated to such an extent that BP had to shut half of Prudhoe Bay because of “severe corrosion”.

In July, Lord Browne, a man regularly voted Britain’s most admired business leader, was forced by Peter Sutherland, BP’s chairman, into announcing that he will retire as group chief executive in 2008, when he reaches BP’s mandatory retirement age of 60. There had previously been speculation that Lord Browne would seek to stay on. In October, Steve Marshall, who headed BP Alaska, was transferred.

Bob Malone, appointed this year as head of BP US to clean up its operations, admitted in ­testimony to Congress in September that the company had serious institutional problems. He said BP’s operations had experienced “a series of troubling problems that are unacceptable to us and contrary to our values” and criticised their response to workers’ concerns.

Despite the mea culpa, the crisis for BP is not over. In early January, James Baker, former US secretary of state, is to report on an independent investigation into BP’s other US operations, while the Chemical Safety Board, the US federal agency most aggressively investigating the refinery explosion, will provide its findings in March.

Given that the oil industry as a whole was engaged in widespread cost-cutting in the 1980s and 1990s, as oil prices fell as low as $10 a barrel, BP has often been cast as a victim of hard times. It is hard to prove the allegation that BP’s safety record was much worse than its peers, as oil operations are difficult to compare with each other due to radically different operating conditions. BP says it stands by its overall safety record.

“Our safety performance, as measured by Osha recordable rate, and day away from work case frequency, is on par with others in the oil and gas industry and better than the overall US industry average,” said Mr Chappell, adding: “The data show significant improvement in recent years.”

He also said that spending decisions by BP did not compromise safety: “BP business unit leaders know, in making decisions, that they must be effected without compromising safety or the long-term viability of their businesses.”

Yet, statistics aside, the anecdotal evidence is compelling. No other oil company has suffered such a string of high-profile accidents – and been subsequently fined – as BP has over the past five years. No other oil company has had to shut one of its oilfields for preventable “severe corrosion” and no other oil company has been summoned by Congress in recent years to explain how it let its operations deteriorate to such an extent.

Looking back over some 20 years with BP, Mr Kovac gave his perspective. “Fifteen years ago, we were replacing valves and patching wells,” Mr Kovac said. “Over the years, oil production has gone down, so BP has responded by cutting back, deferring maintenance, changing policies or not following policies. The issue has always been on production.”

Tony Hayward, BP’s chief executive for exploration and production worldwide, criticised the penny-pinching in a December 11 2006 report on BP’s closed intranet, where he noted: “We have a management style that has made a virtue out of doing more for less. The mantra of more-for-less says that we can get 100 per cent of the task completed with 90 per cent of the resources – which in some senses is OK and might work, but it needs to be deployed with great judgment and wisdom. When it isn’t, you run into trouble.”

When the present story began in 2002, however, BP was not speaking so frankly about its problems, instead presenting itself as an environmentally friendly company leading the industry beyond its oil and gas roots. Its “Beyond Petroleum” marketing campaign had just been created to highlight BP’s investment in hydrogen and a willingness to talk about global warming. Yet the core of BP’s business was – and is – dirty and dangerous petroleum.

The roughnecks in Alaska could not understand why nobody else could see that BP was not only not “Beyond Petroleum” but rather risked being mired in it if it did not clean up its act.

For six years, Mr Brian had been at the forefront of this push for change by oilfield workers in Prudhoe Bay, as the union representative on BP’s health, safety and environment committee. In 2002, he resigned from that position, having realised management was ignoring his suggestions and that even many of his own colleagues wanted him to let up, fearing the repercussions of his campaign.

But soon after filing his statement with Osha on Mr Shugak’s accident, Mr Brian was plunged back into his uncomfortable role as advocate for workers’ grievances. Things started to go badly for him on the job. He had trouble with his supervisors. He was ejected from safety meetings and said management called him “troublemaker” and “shit-stirrer” in front of others, also accusing him of being mentally ill in what he called a “bogus letter of reprimand”.

During an informal grievance procedure, management agreed to destroy the letter, said Mr Brian. But instead they made it available as a public record to the state and BP staff, he added.

BP denied harassing Mr Brian, saying it welcomed constructive criticism but was not willing to comment on individual personnel issues. Mr Marshall told congressional hearings this year: “Harassment, intimidation, retaliation and discrimination against workers who raise concerns are not tolerated within BP.”

In the same testimony, Mr Marshall admitted that he did transfer one employee, Richard Woollham, in 2005 after finding evidence of an “atmosphere of intimidation” in his pipeline inspection operations team.

Mr Brian filed a complaint with Osha in November 2002, alleging “unlawful retaliation”. BP asked him not to return to work and then offered him a settlement requiring his silence. For a time, it seemed BP Alaska had won the war against the whistleblowers and things returned to the status quo.

But only four months after Mr Shugak’s accident and just days before Christmas 2002, Rodney Rost, a 55-year-old contract welder in a BP Alaska facility, was killed when a metal plug on a pipe shot out during a job and struck him. Mr Kovac, who considered it a duty as a union leader from 2002-04 to speak out on behalf of “the men”, was incensed and accused BP of putting Mr Rost at risk – charges with which regulators eventually agreed.

State regulators fined BP more than $1m for inadequate oversight in both the Shugak and Rost cases. It was not long, however, before Mr Kovac, too, felt it prudent to retreat and declined further interviews. But, by then, BP’s record was forcing regulators to take up the whistleblowers’ cause.

“BP did not provide a safe and healthy workplace for its employees, contractors and subcontractors,” said John Stallone, acting chief of the safety office of the Alaska Occupational Safety and Health division of the Department of Labor, on May 27 2003, in fining BP for Mr Rost’s death. Paul Laird, a BP spokesman, at the time called the incident “deeply regrettable” and BP did not contest the fine.

BP Alaska itself admitted on December 23 2002, in a confidential final report to BP management on Mr Shugak’s accident, that it had restarted production on the well “without taking adequate safeguards”. The year 2002 also brought more than 11 recordable injuries and one day-away-from-work case a month. BP had been on probation since 2000, after pleading guilty to one felony count of knowingly failing to report immediately the release of a hazardous substance into the Alaskan environment.

On January 10 2003, Mr Marshall sent a memo to his staff: “Beginning now, we will focus on safety as we have never focused on it before...as if our lives and our future in Alaska depend on it. Because they do.” He set a goal of “no injuries and no incidents”, adding: “We’ll achieve these targets legitimately, not by failing to report incidents or­ ­hiding them”. That he cautioned against hiding accidents underlined the pressure felt by workers to keep BP’s safety record clean.

Yet even his dire warning was not enough to change old habits. Regulators said BP reported 263 spills in Alaska that year, compared with 62 suffered by Conoco Phillips, its closest competitor, whose operation was roughly half the size.

By then, the regulators were closing in on the company. On a federal level, a US judge at the end of 2002 required BP to provide unrestricted access for probation officers to its Alaska operations to verify compliance with federal, state and local environmental health and safety laws. The state toughened its laws in 2003 to increase regulatory oversight of BP. Yet the problems continued.

In early 2004, Chuck Hamel, a longtime campaigner for Alaska oil workers’ rights, says he started getting numerous calls from BP whistleblowers asking for his help. The 76-year-old one-time oil broker had made a name for himself pressing regulators and Congress for 15 years to force industry improvements. He took on the BP cause for free.

On February 23 that year he e-mailed Greg Coleman, BP group vice-president for health, safety and environment, and Mr Malone, who had then just left as head of BP Alaska to head BP’s shipping operations. “A dirty mess at your doorstep had been dumped on me,” Mr Hamel wrote. “Incomprehensible, improper procedures at Prudhoe operations began occurring under your watch, Bob, and continue, Greg, since you came on scene.”

He said nearly a dozen past and present workers had reported that BP was “orchestrating inspection procedures” on Prudhoe Bay’s 1,300 miles of pipelines, a charge that would come back to haunt BP when severe corrosion in the pipelines was found this year. “BP Alaska management must resort to some other legitimate and safe means to cut costs,” Mr Hamel said.

BP denies orchestrating inspections and says the company did not get enough specifics from Mr Hamel to assess his charges adequately. “I know there have been concerns about an adequate corrosion inspection programme raised by Hamel over time,” Mr Chappell said this year. “We have looked into those.”

But Mr Hamel charges that Mr Coleman and BP lawyers flew to Washington to get him to reveal the whistleblowers – not investigate their allegations. Mr Hamel refused, noting the harassment claimed by Mr Brian following his statements in the press.

Mr Coleman has since left BP and could not be located for comment. Mr Malone said he forwarded the information to the relevant official in Alaska.

On May 22 2004, Mr Hamel appealed to Walter Massey, a BP non-executive director who chairs the board’s environment committee, saying: “Intimidation and harassment at Prudhoe has effectively prevented the truth from reaching London upper management and your committee.” In a response that July 27, Mr Massey urged Mr Hamel to provide “specificity” to BP management, without offering the workers protection. Mr Massey had a BP spokesman return a call to him from the FT.

By that point, Mr Hamel said he had exhausted efforts to effect change from within BP and contacted federal criminal investigators. They began what would eventually become two grand-jury inquiries to determine whether to bring charges against BP in Alaska – and also in Texas.

For as 2004 drew to a close, BP Alaska workers became aware they were not alone. Colleagues at the company’s Texas City refinery asked for urgent help in exposing a safety culture that made many fear going into work.