BP's $20b as Game-chancer in Oil Spill Management

2010-06-22
THISDAY Newspaper

“BP’s $20 billion compensation payment, just like that, is going to be a game-changer in community relations and environmental management!” An oil executive said in a discussion of last week’s piece.
I knew what he meant by “just like that.” As far as I know, when there is a spill, immediate efforts are made to contain it. With it goes an investigation involving all stakeholders – the oil company, environmental agencies, representatives of affected communities, local authorities, and law enforcement officers – to determine the cause of the spill, the volume of oil spilled, among others. A remediation of the impacted site is done later.

Except in the case of sabotage, the damage to socio-economic life by the spill is calculated for the payment of compensation. My oil friend is surprised that BP will go ahead to commit itself to a $20 billion compensation payment without any investigation.
But as BP Chairman, Carl-Henric Svanberg, said over the weekend, “this has now turned into a reputation matter, a financial squeeze for BP and a political matter.”
Some 64 days on and the oil still gushing into the Gulf, emotions cannot wait for investigations.
Last week US President Barack Obama, who had said all along that he would “make BP pay”, made the company commit to $20 billion compensation guarantee and an apology to the US.

The deal on Obama’s terms entail that the fund and the claims process be administered independently from BP. Although it will not be a government fund, the process will be handled by a team led by the administration's "pay czar," Kenneth Feinberg. Kenneth oversaw the $7 billion government fund for families of victims of the Sept. 11, 2001, terrorist attacks.
BP will make initial payments of $3 billion into the escrow fund this summer and $2 billion in the fall, followed by $1.25 billion per quarter until the $20 billion figure is reached. The obligation is to be secured with BP’s noncore U.S. assets.
Obama is smart. The use of an escrow fund prevents a repeat of the 1989 Exxon Valdez oil spill situation when compensation payment was prolonged for about 20 years by litigation.

I know that what is happening in the US has resounding implications around the world, and pro-active oil and gas companies must have kicked their HSE and External Relations Departments into gear.
Last week Environment Minister, John Odey cautioned ExxonMobil about oil spills off the Niger Delta, saying that although the spills were relatively small he was worried by their frequency and the damage they could do to fragile coastal communities.
There were even media reports that the Akwa Ibom State government may have frustrated the efforts of victims of the spill to get compensation. A source from the oil company described as ridiculous the insinuation of the company securing the government’s intervention over the spill during the weekend, but the BP story seems to have caused increased interest in the allegation.

And just as I was preparing to write this piece, I received a mail from Akinola Muiz of ICON Continental Global Sys’ Ltd to some columnists, which reads in part, “…How American handles this oil spillage should teach us a great lesson that nobody can loot, exploit and degrade us if we don’t compromise our integrity....Our leaders today cannot use or copy the American negotiating template to engage these oil companies because they are morally bankrupt......”
But Akinola may be wrong. Last Saturday, I overheard on Channels Television the Delta State Governor Emmanuel Uduaghan, tell a visiting President Goodluck Jonathan in Asaba “The time to call the oil companies to account is now.”

That bit I heard piqued my journalistic instincts. Early this year, when I interviewed the Governor he didn’t show that much activism on oil matters. I promptly sent word to his Media Team for the full text of his speech for accurate reporting.
This is the part of the speech on oil spills: “Mr. President at this point I feel the need to place before us an issue of great importance—the issue of environment. The world has become extremely sensitive about the environment and how we should relate to it. If we are in doubt, the oil spill in the Gulf of Mexico by BP has become a subject of global attention. The US/ BP oil debacle makes an interesting case study. Compared to what we have here, the effect of the damage is grossly underestimated, I dare say.

“BP is under tremendous pressure to resolve the problem its oil spill has caused. Sums like 20 Billion Dollars victim funds is on the table in addition to a possible criminal investigation, in short the very survival of BP as a company is now an issue. BP, as we all know is one of the largest oil companies in the world, and it is being held accountable for its action. Now you may ask: do we not have issues of oil spill and environmental damage here in the Niger Delta?.... Mr. President our environment, if I may speak in a direct personal terms, knowing that we share the same cultural and environmental experience, is in danger of complete devastation by oil spill. The time to call the oil companies to account is now.”

BP’s potential liabilities include clean-up costs, victims' compensation and civil fines and may be more than the escrow fund. Some 120 million gallons of crude oil has already leaked into the Gulf, and the oil has been washing up from Louisiana to Florida, killing birds and fish, coating delicate marshes and wetlands and covering beaches with tar balls.
It is reported that so far, 66,000 claims have been filed and $81 million awarded.
Unfortunate as the spill is in a justifiably adventurous oil industry, the many gaffes of BP appear to be worsening matters. Over the weekend, Tony Hayward added to the company’s many gaffes by going sailing with his son instead of dealing with the Gulf of Mexico oil spill. Hayward watched his yacht "Bob," participate in the annual sailing race around the Isle of Wight, which attracts more than 1,700 boats and 16,000 sailors. The PR gaffe has attracted heavy criticism and the White House said the move was one of a "long line of PR gaffes and mistakes."

About that time, there were also conflicting reports about the CEO’s fate in BP. Carl-Henric Svanberg told SkyNews that Hayward was to have a changed role in dealing with the oil spill. He has hurt many people, Svanberg said, noting also that “This has now turned into a reputation matter, a financial squeeze for BP and a political matter and that is why you will now see more of me."
Until recently, the Swedish chairman, who joined BP last year from Ericsson, left Hayward to take all the criticism for the spill, thereby angering some shareholders who wanted him out.
A weekend of Confusion! BP spokeswoman, Sheila Williams, told AP that Svanberg was misunderstood; that, “Hayward is very much in charge until we've stopped the leak."

All that was during the same week tussle-haired and cold Hayward was accused by the US Congress of stonewalling in their investigation. On issues of taking responsibility amidst suggestions that the company cut corners and ignored staff emails about the impending danger, Hayward responded repeatedly that he wasn't involved in the decision-making process regarding safety mechanism on the rig. Hayward was accused of lacking condour, "kicking the can down the road", and not taking responsibility.
There are a lot more gaffes some of which I cite here. Earlier, he was said to have suggested to a newspaper in London that Americans were particularly likely to file bogus claims over the spill. And on June 1, he responded to claims that cleanup workers were being sickened by the fumes from the oil they were exposed to by suggesting to the CNN that 'food poisoning is clearly a big issue'.

It is not clear how responsive Hayward is to in-house advice. The year before he became CEO, Hayward was reported to have made a statement that must be hunting him today. He was said to have criticised BP's management at an internal management meeting, in the wake of a blast at the firm's Texas City refinery that killed 15 people and injured more than 170 others. He said, "We have a leadership style that is too directive and doesn't listen sufficiently well. The top of the organisation doesn't listen sufficiently to what the bottom is saying."

Perhaps, it will save BP and the oil industry some more damage if BP’s leadership “listens sufficiently well.” With some $2 billion already spent on the spill; a suspected planned £6bn assets sale; stock value down by 45 per cent and the deferment of dividend payment for the rest of the year, including the $2.6 billion due this week, the company has enough losses already to learn from.


 

Your comment

 

(E-mail)

 

 

 

News Archive