Big Oil in Trouble

2010-06-15
THISDAY Newspaper- Bisi Ojediran

Certainly one man who will not enjoy the World Cup is Tony Hayward, the embattled Chief Executive Officer of oil giant, BP. The ferocious oil spill in the Gulf of Mexico, resulting from a well blowout on April 20, is still killing flora and fauna along the American coastline, as it is tarring big multinational companies.

With this, Hayward should not even be seen to be smiling in public. He shouldn't, even if his yearly income of over 3.1 million pounds sterling can afford it. And not when his family - his wife Maureen and two kids- has been receiving threats in their isolated £1million home in rural Kent.

The possible causes of the spill, its effects and the handling have re-opened some key issues in the oil and gas industry. They include the rights of residents of oil and gas producing areas, the integrity and sincerity of some oil companies and their effectiveness in crisis management. These are evident in President Obama's early statement that 'The initial reports indicate there may be situations in which not only human error was involved, but you also saw some corner- cutting in terms of safety.'

Also, when Hayward said recently that "I'd like my life back," it was considered one of the worst PR disasters in the world. There have been other gaffes by BP.

Make no mistake! Hayward is not a dummy; he has been one of the best brains in the oil industry. So the gaffes, difficult to understand, also tar the oil industry.

Hayward, with a first class geology degree from Aston University in Birmingham and a PhD from the University of Edinburgh, joined BP in 1982. From his first job as a rig geologist in Aberdeen, he rose fast through the ranks and when during a leadership conference in 1990 in Phoenix, Arizona, his brilliance came to the attention of the then CEO, the charismatic John Browne, he became a star. He soon became Browne's executive assistant.

Several key positions later, Hayward was appointed to the Chief Executive position with immediate effect on 1 May 2007, after Lord Browne resigned following the lifting of a legal injunction preventing Associated Newspapers from publishing details about his private life.

It is obvious that the man and his company are overwhelmed by the impact of the spill that keeps on defying the best of petroleum technology. Over the weekend, the US increased pressure on BP to stop the spill, believed to be the country's worst environmental disaster ever.

A top US Coast Guard official gave the oil firm 48 hours to identify "additional leak containment capacity", noting that the company's plans to contain oil gushing into the gulf do not go far enough. The order was made on the same day the leaders of Britain and the US tried to douse growing trans-Atlantic feud between their countries in a telephone interview.

The growing human, economic and environmental catastrophe has riled Americans who are mounting pressure on BP to relieve them of their pain - "to give them their lives back."

With BP reacting in ways that are likely to affect the fortunes of many people in the UK, Britons are accusing the Americans, especially President Obama, of over-reaction. Some UK businessmen have accused the US of "anti-British" language, following Obama's blunt criticism of BP.

But in the telephone chat with British Prime Minister, David Cameron, Obama said criticism of BP over the oil spill has "nothing to do with national identity". Like BP, Obama is under pressure, with the opposition saying his handling of the crisis is worse than the handling of Katrina. Some reports claim the environmental impact could seriously harm the chances of his Democrat Party in November's midterm elections.

BP's losses are piling up. The $560m rig is gone. So far, some $1.43bn has been spent over the spill, and it is estimated that the containment and clean-up, which will take some four years, would cost between $3-6bn.

That is likely to affect the incomes of many Britons. Already BP has lost some £55 billion from its stock market value; and fears that the company may cut dividend payments are real. According to reports, BP is the most important company on the UK stock market by a considerable margin. It is a mainstay of almost every UK pension fund and its dividend payments amount to more than £7 billion a year. Roughly £1 in every £6 received in dividends by UK pension funds comes from BP, so a cut would severely impact almost every saver in the land.

Two issues are thrown up here: Multinationals are likely to be more responsive to their shareholders than to other countries where they operate; and some of these shareholders do to others what they do not wish to be done onto them.

The first issue is the primary reason why in their relationship with multinationals, governments should be guided by the national interest. It is doubtful that the presence of multinationals in third world countries like Nigeria is out of any special love for the countries. That makes it all the more necessary for regulatory agencies to be firm in their dealings with multinationals.

But, if as the Obama White House suspects, in return for favours some regulatory agencies allow oil companies to dictate industry rules, the situation cannot be ruled out in corruption-infested Nigeria. In Nigeria, the Halliburton and Siemens bribery scandals are examples.

Oil companies are known to be very safety conscious and do not tend to compromise on the enforcement of safety rules. However, a recent study by the Deepwater Horizon Study Group, led by Professor Robert Bea of the Centre for Catastrophic Risk Management at the University of California, Berkeley, discovered that "BP Plc and the Department of Interior's Minerals Management Service failed to properly assess and manage the natural hazards in a prudent manner."

Among other factors, Bea attributed the causes of the spill to "Improper well design; improper cement design; improper operating procedures; no cement bond logs; ineffective oversight of operations; flawed design and maintenance of the final line of defense; and early warning signs not detected, analyzed or corrected."

In Third World countries, even when some regulatory agencies insist on firmness, CEOs of multinational companies go above them to meet with Heads of State or ministers for what they want.

The second issue smacks of double standards. Activists are complaining about why the US and UK, which are now fretting over the environmental devastation of the Gulf of Mexico spill, close their eyes to similar situations caused by their companies.

The Amazon Watchdog, has, for example, expressed concern about the death of 40 people of the Amazon rainforest in Peru over whether multinational oil companies should have access to explore and drill for oil and minerals on ancestral lands under a "free trade" agreement forged between the Bush administration and Peru." The watchdog calls on President Obama to reconsider the "free trade."

Lawyers and activists are also citing US reaction to the spill as justification for the demands of indigenous people from a formerly pristine region of the Amazon rainforest in Ecuador for relief from an American company for what they describe as the largest oil-related environmental catastrophe ever.

The same argument is being used by protesters against oil spills in the Niger Delta, where according to the National Oil Spill Detection and Response Agency (NOSDRA), an estimated 66,697 barrels of oil were spilled between January 2006 and June 2009.

Protesting over a recent spill at ExxonMobil's Qua Iboe field, Rev. Samuel Ayadi, Chairman of the Akwa Ibom State Chapter of Artisan Fishermen Association of Nigeria (ARFAN) was reported to have said "It is a paradox that the current oil spill in the Mexican Gulf is attracting so much outcry from the American public and leadership but an American oil company is doing worse damage and poisoning the lives of hundreds of millions of Nigerians who depend on fish as the cheapest source of protein and nobody is talking about it."

In a world that runs on oil, the efforts of oil and gas companies must be appreciated. But as the PB spill has shown, it is the job of government and its agencies to ensure that the socio-economic and human rights of its people are respected. That is what Obama and Cameron are doing and there certainly will be new safety rules.

Yesterday President Obama predicted a wholesale rethink of America's love affair with oil , saying he believed the Gulf disaster would have as profound an impact on the American psyche and policy as 9/11.

 

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