March 13, 2014

EPA Declares BP a 'Responsible Contractor' Makes It Eligible Again for Federal Contracts in the Gulf

A scant five days before the Department of Interior opens a new round of bids for oil leases in the Gulf of Mexico, the EPA has blinked, pronouncing BP, the incorrigible corporate scofflaw of the new millennium, once again fit to do business with the government.

To get right to the point, the federal government’s decision that BP has somehow paid its debt and should once again be eligible for federal contracts is a disgrace. Not only does it let BP off the hook, it sends an unmistakable signal to the rest of the energy industry: That no matter how much harm you do, no matter how horrid your safety record, the feds will cut you some slack.

Back in 2012, the agency’s intrepid staff had finally gotten permission to pull the trigger on the company, de-barring it from holding any new U.S. contracts on the grounds that it was not running its business in a “responsible” way. Undoubtedly under pressure by the Cameron government and the U.S. Defense Logistics Agency, BP’s most loyal customer, the EPA settled its debarment suit for a sweet little consent decree that will try to improve the company’s sense of ethics by having “independent” auditors come visit once a year. 

To review the grim record: BP, now the third-largest energy company in the world, is the first among the roster of companies that have caused the most memorable industrial fiascos in the post-modern age. 

  • Its best-known disaster, the explosion aboard the Deepwater Horizon, a drilling rig moored in the Gulf of Mexico that BP had hired to develop its lease of the Macondo well, killed 11 and deposited 205 million gallons of crude oil along the southern coast of the United States —the worst environmental disaster in American history. 

  • In a troubling precursor, another explosion killed 15 and injured 180 at the company’s Texas City refinery in July 2005. This incident happened even after the plant manager there had gone on bended knee to John Manzoni, BP’s second in command worldwide, to plead for money to address severe maintenance problems that jeopardized safety at that plant after a consultant surveying refinery workers reported that many thought they ran a real risk of being killed at work. Those fears were warranted, it turned out.

  • Also in 2005, 200,000 gallons of oil spilled from a BP pipeline on Alaska’s North Slope.

Voluminous investigations by private and government sources attributed all of these incidents to frenetic growth as the huge corporation’s larger-than-life CEO, Lord John Browne, and his handful of top aides, nicknamed the “Teenage Mutant Ninja Turtles,” raced through the late 1990s and early 2000s to transform BP into the largest oil company in the world. BP swallowed American competitors like Amoco and Atlantic Richfield but neglected to knit management of the two companies together effectively.  As top managers in London eyed the accumulation of burdensome debt that accompanies breakneck acquisitions, they decided to cut costs with ruthless intensity. To enforce these strictures, top executives in London retained tight control over expenditures, down to the lowest levels of BP’s international operations.

Grim warning signs emerged that better-looking, investor-friendly financials were being produced at the expense of safe and efficient operations at all of BP’s facilities.  Billions in deferred maintenance costs were mounting, turning equipment that was already past-its-prime dangerous. Frontline supervisory jobs were cut, leaving potentially high-hazard processes unsupervised.  Contractors did shoddy work, but BP employees were not around to discover it.  Troubled managers began to send warnings back to headquarters, even commissioning reports by outside consultants on worker morale and safety concerns, only to be ignored when bolstered by this evidence, they appealed to top management for less drastic cuts.

BP lawyers settled three separate criminal cases against the corporation during the period leading up to the Macondo explosion and signed record-breaking civil settlements for violations of worker safety and environmental laws.  But it often ignored the terms of such agreements.  For example, after Texas City, it paid $20 million in penalties for violations of worker safety laws.  When government inspectors revisited the plant a few years later, though, they discovered the company had not complied with the vast majority of the reforms it had been ordered to implement. New penalties of $50 million were assessed, but the Macondo blowout proved that worker safety continued to be a low priority.  

For a while, it looked as if the blowout would be the straw that broke the camel’s back. BP sold $38 billion in assets to pay for spill cleanup, government penalties, and individual claims.  It pled guilty to multiple counts of federal criminal violations, paying a stratospheric $4 billion in fines.  The federal government debarred the company, prohibiting it from receiving new leases to drill for oil in either the Gulf of Mexico or Alaska. For two years after the incident, company executives carefully kept a low profile, waiting for all the negative attention to die down.

Then in a startling turnaround, the giant company emerged from two years of adopting a hangdog public posture and instead pivoted 180 degrees onto the offensive. It began placing full-page ads in the New York Times and other major newspapers asserting that the alleged “victims” of the Deepwater Horizon spill were taking advantage of its great generosity. Senior managers, especially Robert Dudley, its first American CEO, have pronounced the company ready to assume business-as-usual: “I think we have done an enormous amount to change the shape of BP and the portfolio and the way it manages risk. After that terrible accident in 2010, we had no choice. But that also allowed us to refocus almost our purpose as a company.” 

How long should BP have remained on probation, barred from doing business until the American workers and taxpayers have some confidence it has really changed? How about the same time period during which it insulted our trust—at a minimum, the five years between Texas City and Macondo, with the Alaskan oil spill in between.

Rena Steinzor, Professor of Law, University of Maryland Carey School of Law. Bio.

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