www.worth1000.com
BP denied it had ignored corrosion problems at its stricken Alaskan pipeline for years as it battled to fix operations at America’s biggest oil field.
The Financial Times reported that an advocate for BP workers in Alaska, Chuck Hamel, had notified a top company official of widespread corrosion at the field over two years ago.
Hamel said he wrote to Walter Massey, the chairman of the environment committee of BP’s non-executive board of directors, in May 2004 laying out concerns about safety relayed over the previous four years by BP workers.
BP responded by sending lawyers to Alaska “with questions that seemed aimed more at identifying whistleblowers than uncovering corrosion”.
BP had a net profit of $12.9 billion in the first half of 2006. Don’t you think they could have spared a few bucks to replace corroded pipes? It’s not like it was a real surprise.
We covered this previously HERE.
Don’t you think they could have spared a few bucks to replace corroded pipes?
If they did that they wouldn’t be able to jack the prices up now and make MORE profit.
The base problem is that, for years, BP didn’t have the money to fix the pipes. Now, over the past few years, they had the money but the marketplace didn’t have excess oil to cushion the blow of a planned outage on the North Slope.
FYI… Watch for BP to declare “force majeure” in regard to oil deliveries from Alaska. While this will cover there end it will drive oil prices higher (as well as the stocks of all oil companies, including BP).
Plz forgive if this dupes:
Chuck Hamel, the former Oil Executive & Whistleblower was interviewed today
#3
link
http://www.democracynow.org
Mr. Hill, your post has the feel of highlights from a BP press release.
BP didn’t have the money? Excuse me, but infrastructure maintenance is considered a normal operating business expense. Companies typically will forgo maintenance in order to maximize profits (and corporate bonuses). But sooner or later the piper must be paid.
They couldn’t shut down because the market couldn’t afford the hit? Then why didn’t they PLAN for the shutdown in order to minimize the impact? A responsible company would already have the new pipe, equipment, logistics, and people positioned to begin replacing pipe as soon as it shut down. They would have announced the planned shutdown months in advance and avoided the market shock.
The choice, as I see it, is to assume inexplicable ignorance and incompetence on the part of oil production experts or to believe this was well considered by managers, who fully understood the impact their actions, and decided this option provided the greatest gain for BP executives.
I really don’t think BP is managed by incompetents.
From 2001 to 2005 BP’s profits ranged from $6.5 to $17 billion. Top line revenue ranged from $151 to $204 billion. A portion of that total revenue would have been applied to maintenance in the normal course of doing business. So the argument that funds were not available for maintenance doesn’t seem to stand up.
Disclosing anticipated cost is a standard part of fiduciary responsibility. Costs specific to Alaskan Pipeline maintenance were not addressed in any of the 2001 to 2005 BP financials on the company’s website.
So, apparently there were funds to fix the problem. There was money being spent for equipment maintenance, but not estimated or adequately applied to the Alaskan problem. They were warned about the problem two years ago, even if they had not noticed it themselves. They didn’t react in the field by initiating repairs or from a financial management perspective by addressing anticipated cost to their investors and the general public.
Oil demand today is the highest ever. So repairs in 2001 to 2004 let’s say, would have had less impact than repairs done later. That would make the “cushion” argument more of a laughable whoopee-cushion defense.
It is hard not to interpret this pattern as either incompetence or negligence.
BP didn’t have the money? Excuse me, but infrastructure maintenance is considered a normal operating business expense. Companies typically will forgo maintenance in order to maximize profits (and corporate bonuses). But sooner or later the piper must be paid.
Infrastructre maintenance is the first to have its budget slashed when a company is losing money. They were going with the “later” approach.
They couldn’t shut down because the market couldn’t afford the hit? Then why didn’t they PLAN for the shutdown in order to minimize the impact? A responsible company would already have the new pipe, equipment, logistics, and people positioned to begin replacing pipe as soon as it shut down. They would have announced the planned shutdown months in advance and avoided the market shock.
Because there was no excess oil being produced… anywhere… to plan around. That’s what I said in the first post, why do you need it repated?
As for your knowledge of construction in the Alaskan wilderness, it’s lacking: The construction has to take place in the winter when the Tundra is hard enough to support the weight of the construction equipment, which is the same time of year it is hardest to put supplies in place. The same with your knowledge of the commodities market: Traders don’t care about plans, they care about cost.
The choice, as I see it, is to assume inexplicable ignorance and incompetence on the part of oil production experts or to believe this was well considered by managers, who fully understood the impact their actions, and decided this option provided the greatest gain for BP executives.
How you see it is meanigless, since you don’t have a grasp on the situation.
I’m not going to say that they get a pass for not knowing the condition of the pipe: That’s unacceptale. But to say they were knowingly breaking the law is another thing entirely. One that cannot be backed up with the facts.
So, apparently there were funds to fix the problem.
Incorrect. The funds to fix the problem were not available before ’98, when there was enough excess oil in the market to pad the loss of Alaska oil for a few months.
After ’98 there was no excess, which is the excuss BP is going with… and does seem to add up.
Keep trying, kids.
It’s incompetance plain and simple, I worked in the oil industry in maintenance, it’s a reactionary maintenance cycle. Do nothing until it breaks. Heaven forbid you should try informing people in management. All that does is get you branded as a trouble maker. Hence the word “worked”
Iv talked to a friend about this pipline…
He mentioned that THIS pipeline is always going OFF line, NOT working, BEING fixed, and has never been upto 100% use, 100% of the time, ANYWAY.
Can we at least get all that money that Bush and the Republican congress gave to big oil back?
#7 “But to say they were knowingly breaking the law is another thing entirely.”
I never said they were knowingly breaking the law. I have no idea of what law they would be breaking, unless it is some Best Management Practice clause contained within an environmental permit. And they can’t be held for violating an evironmental reg becase they did indeed shut down the pipeline before a major spill occured.
But I really do suspect that someone within BP management examined this very scenario as part of a risk assessment, and mangement’s decision was to do nothing until they had to.
If the oil companies have learned nothing else over that last six years, it’s that oil and gas crises lead to higher profits.
We can fix this: Everybody buy a week’s worth of food and supplies, go home and stay there for a week. Before the week is over they’ll be trying to give the stuff away.
I never said they were knowingly breaking the law.
Have you looked at the Alaska press? The Governor of the state wants BP to cover all of its losses… $6b a day.
That’s the direction this whole issue is going: BP broke the law and owes someone money. That’s the way the Exxon-Valdez issue went once the national press hopped off the story, and this one will too.
There is no way to make a business case when you have cash on hand for deferring maintenance until a later date when demand and repair cost are higher. When pipelines are corroded you are screwed, the question is then, do you want to be less screwed now, or more screwed later. Why would anyone choose later? The only reasons I can see, is they just wanted to take the money and run from the problem or wanted the problem to escalate until they could run screaming to Washington to negotiate emergency corporate welfare. Defending BP in this case is acting as a champion for British corporate profiteering or incompetence at the expense of shareholders and the American public.
There is no way to make a business case when you have cash on hand for deferring maintenance until a later date when demand and repair cost are higher.
Sure there is. Corporate executives are greedy.
BP doesn’t strike me as a company going for a hand out. They do strike me as a company trying to make as much money as possible, for better or worse.
13,
Agreed.
14,
ARNT business expence, INCLUDED in the prices WE PAY???
If so…
Why are we paying MORE, for something WE ALREADY PAID…
Ask walmart NOT to add the cost of Lighting, or Janitorial, for 20 years, and SEE what they say…
The more money they earn the less money they want to spend
15. Right on.
16. James, you need to settle on a single point of view. You first talk about how they didn’t have the means or ability to fix the problem and now you state it’s an issue of greed or justified by capitalistic policies in this post. What are you…the devils advocate?
James, did you say greedy? I think you did. Damn.
On your second point on #16, for the reasons ECA pointed out and others, like the whole thing may be falling apart like a soup sandwich, maybe they just wanted to milk the cow until they could offload it. Anyone know if they have contractual obligations to maintain production?
All I know is that if the government made a mistake of a similar magnitude conservatoids would jump all over it as an example of government inefficiency and ineptitude.They would then extoll the wonders of the free-market system and the private sector.
Of course when private sector screws up like this they want to make excuses.They didn’t have enough money, boo hoo hoo!!! If they want to be in the oil business it’s their problem to come up with the money. An example of either PRIVATE SECTOR incompetence or simply not giving a rip. After all, if they screw up they don’t pay for it we do. Wow!!! I want to get in that business the more I screw up the more money I make.
TIME…
To take a DAY off,
“it costs to much to go to work day”:
Maybe 2-3…..
I have work in utility construction for 30 years and I can tell you defered maintnence is the norm. Like most businesses quarterly profits rule.
James, you need to settle on a single point of view. You first talk about how they didn’t have the means or ability to fix the problem and now you state it’s an issue of greed or justified by capitalistic policies in this post.
Those aren’t contrary points. Pre-’98 they didn’t have the means. As a matter of fact, Alaska’s economy was depressed through most of the 90’s: Oil costs weren’t rising, military spending was down, pork spending hadn’t jumped (yet). Post-’98 it was all about BP making profit, and as long as Alaska got its cut maintence could wait… it had to wait.
I’m not saying this is good or bad: The only truly bad part of this is the timing in relation to world events. We do want Alaska to make money, right?
Hell, the environmentalists don’t even care: It’s easy to clean oil off of tundra.
What are you…the devils advocate?
No, I’m someone who lived in Alaska and understands how this works. I’m also someone who understands the financial aspects of the situation, and doesn’t see the issues as pending doom ($5.00 gas).
People need to understand all of the facts before forming an opinion… even on a blog.
ALASKA Gov, is PISSED…
They are looking into the Maintenance that should have been done in the past…
Still wont stop gas prices going up..
I worked for BP for a number of years and year after year they pushed every business unit to constantly cut operating costs. It was only a matter of time before their lack of investment in the “harvest” mode properties would create a problem like this. I think that it is time for Lord Brown to step down and let some foward thinking management take over.
Today I work across the table from BP and they are one of the most difficult partners to work with and I am not the only one who holds this opinion. They appear to base all their decisions on holding or reducing op costs and avoiding any impact to current year cashflow. Even if there is an obvious long term benefit they will oppose positive proposals. I think that this behavior is driven by managment incentives and not shareholder value.
I am just glad I dumped my BP stock 5 years ago.