Browne's BP cost-cutting led to Gulf spill, book says

NEW YORK Wed Feb 29, 2012 10:58pm EST

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NEW YORK (Reuters) - The public image of oil giant BP Plc has taken some huge hits since the 2010 Gulf of Mexico oil spill but a new book purporting to look inside BP may open up a whole new set of thorny questions about the company.

"Run to Failure: BP and the Making of the Deepwater Horizon Disaster," by ProPublica investigative reporter Abrahm Lustgarten, offers a detailed portrait of a corporate culture that seemed to value controlling costs above human life.

Lustgarten argues that the culture had been spreading like a cancer through the British oil company for years, culminating in the April 2010 tragedy that killed 11, seriously injured 16 and spewed crude oil into the Gulf for 87 days.

"The roots of the story . concern corporate responsibility, business ethics, and leadership and go back at least two decades, to a point at which BP executives sought to redefine the company and reposition it as one of the great corporations of our time," writes Lustgarten, who won a 2009 George Polk award for environmental reporting.

The book, to be published March 26, is timely: a federal judge has delayed until March 5 a trial to decide who should pay for the oil spill damage so BP can continue negotiating a settlement with Gulf fishermen, restaurant owners and other plaintiffs whose livelihoods the oil spill affected.

As a result, "Run to Failure" will either complement negative daily headlines of a trial expected to last almost a year or, perhaps, revive the tragedy just as BP executives thought they'd resolved it.

Lustgarten's research for this scathing expose first appeared on Propublica and PBS's series Frontline in 2010.

"Much of this book was written without the cooperation of BP and its executives," Lustgarten states. "The company repeatedly declined to offer its executives for interviews or to allow me or my colleagues tours of its facilities. In October 2010, after requesting -- and receiving -- dozens of pages of detailed questions in writing, BP provided a one-paragraph response. In a public statement, BP's new CEO, Robert Dudley, denied that BP has an enduring problem managing safety and warned that my forthcoming report, first published and aired in October 2010, would be unflattering."

On Wednesday, a BP spokesman had no comment, saying BP had not yet seen the book. But Dudley was right.

DISASTER IN THE MAKING

Tony Hayward, BP's CEO at the time of the oil spill, came to personify a cold corporate stance on the tragedy. "I'd like my life back," he said at one point in the exhausting aftermath -- five words that sped his ouster soon after.

But Lustgarten traces the seeds of the oil spill disaster to Hayward's predecessor, Lord John Browne, an iconic BP executive who resigned as CEO suddenly in 2007 amid a scandal involving a former boyfriend.

Browne's ascendance in the 1990s came at a challenging time for Big Oil, Lustgarten writes.

With oil prices relatively low, and aging sources peaking in production, oil majors like BP were in a race to find new reserves. But the 1989 Exxon Valdez spill in Alaska had made environmental concerns paramount.

BP, at Browne's urging, embraced the "green" banner boldly to the chagrin of Browne's oil industry peers, Lustgarten says. It was Browne who led the rebranding of the company with the slogan, "Beyond Petroleum." But that embrace was in message only, not in practice, the author writes.

From 1989, when Browne took over BP's exploration and production group, and after he became CEO in 1995, the soft-spoken opera lover doggedly pursued making BP "the largest, most successful oil company in the world," Lustgarten writes.

Browne drove a stunning spree of acquisitions while pushing BP into riskier drilling and ruthlessly cutting costs. In 1990, for example, he cut 1,700 jobs before tasking managers with finding $750 million in budget reductions. Maintenance crews were asked to do more with less, Lustgarten says.

"Even before he had settled on a plan, one thing was clear," he writes. "The way out of the trap was through abandoning British Petroleum's historical affinity for safe and predictable operations and through taking some chances."

Under this new regime, the author claims, pipeline inspectors in Alaska were pressured to doctor their results; key safety infrastructure deteriorated; and managers pushed aside brave employees who spoke out, even blacklisting them.

An internal "fire and explosion" risk assessment in 2000 went so far as to calculate the worth of individual workers: $10 million a head, according to Lustgarten.

"The workers were fewer and the hours longer," he writes. "Tasks that a pipeline inspector used to complete every three months now happened maybe once a year."

Unlike Exxon, which Lustgarten says changed its ways after the Valdez debacle, BP failed to right itself even after major accidents, including a 2006 oil spill in Alaska and the explosion of a Texas City, Texas, refinery in 2005 that killed 15. By the time Hayward became CEO in 2007, Lustgarten argues, disregard for safety was entrenched in BP's culture.

"BP seemed to be displaying an institutional inability to learn from its mistakes," the author writes.

This culture comes to a head in "Run to Failure" with a gripping, minute-by-minute account of the Deepwater Horizon events. Before the rig exploded, BP managers, behind deadline and over-budget, brushed aside serious warnings and skipped a routine but critical test, Lustgarten says.

Once the explosion occurred, scared and injured crew hurled themselves from the burning rig into the Gulf of Mexico as a handful of workers tried to disconnect the rig from the well. But fail-safes failed. A "blind shear ram" failed, then faulty electrical valves prevented a "deadman switch" from working.

Lustgarten says BP and a contractor, Transocean, also never bothered to install something called an "acoustical control switch," a final backup for such an emergency situation, "even though it had become standard safety equipment for legal drilling in other parts of the world."

Lustgarten says there are signs BP has not changed its ways. As recently as late 2010, a BP spokesman downplayed a leaked memo showing that 148 sections of its pipelines in Alaska had severely corroded, the author says.

Nevertheless, U.S. regulators in October approved BP's first new drilling plan for the Gulf of Mexico, Lustgarten writes. President Obama in May also proposed opening Alaska's National Petroleum Reserve, "where BP would again be expected to play a significant role," he says.

(Editing By Peter Bohan)

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