Last Thursday — the 59th day of the continuing Macondo well disaster in the Gulf of Mexico — BP plc CEO Tony Hayward took a tongue lashing from House lawmakers during a subcommittee hearing that shed little if any light on what caused the nation’s worst environmental catastrophe. Not long after, BP was blasted by well partner Anadarko Petroleum Corp.
A number of members of the House Energy and Commerce Subcommittee on Oversight and Investigations recalled previous BP safety debacles — a deadly explosion at the company’s Texas City refinery in 2005 and an oil spill in Alaska’s Prudhoe Bay in 2006 — and the BP CEO’s subsequent promise to focus “like a laser” on safety.
During opening remarks Rep. Henry Waxman (D-CA), chairman of the House Committee on Energy and Commerce said, “There is complete contradiction between BP’s words and deeds…Under your leadership BP has taken the most extreme risks…and now the whole Gulf Coast is paying the price.”
In his own and the company’s defense Hayward said numerous process and staffing changes have been made at BP to improve safety since the incidents of 2005 and 2006. Hayward became CEO in 2007.
While the criticism from lawmakers was blistering, BP was excoriated late last Friday by a fellow member of the exploration and production community. Anadarko, which has a 25% stake in the BP-operated Macondo well, piped up with a statement on the catastrophe that was uncharacteristically critical of a peer company in the clubby energy industry.
“The mounting evidence clearly demonstrates that this tragedy was preventable and the direct result of BP’s reckless decisions and actions,” said Anadarko CEO Jim Hackett. “Frankly, we are shocked by the publicly available information that has been disclosed in recent investigations and during this week’s testimony that, among other things, indicates BP operated unsafely and failed to monitor and react to several critical warning signs during the drilling of the Macondo well. BP’s behavior and actions likely represent gross negligence or willful misconduct and thus affect the obligations of the parties under the operating agreement.”
Under the terms of the joint operating agreement (JOA) related to the Mississippi Canyon block 252 lease, BP, as operator, owed duties to its co-owners, which are Anadarko and Japan’s Mitsui & Co. Ltd. (10%), to perform the drilling of the well in a good and workmanlike manner and to comply with all applicable laws and regulations, Anadarko said. The JOA also provides that BP is responsible to its co-owners for damages caused by its gross negligence or willful misconduct.
Importantly, any actions Anadarko may take under the agreement to protect its rights relative to BP’s performance as operator in the drilling of the well will in no way shift any financial burden to the American taxpayer, Anadarko said. “We recognize that ultimately we have obligations under federal law related to the oil spill, but will look to BP to continue to pay all legitimate claims as they have repeatedly stated that they will do,” Hackett said.
At about the same time that Anadarko made its statement, Moody’s Investors Service downgraded the long-term debt rating of the company and its subsidiaries to “Ba1” from “Baa3” and placed the long-term ratings under review for possible future downgrade. “Moody’s action reflects the considerable uncertainty around Anadarko’s potential 25% share of the cleanup costs and the associated financial liabilities and fines [from the disaster],” the ratings agency said.
Approximately a half hour after Anadarko leveled its accusations, BP said it “strongly disagrees” that it was grossly negligent or engaged in willful misconduct. “These allegations will neither distract the company’s focus on stopping the leak nor alter our commitment to restore the Gulf coast,” said Hayward. “Other parties besides BP may be responsible for costs and liabilities arising from the oil spill, and we expect those parties to live up to their obligations. But how the costs and liabilities are eventually allocated between various parties will not affect our unwavering pledge to step forward in the first instance to clean up the spill and pay all legitimate claims in an efficient and fair manner.”
BP added that all the co-owners of the leasehold interest previously entered into a written operating agreement where “the parties would share the costs of operations, including the cost to clean up any spill resulting from drilling the MC252 exploratory well, according to their respective ownership interests in MC252.”
In his prepared committee testimony Hayward recounted in detail what BP, the U.S. Coast Guard and others have done to attempt to seal the Macondo well, contain the spill and clean up the mess. However, House members were more interested in getting Hayward to accept responsibility for the decision-making they believe caused the well blowout that started it all.
Rep. Bart Stupak (D-MI), chairman of the Subcommittee on Oversight and Investigation said, “Time after time” BP had warning signs that the Macondo was “a nightmare well,” as it was described by one employee. He lambasted Hayward for “low-ball estimates” of the amount of oil flowing from the well following the blowout and said they may have led to a “scaled-back” response.
“I find this cavalier attitude toward risk unbelievable,” Stupak said. “There’s a willingness to cut costs and take risks.”
When questioned about decisions related to the Macondo well specifically, Hayward repeatedly asserted that he was not involved in the decision-making process and could not answer.
“I wasn’t involved in any of that decision-making,” Hayward said in response to questioning by Waxman.
“It’s clear to me that you don’t want to answer our questions,” Waxman said later in frustration.
Rep. John Dingell (D-MI) was repeatedly stymied by Hayward’s professed inability to answer his questions; he asked that the CEO submit his answers for the record later. Others would go on to bemoan what they said was a lack of candor on Hayward’s part, while the CEO repeatedly indicated that his company’s and other investigations were still ongoing.
“I don’t want to hear that. That’s the same thing You’ve been saying all day,” chided Rep. Cliff Stearns (R-FL) at the mid-point of the hearing when Hayward’s responses had started to sound particularly rote.
Hayward was not, however, without at least one sympathizer among the panelists. At the beginning of the hearing Rep. Joe Barton (R-TX) “apologized” to Hayward for the “shakedown” he and his company experienced the day before at the hands of the Obama administration, which extracted the pledge of $20 billion in Gulf Coast compensation (see related story).
“I’m ashamed of what happened in the White House yesterday,” Barton said. “I think it is a tragedy of the first proportion that a private corporation can be subjected to what I would characterize as a shakedown, in this case a $20 billion shakedown…”
That elicited a rebuke from Rep. Ed Markey (D-MA), who recalled how victims harmed by the Exxon Valdez oil spill in Alaska had to wait years for compensation. “This is the American government, President Obama ensuring that this company is made accountable,” Markey said. “This is, in my opinion, the American government working at its best.”
Proving that it isn’t only BP executives who misspeak — Hayward’s wanting his “life back,” and BP Chairman Carl-Henric Svanberg’s sympathy for “the small people” come to mind — in response to a swift backlash Barton retracted his BP apology and issued one to his detractors.
“I apologize for using the term ‘shakedown’ with regard to yesterday’s actions at the White House in my opening statement this morning, and I retract my apology to BP,” said Barton, who has been a frequent beneficiary of oil industry campaign contributions. “As I told my colleagues yesterday and said again this morning, BP should bear the full financial responsibility for the accident on their lease in the Gulf of Mexico. BP should fully compensate those families and businesses that have been hurt by this accident. BP and the federal government need to stop the leak, clean up the damage, and take whatever steps necessary to prevent a similar accident in the future.”
Barton’s fellow Republican Rep. John Sullivan of Oklahoma did not have a problem with the $20 billion pledge elicited by President Obama. “The American taxpayer should not be on the hook for a dime,” he said.
“There is mounting evidence that BP has one of the worst safety records of any major oil company operating in the United States,” said Sullivan.
While acknowledging that BP employees were the key decision-makers on the ill-fated Deepwater Horizon rig, Rep. Michael Burgess (R-TX) lamented that the U.S. Minerals Management Service (MMS), which approved BP’s plans for the well, was not represented at the hearing as the federal regulators contributed to the catastrophe.
MMS officials will be in for their own grilling, though, as more hearings are planned, Stupak noted.
Last week it was reported that Hayward would hand off management of the GOM crisis to Managing Director Bob Dudley, who was raised in Hattiesburg, MS. He is the former head of BP’s venture in Russia, TNK-BP.
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