Why BP should go down
Friday, June 11, 2010 at 12:10AM 
For the record, this is not a great photo op realized.
Bloomberg BusinessWeek pair.
In the lead editorial, Paul Barrett goes after Obama with some cause, saying he knows the president can’t do a whole lot about the spill but that he could make something larger out of it instead of bragging on TV that he talks to experts so he knows who’s ass to kick (when Obama talks tough, he summons his inner Mike Dukakis, spicing his language in oh-so-calculated a fashion).
The bit that caught my eye: the characterization that the USG was basically unprepared for any deep-water blowout, expecting that the private sector would have such assets in the ready. BP’s true guilt (as accidents and operational stupidity will happen) is not having those assets in its toolkit—CEO Tony Heyward’s explicit admission.
That to me is enough for BP to be demolished—not by the government but by shareholders. This is basic insurance thinking: low-probability all right but stunning high impact, so you HAVE to carry the requisite insurance, especially when we’re talking the money involved, both upside and downside. For BP to have taken a flyer on this is just inexcusably dumb.
And dumb companies should die.
But even more annoying than that, and here you have to think Obama could be doing more than just holding Oval Office confabs, is the way BP has hogged control of the response effort while exhibiting a “we’ll-get-back-to-you” mindset on all the ideas flooding their way.
The numbers, say BBW, run like this: 35k ideas submitted, with 800 making the first cut, and 4 ideas tried to date. You’ve got 200 words to describe your approach to the 70 workers fielding call. Close to four dozen engineers evaluate the incoming. They come from BP, the US Coast Guard, and various USG agencies.
The complaint of serious companies with seriously proven technologies for capturing oil in water? Everybody comes out of the woodwork when disaster strikes, so the kooky drown out the credible.
But again, my point is, BP shouldn’t be fielding ideas for God’s sake. That stuff should have all been filed over the past years, leading to action—not some sophomoric all-nighter effort (“Oh my God! Get me ideas for soaking up oil—stat!”).
When you operate on that level of strategic brittleness, you, Mr. Dinosaur, deserve to die when the big meteor hits.
Reader Comments (11)
Yes, BP was not prepared. Sources in the oil patch say that BP had a reputation with drillers for being difficult to work with. Bottom line thinking was foremost in their decision making process about completions.
I spent some time in the oil busines as an explorationn geologist. Saw a few disputes over best way to proceed when it came time to complete a well. So, nothing really new there except a whole lot more at stake in the BP case. This is a monster discovery. 1000 barrels a day was a huge well in my day. (The 50s.)
Just like the aviation industry or space flight, there will be solutions found for doing these deep wells more safely. One thing required by some countries (Canada is one) is to have an intercept well in place prior to completion. More expensive, but good insurance.
BP has huge resources, large capital flow, and this monster discovery, though a liability right now, is a big shot in the arm for their recoverable reserves. They should pay for it all - no bailouts. If that breaks the company, so be it. If it survives, I wager they'll be a much safer and more savvy operator than before.
There appears to be a lot of British pressure on the US government to take it easy on BP because of the amount of British retirement funds tied up in BP shares.
Yes, the shareholders should decide. But state mercantilism is on the rise; and see article below The equally important superpower: We can gear up all we want, say, militarily, and we’ll certainly find friends in that process, but there will be no political nor economic equivalent, and that means bluster without bulk. Obama & Co. seem to have made that adjustment mentally.
A few years ago President Putin also waged war against a big oil company. The result was that the politically castigated Yukos was sold off cheaply to a rival and the boss is still in jail.
Perhaps the G20 in Toronto will address this?
The problem is not solved by BP bashing. The old Japanese truism applies: fix the problem not the blame.
To do this objectively, a couple of major oil companies and a couple of our major engineering Universities should simulate the entire well drilling safeguard system. The USG should pick up the tabs for an independent failure analysis from each entity, as everybody benefits from correcting whatever the problem was.
On the subjective side, one has to look for knaves. (1) One clue here was the utterly incredible rumor spread on the Internet that a North Korean sub blew up the well. Who would start such nonsense and why. (2) With Credit Default Swaps available for .012%, somebody should look who owns these derivatives as they made a 800 to 1 bet against BP. (3) Halliburton closed its deal to acquire Boots and Coots the day before the well blew. Boots and Coots specializes in oil spill cleanup
Two things . . we cannot put the entire Oil Industry in the Gulf out of business because of a "Cascade of Events' risk assessors and engineers had assumed couldn't happen . . The incident record was better than that of the airlines . . So the company man on the Horizon pushed the envelope . .
Secondly, in dealing with BP, the idea of putting it "Down" or out of business is folly . . Who woud be liable after you put one of the largest companies in the world out of business? The bureaucracy has no idea of what to do or who to call . . And, no other oil company is going to come in and assume any of the responsibility . . Hell, the Stockholders would lynch the CEO of a company for allowing that to happen . .
End possibility is to make the oil companies totally responsible for all their actions and hold them to it . . Corporations do and will learn . . The bureaucracy doesn't and won't . . they just kick the can down the road to the next administration and make it their problem . . while that may be good politics it sure as Hell doesn't make good reality . .
I See two possibilities: The company survives, or the company gets bought out on the stock market. There are real valuable assets that can be had now at a 50% discount....granted I won't touch it until I know more about the oil spill.
Tom I agree. BP took a risk to not have a response plan and they holave lost their bet. Failure is an option. In a free market companies blunder and go out of business; even giant companies. So be it.
The UK gets a couple of billion a year in Tax receipts every year from BP.
A loss of that revenue is going to send the right wing press into a frenzy . It will be translated into hospitals and school closing because of Obamas need for a ratings boost for the mid-terms.
Obama here is increasingly being seen as anit-British.Removing the bust of Churchill at the Whitehouse and other small acts , such as the DVD box set present to Gordon Brown which was considered cheap and purposefully unthoughtful.
Obama would be wise to seek British advice and counsel. Great Britain has to be the most successful State in the last 600 years or so. It got there because of its practice of what I call statecraft which was so well done. The Brits, over the centuries, have grasped the Big Picture, just as our blog host here has within the last decade or so.
ProPublica reports (http://www.propublica.org/feature/years-of-internal-bp-probes-warned-that-neglect-could-lead-to-accidents) that BP has a history of disregarding safety and environmental regulations. They cite BP's failure to maintain "as built" drawings and operating equipment to failure. Both practices increase the likelihood of occurrence and the severity of consequence. In addition, the failure to practice design reviews and configuration management also increases the risk that backup and mitigation plans will also fail.
If Obama is looking for someone's "ass to kick", he may want to start with a review to determine if adequate federal oversight is in-place and resourced, as it's intended for the nuclear and aerospace industries, where low probability failures can be catastrophic.
A very good set of comments here, especially the one about fixing the problem and not the blame and the one about looking to the aircraft and nuclear industries. Obviously a rule-set reset is inevitable. Some very expensive over-regulation will surely occur, but the industry will suck it up and include the costs when making their investment and operating decisions. The nuclear plant I worked at claimed their operating cost was around $0.02/kw h, but an engineer not involved in the accounting claimed that the years of capitalized construction, testing and accrued interest expense added another $0.05/kw h. So, until recently no one in this country has seriously considered betting the company on another nuclear plant since TMI in 1979. The industry established INPO, the Institute for Nuclear Operations, (see Wikipedia and www,inpo.info), to collect "best practices," evaluate operations and accredit training programs on the basis that any screw up by any member can affect the regulatory environment and therefore the costs of all the members. The electric utility industry also has EPRI, the Electric Power Research Institute, to conduct R&D for various aspects of the industry like generation, transmission, distribution, automated metering, nuclear power, etc. They also do studies such as this. The oil industry needs to establish organizations like these, or reformulate ones they may already have. Congress may have to pass a limited anti-trust exemption for this to be possible.
Games have rules and the more important the game the more likely there will be a referee/umpire(s) to see the rules are enforced. For many games the rules and the referees are controlled by the game's association not the government. Governments have an interest in establishing rules and referees where the health, safety and economic well being of the public are concerned. Now the oil industry needs to jump out in front of this parade and do most of the rule-setting and refereeing before Congress gets too carried away.
Consider, the government has been collecting a tax ($0.001) on every kW h of nuclear generated electricity since 1983, about $34.4 billion. About $10 billion has been spent mainly on Yucca Mountain nuclear waste repository.