Macondo Aftermath Descends into Farce

This business with the BP oil spill is turning into a farce.  If ever there was a need for some sensible heads on the shoulders of adults to prevail then this is it, but alas the whole affair resembles a circus.

First we had Obama saying he expects BP to pay for the loss of income to oil field workers resulting from his knee-jerk ban on new offshore drilling, thus introducing the concept of arbitrary law into US business planning.  BP has stumped up $100m for this cause, which will last about a week or two at oil industry rates.

Then we had Obama demanding that BP should pay $20m into an escrow account because – and this is a laugh coming from a politician – he thought BP might renege on its promises to pay or have the temerity to challenge some of the claims.  Not only was this demand illegal, but it is a guarantee that the funds in the account will be misappropriated, spent on the maintenance of a sprawling bureaucracy, disbursed according to political preferences, and unlikely to end up in the hands of those who need it.  And as The Hayride has pointed out, management of the fund has indeed been handed to a political flunky:

[T]hat escrow in the hands of Kenneth Feinberg is an absolute joke as a “third party” administrator. Feinberg works for Obama; he’s his TARP pay czar. Obama has an established record of widespread abuse when it comes to giving his administration access to off-budget money, and that’s precisely what this is. This is a slush fund with virtually no safeguards keeping that money from being misappropriated and stolen by ACORN and SEIU just like every other Obama slush fund has been; while BP might be too slow paying claims, at least we can be virtually sure that BP is going to try to keep its money going to people it actually owes it to.

Feinberg is Obama’s “pay czar” who thinks it’s OK for the federal government to cap salaries at $500,000 per year for Wall Street execs; while the TARP debacle is a completely different animal than BP claims are, if this guy starts trying to impose social judgements on who should get what based on his concept of fairness rather than the merits of the claim, it’s going to be a mess of gargantuan proportions.

Amazingly, BP agreed to this and have conjured up $20bn to pay into this account, seemingly by cutting CAPEX and selling assets.  On top of this, BP also caved in to criticism from idiot politicians by not paying a dividend to shareholders this year.  If this willingness to cravenly fold in the face of irrational, illegal, and politically motivated demands is not enough to convince shareholders, investors, and everybody else that the management of BP is piss-weak and incompetent then I don’t know what is.  Either way, the share price has taken a hammering and deservedly so.

As I said in my earlier post, share prices often reflect uncertainty rather than the scale of what is actually happening.  For a while the share price stabilised as the top-kill failed and the likely scale of the environmental damage became apparent, but since then the political uncertainty surrounding BP has increased tenfold.  One of the whackier calls has been for the US government to nationalise BP’s American assets (suits me, provided the UK government helps itself to the American assets in the North Sea plus the refineries at Fawley and Roscrowther).  But where is the certainty that some wannabe president won’t bring this up in all seriousness, Obama falls over himself to claim the idea as his own, and before you know it BP are conceding all their United States assets for…well, for what?  Why did BP cave in so readily?

It can’t be about preserving corporate image, because theirs is about on a par with Enron and Arthur Anderson right now and is unlikely to ever recover in the USA.  It is a possibility that they thought by cooperating to the full that the uncertainties would disappear and investors would gain confidence, in which case it belies a shocking naivety on the part of the BP managers in their understanding of the political process.  As those who cooperated with the NKVD in Soviet purges discovered, it only whetted their appetite for more blood.

They might be playing  a smart game here, whereby they agree to the $20bn in the escrow account and consider it capped at that, despite the US government saying the amount could be increased.  If this is what they are trying to do, they need to assemble a team of lawyers to fight tooth and nail any demands from the US government to replenish the account once the whole lot has inevitably been pissed up against the wall by its administrators, leaving the Louisiana fisherman wondering why their money has gone on factories in union strongholds in marginal constituencies.  Even though this looks like a climbdown on the part of BP, it may in fact unwittingly become a useful tool for BP in the future to deflect criticism from itself onto the US government: look, we paid the money and your government didn’t allocate it properly, so take it up with them.  I think this is going to haunt the Obama administration before too long, and it will be another item on a long list of evidence of his incompetence and preference of politics over governance.  However, I think it lends far too much credit to the BP management to suggest they have contrived this situation.

Some folk think BP’s decision to down trou’ and assume the position might be part of a quid pro quo with the Obama administration, although it is hard to see what exactly BP gets in return.  The guys at The Hayride think BP got an assurance that a cap & trade energy bill will be passed, a bill which is supposedly favourable towards BP but the details are unclear and this is as yet mere speculation.  I’m not really interested in scouring the web for other ideas as to what BP might have got in return, but when a major corporation is bent over a barrel and politicians are lining up to take turns the outcome is never going to be in the best interests of the general public.

Whatever the reason, the whole affair smacks of political opportunism, arbitrary decisions with far-reaching consequences, and a lack of transparency.  Hardly suprising, then, that Obama, his government, and BP are all seeing their approval ratings plummet.  The losers here will be the folk of the Gulf Coast who have genuinely lost their livelihoods as a result of the spill, and I hope they carry their anger to the ballot box.

And although BP’s CEO Tony Haywood has been acting like a blithering idiot at times, I think his idiocy is surpassed tenfold by those he has to deal with at congressional hearings:

House committee on energy and commerce chairman Henry Waxman … accused Mr Hayward of “stonewalling” for failing to answer his questions.

Infuriated by Mr Hayward’s inability or unwillingness to answer their questions, committee members resorted to expressing their disgust, more than one saying he felt insulted.

So why did Haywood not answer their questions?  Why would he do this?

Expressing his “deep regret” for the spill, Mr Hayward repeatedly stressed he was constrained in what he could say by the fact that a number of investigations into the explosion had yet to finish.

Oh.  So the reasons are entirely obvious: he doesn’t have an answer yet.  And given that nobody knows exactly what the causes of the accident were, this is completely understandable yet seemingly beyond the wit of US politicians.  As he said in his testimony (available for download here):

I understand people want a simple answer about why this happened and who is to blame. The truth, however, is that this is a complex accident, caused by an unprecedented combination of failures. A number of companies are involved, including BP, and it is simply too early to understand the cause. There is still extensive work to do.

Indeed.  As I said after the intial set of hearings which set off Obama’s whining that people didn’t have all the answers:

What does he expect them to do, admit responsibility for something they don’t even know for sure has happened?

It seems that is exactly what Henry Waxman wants Tony Hayward to do.  Have a look at the video of the hearings here.

At about 4:15, Waxman asks how a decision regarding the casing was made by BP management which overruled its own engineers’ concerns.  Hayward’s response, quite reasonably, was that he was not involved in the decision.  Rather than complaining that Hayward doesn’t want to answer his question Waxman should have listened better, for what Hayward goes on to say is:

“It’s clear that there was some discussion amongst the engineering team, and an engineering judgement was taken.”

What was that word?  The one beginning with “J”?  Wasn’t I saying something about this a few weeks ago?  I believe I was:

Almost all decisions at this end of the oil and gas business are a compromise between competing factors.  When there is a shortage of information or conflicting signals, the decision maker must make a judgement call, and this also characterises most decisions in the upstream oil and gas business.

Perhaps Hayward has been reading my blog (in which case, could he please gently inform the BP Azerbaijan office that it is pretty damned rude to interview somebody for a job and not bother getting back to them)?  Or maybe he just has more of a clue about oil and gas work than Waxman who is, going off his Wikipedia profile, a lawyer turned career politician.

So, if you want the truth – let’s charitably assume that this is what Waxman and his chums are after – around an engineering judgement call then you need to identify what information was available at the time, how it was ranked in order of accuracy and importance, what information was contradicting other data, and establish a clear route by which the decision was made and by whom.  Yes, emails were sent to BP warning them of using a particular casing: but maybe it was a mere arse-covering exercise which was sent on the seventy eight previous occasions the same casing was used.  As yet, we don’t know, and given we are dealing with individual human beings, most of whom have recently leaped from a burning rig which claimed the lives of 11 of their colleagues, they are from across three or four different companies which potentially face crippling lawsuits, and at least one has claimed the fifth amendment and others are suing for damages, the task of establishing the decision path is going to be neither quick nor easy.  The BP investigation needs to be given time to run its course.  True, there are fears that BP might stitch up the investigation and produce a whitewash, but in my experience of working with western oil companies the chances of this happening, especially in this case, are nil.  So the point is, until the complicated facts have been unravelled and established, grilling the CEO over specific decisions is going to achieve nothing.  Tony Hayward makes this very point at about at about 7:13 in the video saying “we need to determine what were the critical decisions”.  Waxman seems more interested in interrupting him.

The problem is further compounded by Waxman’s failure to understand what an engineering judgement is.  He claims that the decision to use the casing design which ultimately failed was more than an engineering judgement because there were commercial issues taken into consideration too. Well, duh.  If engineering judgement ignored economics all our cars would be Porsche 911 Turbos.  All engineering judgements require a balance to be struck between safety/quality, cost, and progress.  The old saying is you can have something done quick, well, or cheap: choose any two you like.  And what people fail to understand is when a company like BP says that safety is a priority, it doesn’t mean that they will only work on safety and ignore cost and progress.  “Priority” is a word often misused or misunderstood in project management.  I once worked in a company whose idea of prioritising its workload was to devote 100% of all resources to the priority project and leave the rest on the shelf.  If you’ve been paying attention to recent posts you can probably guess which company I am talking about, but I digress.

Anyway, in the oil and gas business all engineering judgements must take into consideration enormous cost pressures even if safety is considered a priority.  I explained this to somebody in the comments of an earlier post, that the sheer cost involved in parts of the oil and gas business – mainly drilling, construction, and maintenance/production – are enormous yet unavoidable.  It costs $500k per day to rent a drillship, about $300k per day for a pipelay barge.  A compressor going down on a process plant might force you to shut in production at a cost of several million dollars per day.  A delay in commissioning a new facility can result in lost production also running into millions very quickly.  The sheer value of the oil and gas being extracted makes decisions very costly, and this is unavoidable.  The balancing of safety and cost should always err on the side of safety, but with the cost side able to reach a few million dollars in the time it takes you to make up your mind it is easy to see why decisions sometimes go the other way.  I am not defending BP here, they have clearly made a terrible judgement call which is looking more and more difficult to justify as more information becomes available.  But Waxman’s lack of understanding of how decisions are made in the oil and gas business puts him in no position to be asking Hayward the questions in the first place, let alone losing his temper because he isn’t getting the answers he wants.

In fact, as much as Waxman protests that the congressional hearings are an investigation, they seem to resemble a Soviet-style kangaroo court more than a serious quest to find out what happened.  I get the feeling that the only acceptable answer to Waxman would be Hayward holding his hand up and admitting that he and every employee in his company willfully and knowingly wrecked the Gulf of Mexico in order to line their own pockets.  Given the fifth amendment allows people to refrain from incriminating themselves, there is little wonder that when questions were asked which seemed structured to do just that the whole thing descended into farce.

But nothing is quite as ridiculous as this:

BP CEO Tony Hayward has faced fresh criticism for taking time off to go boating with his son instead of dealing with the Gulf of Mexico oil spill.

The White House said the move was one of a “long line of PR gaffes and mistakes” by Mr Hayward.

Environmental groups said the Isle of Wight outing was “insulting” to those affected by the environmental disaster.

BP defended Mr Hayward, saying it was his first day off since the spill began after a deadly rig blast on 20 April.

Greenpeace campaigner Charlie Kronick described the boating trip as “insulting… rubbing salt into the wounds” of those who had been affected by the spill.

Residents in coastal states affected by the spill also rebuked the oil executive.

“Man, that ain’t right,” said Bobby Pitre, 33, who runs a tattoo shop in Larose in Louisiana. “None of us can even go out fishing, and he’s at the yacht races.

“I wish we could get a day off from the oil, too,” Mr Pitre told AP news agency.

And 59-year old Raymond Canevari, an artist from Florida, said Mr Hayward did not “have the right to have free time at all” until the crisis was resolved.

Note that the only two residents of affected states they quote are a bloke who runs a tattoo shop and an artist.  Presumably they left out the criticism from oystermen and roughnecks due to lack of space.  Besides, what would these idiots have him do on his one day off in almost two months of fire-fighting?  Run around town in a hair shirt before spending a couple of hours standing on hot coals self-flagellating?

But BP spokesman Robert Wine defended Mr Hayward’s move, and said it was the first break that Mr Hayward has had since the spill began.

“He’s spending a few hours with his family at the weekend,” he said.

“I’m sure that everyone would understand that.”

Indeed, some deranged loudmouths notwithstanding.  I find it unbelievable that I am saying this, but the Americans, particularly the politicians, are beginning to make Tony Hayward and BP look good.  For all the Americans deriding Hayward as Mr Bean, his demeanour in the hearings is a model of British restraint when faced with a rude, provocative, and frankly clueless buffoon.

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7 Responses to Macondo Aftermath Descends into Farce

  1. Josh says:

    Tim, your rationality is a beacon of hope in these dark times.

  2. Tatyana says:

    That’s why engineers never make into the ranks of CEO of Co’s: they make too much sense!

  3. Josh says:

    If you want schemes concocted by Hayward, how about the idea he’s deliberately been a PR nightmare to draw ire onto him personally so when he falls on his sword, he can take much of the hostility with him? Crazy I know but a thought.

  4. Pingback: Gulf Oil Spill Updates (5th Thread) | The Hayride

  5. MikeinAppalachia says:

    Tim, there are many Americans who are disgusted with our so-called administration and its actions. But this extortion and/or side-deal re “Cap and Trade(Tax)” is merely “the Chicago way”. I do blame BP for folding and certainly, Hayward could/should have done a much better job in front of Waxman, et al.
    True, the $20 Billion is just another slush fund for ObIwon to dole to his supporters-again a Chicago symptom. But the opposition will not dare to critique such as the media its usual role of cheerleading for Bambi. Only hope the diversion wells work.
    Incidently, Arther Anderson was cleared of any fault in the Enron matter-but since by that time they were already broke and disbanded,not much solace.

  6. OFT says:

    Here is a good article from Weekly Standard.Beyond Pathetic: BPs Gulf disaster was no surprise to those who understood the corporate culture.

    As the author points out, it is more than ironic to use the failure of BP at its core business of petroleum as an incentive to pass cap and trade, when BP had been one of the pioneers in cap and trade. Would you go to Madoff for any advice after it had been discovered he had defrauded investors out of billions?

    Gringo

  7. Tatyana says:

    Cringo, you’re right, but you chose a bad example – remember Neo’s post where she told about Madoff’s life in prison and that he’s occupied by giving investment advice to inmates?

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