BP: Putting Profits Before Safety?
| Case Code: BECG071 Case Length: 21 Pages Period: 2005-2007 Pub Date: 2007 Teaching Note: Available |
Price: Rs.400 Organization: BP Plc. Industry: Oil and Chemical Countries: USA, Europe Themes: Business Ethics, Employee Safety culture |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Tragedy in Texas
On March 23, 2005, there was a devastating explosion at BP's Texas City refinery, the third largest refinery in the US. This accident was one of the most serious workplace disasters in the US as it had resulted in 15 deaths and more than 170 being injured. The accident occurred when the workers started the refinery's octane-boosting unit. Excess gasoline spilled into a vent system and ignited, setting off an explosion that was felt within a five-mile radius...
Alarm in Alaska
BP's image was also affected in early 2006, when leaks were found in its oil pipelines at Prudhoe Bay, Alaska, the largest oil field in the US. On March 2, 2006, a BP worker discovered a large oil spill in western Prudhoe Bay. It was estimated that at least 267,000 gallons had spilled out, making it the largest oil spill on Alaska's North Slope. The spillage was due to a corroded transit pipeline. The spillage brought back memories of the infamous Exxon Valdez Spill in Alaska, and led to a public outcry against BP...
Other Problems
Apart from the safety lapses, BP also had to deal with several other problems. Its US trading unit was accused of artificially driving up the prices of propane in 2003 and 2004. In December 2006, US regulators threatened to press civil charges against BP after an investigation into allegations of market manipulation of the gasoline futures market. BP was also struggling to increase its production levels. On January 09, 2007, BP said that oil production had reduced for the sixth consecutive quarter due to the shut down of its facility in Alaska and delay in opening of new fields in the Gulf of Mexico...
BP Springs a Surprise Ahead of the Baker Report
On January 12, 2007, BP announced that Browne would step down in favor of Hayward by the end of July 2007. Browne had been expected to stay until the end of 2008. Browne's early departure came as a surprise as he had been credited with transforming BP into a major player in the industry with a series of M&A deals. He had also given BP a new image as a company that was concerned about the environment, long before any of its competitors had done so...
The Baker Report
On January 16, 2007, the Baker report was released at Houston, Texas. As expected, the Baker report was very critical of BP's approach to process safety at its refineries in the US. The panel said that a lack of focus on manufacturing process safety on BP's part contributed to the March 2005 accident in Texas. It said that BP had failed to give process safety the same emphasis that it gave to personal safety and environmental initiatives. The report said that the management should have paid more attention to earlier incidents, such as product chemical releases and fires at the plant. The Baker report also said that the top management at BP had failed, as they had apparently ignored concerns raised by lower-level employees...
Critics Question BP'S "Green"Image and Culture
The Baker report was a big blow to BP's reputation and a major embarrassment for BP's top brass. The safety lapses at BP coupled with the findings of the Baker report led many to question BP's integrity as well as its corporate culture. Some wondered whether the oil and gas behemoth built by Browne was “fundamentally flawed”. The announcement of Browne's early departure was viewed by some as an admission of its flawed practices...
Damage Control at BP
Soon after the Baker report was released, BP said that it would implement its recommendations. Browne said that the findings of the report were consistent with its own findings and were in fact already being implemented in BP's refineries. Browne also said that it would take time to bring about big changes in a large organization and that still a lot needed to be done...
Outlook
Analysts felt that BP was already on the “right track” as far as its safety culture was concerned. They expected BP to spend generously on process safety experts, health and safety auditors, process engineers, etc. Expenditure on equipment was also expected to rise. Some experts felt that the order from the top was to spend – and this time as before, the employees would fall in line and obey. Some analysts felt that it would be a tough task for anyone to fit into Browne's shoes. But on the positive side, Browne was leaving behind a “strong and well-positioned” oil company...
Exhibits
Exhibit I: The Old and New Logo of BP
Exhibit II: BP's Financial Summary (In US$ Billion)
Exhibit III: Prudhoe Bay: Corrosion Spend Versus Production
Exhibit IV: Chart of BP's Stock Price at the New York Stock Exchange
Exhibit V: The 10 Recommendations of the Baker Panel
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