Yesterday, as I described during my live coverage of the House Energy and Commerce Committee’s questioning of BP CEO Tony Hayward, Rep. Joe Barton, from oil industry haven Texas, apologized to BP for the “shakedown” that the company faced from the White House:
“I’m ashamed of what happened in the White House yesterday,” said Rep. Joe Barton (R-Tex.) during a hearing on Thursday morning with BP’s CEO Tony Hayward.” I think it is a tragedy in 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 — with the attorney general of the United States, who is legitimately conducting a criminal investigation and has every right to do so to protect the American people, participating in what amounts to a $20 billion slush fund that’s unprecedented in our nation’s history, which has no legal standing, which I think sets a terrible precedent for our nation’s future. I’m only speaking for myself. I’m not speaking for anyone else, but I apologize,” Barton added. “I do not want to live in a county where anytime a citizen or a corporation does something that is legitimately wrong, [it is] subject to some sort of political pressure that, again, in my words, amounts to a shakedown.”
Rep. Barton did not agree with the $20 Billion escrow account, which Tony Hayward agreed to with President Obama, and would ensure that money is available to pay “all legitimate claims.” Well, Rep. Barton apparently hoped that BP would be able to use their army of lawyers to fend off legal challenges, like two other notable companies: Exxon Mobil and Dow Chemical.
25 years after a plume of fatal toxic gas escaped from a Union Carbide plant in Bhopal, India, and killed thousands of sleeping Indians instantly, and tens of thousands later, eight former executives were finally found guilty and sentences to two years in prison and a fine of about $2100, only last week. In 1989, Union Carbide, which was later purchased by Dow, paid only a $470 Million settlement, which provided only $550 per victim. Additionally, Dow is not taking responsibility for cleaning up the site. In fact former Union Carbide officials still refuse to take responsibility for the leak, blaming it on sabotage.
In the other case, Exxon was required to pay only $500 million, from what was once a $5 Billion punitive award, after a nearly 20 year legal saga. BP can fight this battle much longer than any Louisiana fisherman. The $20 Billion escrow fund is an act of good faith on the part of BP. For Rep. Barton to insist that is it a “shakedown” is to say that the Dows and the Exxons of the world should be able to avoid accepting the consequences of their actions.
Apparently Barton, after being condemned by fellow Republicans, retracted his apology. However, many conservatives do support Barton, and object to the escrow account. It is a mystery how one could side with BP on this case, with clear evidence of their liability. Ultimately, a huge company like BP has more power than most modern States. Even in the United States, companies like BP can capture the regulators and ensure favorable legislation through their financial support. In that environment, how can conservatives claim that the power of mega-corporations should go unchecked? How on Earth could Barton side with BP, when we now know all the cost-cutting that led to the disaster on the Deepwater Horizon and in the Gulf of Mexico?
Rep. Henry Waxman expressed his exasperation in his opening statement:
“BP repeatedly took shortcuts that cost lives and increased the risk of catastrophic blowouts… There is not a single e-mail that indicates that you understood the danger… We are seeing in the oil industry the same corporate indifference to risk that we saw in the collapse on Wall Street.”
Rep. Bart Stupak scores this zinger:
“You owe it to all Americans, we are not small people, but we deserve to get out lives back… Mr. Hayward, I am sure that you will get your life back, with a golden parachute to boot.“
Republican Rep. Joe Barton called the $20 Billion compensation fund a “slush fund” and a “shakedown.” I suppose he trusts BP to settle quickly, unlike Exxon, which only recently finished its legal case on the Exxon Valdez spill, and paid limited settlements. I suppose he forgets that Dow Chemical only recently completed its legal settlement after the 1984 Bophal catastrophe, where approximately 15,000 Indian people died after a chemical leak.
Rep. Mike Ross, Democrat of Arkansas, pointed out the obvious: “Mr. Hayward, since this hearing began one hour ago, 112,846 gallons have spilled into the Gulf… It seems apparent that BP put profit before safety.”
Rep. Peter Welch of Vermont artfully described the numerous accidents and safety failures that BP operations produced in the last decade, and concluded: “We’ve heard time and time again from BP that this is an aberration… for BP, regrettably this is business as usual. This is déjà vu, again, and again, and again.”
The opening statements are over, and Tony Hayward already is slumped. Now he is ready to testify. After Mr. Hayward was sworn in, and was about to begin his opening statement, a woman in the back screamed that Mr. Hayward needed to go to jail.
Tony Hayward’s opened with this: “The explosion and fire on the Deepwater Horizon and the resulting oil spill in the Gulf of Mexico never should have happened, and I am deeply sorry that it did. When I learned that 11 men lost their lives, I was personally devastated. Three weeks ago I attended a memorial service for those men, and it was a shattering moment… I can only begin to imagine their [friends and families’] sorrow.”
I understand how serious the situation is. It is a tragedy. I want to speak directly to the people who live and work in the Gulf region. I know that this incident has had a profound impact on your lives, and caused great turmoil and I deeply regret that. I also deeply reget the impact the spill has had on the environment, the wildlife, and the ecosystem of the Gulf. I want to acknowledge the questions that you and the public are rightly asking. How could this happen? How damaging is the spill to the environment? Why is it taking so long to stop the flow of oil and gas into the Gulf? We don’t yet have all the answers to these important questions. But I hear and understand the concerns, frustrations, and anger being voiced across the country, and I know that these sentiments will continue until the leak is stopped and until we prove through our actions that we are doing the right thing.”
Well, Tony Hayward and BP may not have all the answers, but the House committee will try to get them.
Tony continues: “I’ve been to the Gulf Coast. I’ve met with fishermen, business owners, and families. I understand what they are going through, and I promise them as I am promising you, that we will make this right. After yesterday’s announcement (of the $20 Billion fund) I hope that they feel we’re on the right track. I’m here today because I have a responsibility to the American people to do my best to explain what BP has done, is doing, and will do in the future to respond to this terrible accident.”
Tony Hayward certainly claims to understand everyone’s troubles. It reminds me of Bill Clinton, he used that language a lot.
“To sum up, I understand the seriousness of the situation, and the concerns frustrations and fears that have been and will continue to be voiced. I know that only actions and results, not mere words, ultimately can give you the confidence you seek. I give my pledge as the leader of BP that we will not rest until we make this right. We’re a strong company, and no resources will be spared. We, and the entire industry will learn from this event, and emergy stronger, smarter, and safer.”
OK, I give in, Tony Hayward really understands. While stock prices rose yesterday after the establishment of the $20 Billion fund, I am not sure BP is, or will remain a strong company. Words may not hurt Tony Hayward, and words will not give confidence, but Tony will be under fire shortly, and will have to provide some tough answers.
Mr. Hayward is tapdancing early. He was asked the following questions by Rep. Stupak, which is gave the identical non-answer:
Should there be a ban on companies with miserable safety records drilling off our coast? … Who are we going to hold accountable? … Do you expect to be CEO of BP much longer?
Tony’s response to all: “Since I’ve become CEO, safe reliable operations have been our first priority.”
Rep. Michael Burgess, (R-TX) is, like his colleague Joe Barton, most concerned with the $20 Billion fund, and not the CEO right in front of him.
Rep. Waxman asked if BP made a fundamental mistake in the selection of the casing? Tony responded: “I wasn’t involved in that decision.” Tony is not taking responsibility for the decisions and actions of his company.
Rep. Waxman and Tony Hayward had this remarkable interchange:
Rep Waxman: “Don’t you feel any sense of responsibility for these decisions?
Tony Hayward: “I feel a great sense of responsibility for this accident.”
Rep. Waxman: “What about the decisions?”
Tony Hayward: “I can’t pass judgement on those decisions.”
On Thursday, Tony Hayward will appear before the House Committee on Energy and Commerce, and offer testimony about BP’s failures on the Deepwater Horizon Rig. These documents, released by the Committee in advance of the hearing, make it clear that BP cut corners. This e-mail, between BP engineers a week before the blowout, discusses BP’s choice of a faster, less expensive, and less protective casing for the well:
From: Morel, Brian P
Sent: Wednesday, April 14, 2010 1:31 PM
To: Miller, Richard A
Cc: Hafle, Mark E
Subject: Macondo APB
There is a chance we could run a production liner on Macondo instead of the planned long string. As this does not change much for APB based on the original design assumptions of a trapped annular, I don’t see any major effects, but wanted to confirm I am not missing something. Attached is the proposed schematic, please let me know if you have any questions. We could be running it in 2-3 days, so need a relative quick response. Sorry for the late notice, this has been nightmare well which has everyone all over the place.
Of course, among the documents are also approval e-mails from the Minerals Management Service. There are also e-mails from Halliburton, showing that BP went against the Halliburton recommendation for the number of centralizers, devices to keep the casing centered on the well while the cement was poured and set. Halliburton recommended 21, but BP went with only six, because the well was behind schedule.
BP and the British Government, are fighting American efforts to force BP to set up an escrow account to ensure claims settlement, and to cease payment of dividends. Of course, in Britain, BP dividends account for a large portion of retirement income:
‘BP’s position at the top of the London Stock Exchange and its previous reliability have made it a bedrock of almost every pension fund in the country, meaning its value is crucial to millions of workers. The firm’s dividend payments, which amount to more than £7 billion a year, account for £1 in every £6 paid out in dividends to British pension pots. BP is so concerned about Mr Obama’s power to affect share value that it has urged David Cameron to appeal to the White House on its behalf. Downing Street, however, has refused to get involved. “We need to ensure that BP is not unfairly treated – it is not some bloodless corporation,” said one of Britain’s top fund managers. “Hit BP and a lot of people get hit. UK pension money becomes a donation to the US government and the lawyers at the expense of Mrs Jones and other pension funds.”’
Now, did BP have British pensioners in mind when it opted for cheaper casing, and fewer centralizers? No, it opted for risky cost-cutting instead of safe, secure profit that pensioners would expect. Will blaming the President help the pensioners? Not quite. The pensioners are simply learning the same lesson that stockholders of Enron and Worldcom learned, that many corporations incentivize short term earnings without an eye to the long term.
After a wonderful weekend in Vermont, and after the stirring effort of the U.S. soccer team against England, I was saddened to find this 2008 Investigative Report on the Minerals Management Service, an agency which is now under criticism for providing inadequate supervision of BP, and the oil industry in general. This report makes it clear that the MMS and the oil industry are thick as thieves.
Two Minerals Management Services employees, known in the oil industry as “the MMS chicks,” accepted gifts and engaged in sexual relationships and drug use with oil industry employees. In this Department of the Interior Investigative Report, the DOI comes to the startling conclusion that “sexual relations with prohibited sources cannot by definition be at arms length.” Apparently, the employees took annual ethics training and made an effort to keep their illicit relationships quiet. However, it is clear that these employees were encouraged, by a lack of supervision, to engage in this behavior. This is a clear illustration of regulatory capture at work.
This is brilliant.
As the crisis in the Gulf proceeds, and impressive sounding technology like diamond-tipped saws failed to stop the leak, some people suggested the nuclear option. It would be difficult to complete at the depth of the wellhead. However, this propoganda film from the USSR shows how the Soviets pulled it off at a surface gas well.
The Containment Cap apparently captured 441,000 gallons on Friday, but an estimated 500,000-1,000,000 is leaking daily into the Gulf. Tony Hayward is optimistic:
‘BP chief executive Tony Hayward told the BBC on Sunday that he believed the cap was likely to capture “the majority, probably the vast majority” of the oil gushing from the well. The gradual increase in the amount being captured is deliberate, in an effort to prevent water from getting inside and forming a frozen slush that foiled a previous containment attempt.’
‘[Allen] said on CBS’ Face the Nation that the spill, which is ravaging beaches and wildlife, will not be contained until the leak is fully plugged and that even afterward “there will be oil out there for months to come. The disaster, which began with an oil rig explosion in mid-April, will persist “well into the fall,” Allen said.’
Hopefully the Containment Cap works like Tony says it will. However, given how many failures were faced along the way, and how difficult it is to work at these depths with current technology, it is no wonder people continue to bring up the nuclear option. With oil likely to leak through the fall, the question I have is this: if BP was so eager to drill at a depth of 5000 feet, why weren’t they prepared to deal with all possible outcomes of that effort? When remote operated submarines and diamond tipped saws don’t work, and that is the best that BP has, you have to ask how much effort BP and TransOcean put into contingencies.
As oil becomes more difficult to obtain, and the costs of extraction increase, we will only go to greater and greater lengths to get more oil. I hope that in the future, instead of subsidizing the oil, and leaving the externalities out, that the externalities get factored into the cost of oil, and that the subsidies are made clear, so that consumers really know how much a gallon of gas costs. That will allow consumers to make an educated decision about their energy use.
Today it is very fashionable in some circles to blame the federal government for all of our ills. In that line of thinking, free markets would thrive if we could only loosen the grip of federal and state interference. Freed from the grasp of interference, Adam Smith’s invisible hand would encourage the good and punish the bad actors, and create a utopian market based society. Unfortunately, in today’s globalized world, where mega-corporations exercise more power than most states, that view is also naïve.
Critics would say that the government should only do what they claim it is good at, law enforcement and highway paving, and leave all other activities to the free market. Unfortunately, these fundamentalist capitalists do not understand the true power of mega corporations today. It is not simply a question of whether a corporation is a person, as the Supreme Court reaffirmed in the Citizens United decision. It is a matter of super agency. A close look at the disaster in the Gulf of Mexico is very illuminating, although the recent bank crisis also offers a raft of evidence to spark concern about unchecked power.
A report today in the Sunday Times shows just how far regulatory capture penetrated the various federal agencies responsible for oversight of offshore oil drilling. Now, just to be clear, critics of the federal government claim that the federal government, if it would only abstain from providing education, regulating health insurance, and other tasks which they deem it to be inefficient, would as a result become outstanding guardians of offshore drilling. The outstanding reporting of the Times shows otherwise. It shows that British Petroleum, and the other oil companies, in a market that is not free, but rather amounts to an oligopoly, flexed their political and economic power to write the laws and staff the agencies which would regulate it:
‘“The pace of technology has definitely outrun the regulations,” Lt. Cmdr. Michael Odom of the Coast Guard, at a hearing last month… As a result, deepwater rigs operate under an ad hoc system of exceptions. The deeper the water, the further the exceptions stretch, not just from federal guidelines but also often from company policy.’
When BP set its sights on Mississippi Canyon Block 252, they asked for relaxations from numerous federal regulations, knowing they would receive approval. They received exemption from a federally mandated environmental review, and from the federal requirement for the blowout preventer valve to be tested at a mandated pressure. They used equipment that violated even company policy, because the rig was 45 days behind schedule, and BP was paying an expensive lease to TransOcean throughout the delays. Why did the Minerals Management Service go along with this egregious behavior? Interior Secretary Ken Salazar knows:
‘The Minerals Management Service, which regulates offshore drilling, went along with these requests partly because the agency has for years had a dual role of both fostering and policing the industry — collecting royalty payments from the drilling companies while also levying fines on them for violations of law. Its safety inspections usually consist of helicopter visits to offshore rigs to sift through company reports of self-administered tests. Even Ken Salazar, the interior secretary, who oversees the minerals agency, has said that oil companies have a history of “running the show” at the agency, a problem he has vowed to correct.’
Now that Salazar, and the residents of Louisiana and Florida can plainly see the regulatory capture at work and at fault, will they be able to correct it? Turning to the banking industry, with all of the influence that Citibank and Goldman Sachs wield, did you think that the impending banking regulation would truly go against their wishes, even after the collapse of the global economy? What about the tragic explosion at the Upper Big Branch mine in West Virginia? Sure, America has already largely forgotten that disaster, in which 29 miners died. Unfortunately, as Arianna Huffington points out, the Mine Safety and Health Administration was similarly captured by Massey Energy and Big Coal:
‘Former Massey COO Stanley Suboleski was appointed to be a commissioner of the Federal Mine Safety and Health Review Commission in 2003 and four years later he was nominated to run the Office of Fossil Energy in the Energy Department. Today, he’s back on Massey’s board. And Massey exec Richard Stickler was made the head of MSHA by President Bush in 2006. Talk about hiring the foxes to guard the hen house. Massey has also mastered the D.C. art of buying friends in high places. Back in 2000, Massey was responsible for a coal slurry spill in Kentucky that was three times larger than the Exxon Valdez spill. The company very successfully limited the damage — not to the environment, but to its bottom line. Once Elaine Chao, Kentucky Senator Mitch McConnell’s wife, became Secretary of Labor, which oversees the MSHA, she, according to Jack Spadaro, an MSHA engineer investigating the spill, put on the brakes. Two years later, Massey was assessed a slap-on-the-wrist $5,600 fine. The same year, Massey’s PAC donated $100,000 to the National Republican Senatorial Committee, which was chaired by McConnell. And Massey’s CEO Don Blankenship has personally donated millions to the campaigns of judges and politicians.’
To those denizens of the Tea Party and Libertarians who hunger for the diminishment of the federal government, be careful what you wish for. BP was concerned only with its bottom line, not that of the residents of Louisiana. Regulation is gamed today; in the utopia imagined by some critics, there would simply be no checks on mega-corporations like BP. Their bottom line would be the only bottom line. Citizens United was only the beginning.
On Tuesday night, the Ragin’ Cajun James Carville walked into his favorite New Orleans eatery and found BP CEO Tony Hayward and Coast Guard Admiral Thad Allen, the two men responsible for fixing the calamity in the Gulf, dining over presumably crude-free shrimp. Carville joined the two for a glass of Makers Mark; Tony mentioned that Carville had said some “harsh things.” He promised to make things right. “I’m really committed to this,” he told Carville.
That makes what happened yesterday all the more striking. With news that the oil spill could be soon approaching Atlantic beaches, Tony was flanked: Carville held the high ground in New Orleans, and the crude was approaching Virginia, just like the French fleet in 1781. BP CEO Tony Hayward had no choice but to surrender. The Guardian in London reported the historic news:
‘BP is to hive off its Gulf of Mexico oil spill operation to a separate in-house business to be run by an American in a bid to isolate the “toxic” side of the company and dilute some of the anti-British feeling aimed at chief executive Tony Hayward, the company said today. The surprise announcement was made during a teleconference with City and Wall Street analysts in which Hayward attempted to shrug off the personal criticism saying words “could not break his bones”.’
Apparently, Carville’s words could not break Tony’s bones, but they could send him packing for Mother England. Responsibility for the clean-up will now fall to Yank Bob Dudley, who was thrown out of Russia in 2008 in a shareholder battle.
Now that the British-CEO Tony Hayward has surrendered, the victorious American will be left to deal with the fleet of crude headed for Atlantic beaches near you.
Today we celebrate our 34th birthday, and so I sent the production team home to celebrate. Back soon… same Bat Time… same Bat Channel.
One quick note. In A Future Age was reformatted so you can now easily subscribe. Additionally, with the oil spill ongoing, it is easy to forget that this blog, along with the rest of society, runs on oil. How much? Well, the Macondo Prospect, where the Deepwater Horizon exploded, contains (according to BP estimates, for whatever they are worth) no more than 100 million barrels of oil, or only 5 days of U.S. consumption.
Last night, after a lovely birthday dinner at Salvation Café in Newport, I turned on the MLB Network to see some random baseball games before going to bed. I tuned in while the network was covering the ninth inning of a game between the Detroit Tigers and Cleveland Indians, where Tigers pitcher Armando Galarraga was three outs away from a perfect game. Now, for those uneducated in baseball, a perfect game is one of the most rare occurrences, when a pitcher records all 27 (or more) outs, without allowing a hit or a walk. Prior to the 2010 season, it had happened only 18 times in the 135 years of baseball history.
Last night, as Galarraga was set to join a distinguished club that includes Cy Young, Sandy Koufax, and Catfish Hunter. With one out, Austin Jackson made a behind-the-back catch in centerfield reminiscent of Willie Mays, and the perfect game seemed destined. Unfortunately, Umpire Jim Joyce made a bad call on what should have been the third out, a groundout to the first baseman. As you can see on the highlight above, the throw from the first baseman to the pitcher beat the runner. Joyce, regarded by many in baseball as one of the best umpires, including Curt Schilling, simply missed the call. Because of the impact of this bad call, critics are calling for increased use of instant replay in the game. Human judgment in this case robbed a promising young pitcher of a place in the record books.
Of course, Joyce apologized to Galarraga after the game:
“I just cost that kid a perfect game,” Joyce told reporters in Detroit. “I thought he beat the throw. I was convinced he beat the throw, until I saw the replay. It was the biggest call of my career.” Galarraga told reporters that Joyce apologized to him after the game, adding that he had no instinct to argue the call. “He probably felt more bad than me,” Galarraga said. Smiling, he added, “Nobody’s perfect.”
Joyce considered this the biggest call of his career. Now, this is only baseball, and while Detroit fans do not deserve one more serving of heartbreak, this is a lapse in judgment with little real effect.
What about the oil experts at British Petroleum? Days before the blast on the Deepwater Horizon, they opted for the cheaper cement casing, which provided only a single layer of protection to prevent gas from leaking into the well:
‘Workers on the rig and from BP have said that gas bubbled into the well and was a key factor in causing the April 20 blowout, which killed 11 people. BP described the approach to finishing the well as the “best economic case” in the document, which has appeared following Congressional hearings into the cause of the accident. News of the decision emerged as Douglas H. Brown, chief mechanic on the Deepwater Horizon rig, testified yesterday that a disagreement took place on the rig between one of the six BP engineers overseeing the operation and employees of Transocean, the owner of the rig, just a few hours before the blast took place. Mr. Brown told the hearing that the “skirmish” followed BP’s decision to withdraw heavy drilling mud from the well that was helping to control pressure inside it and to replace it with lighter saltwater before the well was capped with a final dollop of cement. “Well, this is how it’s going to be,” the BP official said, according to Mr. Brown.’
On the Deepwater Horizon, human judgment cost the lives of 11 rig workers, and the ongoing devastation of the Gulf of Mexico. No human is perfect, that is for sure. However, when the decisions of humans can have the huge impact that those of BP did, can we rely on market forces to ensure that caution and restraint are part of the decision making process? Unfortunately, instant replay cannot take us back to the days before the explosion, and BP’s call cannot be reversed.