Oil spill crisis a setback for BP and its chief executive

BP chief executive Tony Hayward expressed shock and sorrow in an video address to employees in the aftermath of the deep-water rig accident in which 11 were presumed killed. BP has also accepted responsibility for the massive cleanup of oil in the Gulf of Mexico.
By Steven Mufson
Washington Post Staff Writer
Monday, May 3, 2010

On the day he got news that the Deepwater Horizon drilling rig caught fire in the Gulf of Mexico, BP chief executive Tony Hayward received a series of crisis updates in his London offices. The rig belonged to Transocean, but BP had leased it to drill an exploration well and BP bore legal responsibility for any consequences.

The grim updates were interspersed with long silences. One person there said that on several occasions, Hayward asked, "What did we do to deserve this?"

Twelve days later, Hayward is grappling with the widening oil slick from the damaged well -- an environmental crisis for the Gulf Coast states, a political crisis for U.S. offshore drilling and a corporate crisis for one of the world's biggest oil giants.

"This accident not only sets back BP, but could hurt it for years," said Fadel Gheit, an oil analyst at Oppenheimer.

On Sunday, the third anniversary of his becoming BP's chief executive, Hayward began his day in Houma, La., flew to a convention center in Mobile, Ala., where a new oil spill command center has been set up, and then went on to Venice, La. There, he planned to meet with local officials and others worried about the slick menacing the shore.

On Monday, he will be in Washington, running the gantlet of federal officials and members of Congress, many of whom are eager to tar BP with blame for the incident. Before the accident, he had expected to be in the United States giving a speech and promoting a climate change bill. Now, he will face questions about whether BP underestimated the risk and consequences of a well failure.

"Whatever else this is, it's a massive blow to confidence," said a senior BP insider who spoke on the condition of anonymity because he wasn't authorized to talk publicly.

The price tag for the disaster increases day by day. The company says it is spending $6 million a day on response efforts. Drilling a relief well will probably cost more than $100 million. The Defense Department says it will hand BP the bill for paying Louisiana National Guard troops, and the Environmental Protection Agency says it will charge BP for air monitoring. Covering damages to coastal fishermen, tourism businesses and residents could cost billions more. BP will pay 65 percent of these costs; its lease partners Anadarko Petroleum and Mitsui will pay 25 and 10 percent.

BP's share will come straight from its own pocket. "We are self-insured as a matter of policy -- you cannot insure these kinds of risks," a BP spokesman said.

Alabama Attorney General Troy King said Sunday night that he told BP representatives to stop circulating agreements offering coastal Alabamians $5,000 if they give up the right to sue the company. A BP official said the offer was part of a "standard waiver" to fishermen that was "inappropriate" and was "swiftly discontinued."

The oil spill crisis is just the sort of thing Hayward had hoped to leave behind when he became BP chief executive.

His predecessor, Lord John Browne, had been a brilliant deal maker and a friend of British Prime Minister Tony Blair's, but BP was often accused of neglecting safety precautions and adding to risks through deep cost cutting. Under Browne, who resigned after revelations about his personal life in Britain's tabloid news media, a fatal explosion took place at BP's Texas City refinery, leaks sprang onto the tundra from a company pipeline in northern Alaska, and a BP production platform in the Gulf of Mexico suffered structural problems that delayed its start date.

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