the audit

ProPublica and WaPo on the Rotten Culture at BP

June 8, 2010

ProPublica and the Washington Post team up for an investigation today on BP’s history of flaunting environmental safety regulations.

Particularly devastating: They use internal BP inquiries to show this.

Combine this excellent report with the superb work by The Wall Street Journal and you have a picture of an out-of-control corporate culture—a rogue company.

The report said that Richard Woollam, the manager in charge of corrosion safety in Alaska at the time, had “an aggressive management style” and subverted inspectors’ tendency to report problems. “Pressure on contractor management to hit performance metrics (e.g. fewer OSHA recordables) creates an environment where fear of retaliation and intimidation did occur,” it said. Woollam was soon transferred.

Two years later, in March 2006, disaster struck. More than 200,000 gallons of oil spilled from a corroded hole in the Prudhoe Bay pipeline. Inspectors found that several miles of the steel pipe had corroded to dangerously thin levels.

When Congress held hearings later that year, Woollam pleaded the Fifth Amendment. He now works in BP’s Houston headquarters. Reached at his Texas home last week, he referred questions to the BP media office, which declined to comment.

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Writing about that Journal story, which showed BP cutting corners left and right to get Deepwater Horizon drilled, I said this:

Awful lot of rushing around going on. It sure reminds me of what worker bees do when somebody up the chain decides something’s taking too long. I imagine that will be a good line of inquiry for reporters and government investigators alike.

Still is. I imagine Woollam would be a good guy to profile.

Back to ProPublica/WaPo, they report that in Alaska, BP ignored and then fired a whistleblower who issued warnings before a big 2006 spill there.

And I guess this shouldn’t be eye-opening anymore, but look at this:

For years, the subsidiary that refined and stored crude oil was allowed to inspect its own facilities for compliance with emission laws under the South Coast Air Quality Management District, the agency that regulates air quality in Los Angeles.

I’d like to see a story on how these self-inspection regimes came about. The results were utterly, disgustingly predictable:

Between 1999 and 2002, BP’s Carson Refinery had nearly perfect compliance, reporting no tank problems and making virtually no repairs. The district suspected that BP was falsifying its inspection reports and fabricating its compliance.

According to Joseph Panasiti, a lawyer for the management district, the agency had to get a search warrant to conduct inspections required by state law. When the regulators finally got in, they found equipment in a disturbing state of disrepair. According to a lawsuit the management district later filed against BP, inspectors discovered that some tanker seals had extensive tears, tank roofs had pervasive leaks and there were enough major defects to lead to thousands of violations.

“They had been sending us reports that showed 99 percent compliance, and we found about 80 percent noncompliance,” Panasiti said.

This kind of reporting makes Andrew Ross Sorkin’s column this morning all the more plausible.

Sorkin writes about how the folks on Wall Street are plot plot plotting to make money by shielding (or trying to shield, anyway. Whichever, they’ll get their fees) BP from liability for the cleanup (emphasis mine) :

The idea that BP might one day file for bankruptcy, particularly as part of a merger that would enable it to cordon off its liabilities from the spill, is starting to percolate on Wall Street. Bankers and lawyers are already sizing up potential deals (and counting their potential fees).

Sorkin writes that jury-awarded damages could hit the hundreds of billions of dollars—enough to capsize BP. “Beyond Petroleum,” anyone? But he’s good to remind us of the Supreme Court’s Exxon Valdez ruling:

That’s not to say that BP won’t fight a huge judgment against it. After the Exxon Valdez spill, Exxon fought a $5 billion fine for punitive damages for two decades. It won. The fine was cut down to $4 billion, then to $2.5 billion. The case eventually made it to the Supreme Court, which found that Exxon’s actions were “worse than negligent but less than malicious,” and vacated the fine. The judgment limited punitive damages to the compensatory damages, which were calculated as $507.5 million.

The Court has only gotten more corporate-friendly since then.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.