BP's newest big problems
Posted May 29th 2007 4:17PM by Weld Royal
Filed under: Bad news, Management, Consumer experience, BP p.l.c. ADS (BP), Valero Energy (VLO), Commodities, Oil
As Americans emptied their wallets to pay for gas over the weekend, BP p.l.c. ADS (NYSE: BP), London, hurried to fix a problem in Alaska that is contributing to the consumer price spike.
BP officials at America's largest oil field -- Prudhoe Bay on Alaska's North Slope -- cut oil production by a quarter last week after they found a hole about the diameter of a pencil in a water pipe. On Sunday, after several days of round-the-clock repair work and tests to the damaged area, they restored full production. BP is in the process of replacing 16-miles of pipe after corrosion caused the North Slope's largest oil spill in August of 2006.
A detailed report in the Chicago Tribune traces problems at BP to cutbacks during the days of cheap oil in the late 1990s. Tribune chief business correspondent David Greising says that the scrimping of a decade ago has left the oil industry ill-prepared to deal with even small problems, such as pencil sized holes in pipes in the wilds of Alaska. He writes that the company's inability to handle technological challenges has forced it to delay pumping from one of its best prospects for the future -- the Thunder Horse platform on the Gulf of Mexico."A nearly three-year delay in the startup of the world's largest floating oil platform, which covers an area the size of three football fields, is setting back the arrival of enough oil to boost total U.S. production by nearly 5 percent," according to Greising. But the project is delayed by a relatively minor hurdle--a 6-inch length of pipe was incorrectly plumbed. Greising says that's costing BP $3 billion in lost revenue. The article goes on to cover corporate culture change. Greising writes that Robert Malone, BP's top North American executive, is introducing corporate policies and procedures he hopes will bring safety and good stewardship to the risky business of Big Oil.
"To compete in the new era of high prices, climate-change activism and cutthroat competition for oil resources, BP and others in the industry are quickly finding there is no room for error," he says. Disappointingly, the article points to few specifics of corporate culture reform other than a rally the troops visit by Malone to Prudhoe Bay in March. Meanwhile, the company faces a shortage of skilled oil workers and concerns by union officials about too much overtime on the North Slope. In its haste to repair its 16-miles of pipeline put out of service last summer, BP found that federal officials were rejecting about 8% of its welds on new pipes. Truth is, BP shouldn't be singled out. Other oil industry companies are grappling with their own safety and technical problems. A little more than a week ago, Valero Energy Corp. (NYSE: VLO), in San Antonio, Texas, was forced to shutter a unit of its McKee refinery because of mechanical difficulties.
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