BP Gulf Disaster and Its Failed Russian Experiment

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A couple of interesting, tangentially related things happened today.

First, in a bid to wall off the PR disaster of the Gulf spill from the rest of the company, BP has assigned someone–an American BP employee–to take charge of cleanup efforts.

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”.

In tangentially related news, a business unit in BP’s Russian subsidiary, TNK-BP, has filed for bankruptcy.

Russian-British oil venture TNK-BP says a subsidiary that holds the license to a huge Siberian gas field has filed for bankruptcy.

The oil company said in a statement Thursday that RUSIA Petroleum was unable to repay debts to its parent company.

Note, this is just one subsidiary of TNK-BP, but still presumably a significant deal.

I say it’s tangentially related because the dude BP has put in charge of cleaning up our Gulf was run out of Russia a few years ago.

Responsibility for the leaking well and the clean-up strategy will placed in the hands of Bob Dudley, one of the company’s most able directors.

Dudley, a US citizen, has been looking for a suitable role in the company since he was thrown out of Moscow in a battle with the Russian shareholders of the TNK-BP joint venture in the middle of 2008.

Hayward said the clean-up business would be run separately by Dudley with his own staff but the finances and budget would come from the main BP group. The BP chief executive said the purpose of the split was to allow Dudley to concentrate on the Gulf problem while he and other directors were not distracted from keeping the main business on track.

Until 2008, Dudley was CEO of TNK-BP, when he got run off by the Oligarchs. The guy in charge of negotiating with the Russians at TNK-BP during the same period was James Dupree.

Mr. Hayward delegated much of the handling of TNK-BP and the relationship with the Russian partners to James Dupree, the head of Russia and Kazakhstan for BP. He knew the business well, having worked as a senior TNK-BP executive. But that history also complicated relations in his new role, since he’d been formally a subordinate to some of the Russian shareholders, who also held management jobs.

“Dupree was a midlevel functionary who wasn’t senior enough to make any decisions,” said one person close to AAR. BP officials acknowledge they mishandled the relationship. A spokesman said Mr. Dupree wasn’t available for comment.

Around the same time Dudley was run off, Dupree was replaced by a triathlon partner of Tony Hayward. Here’s more extended background on BP’s 2008 Russian fiasco.

Dupree was–at least when this whole mess started–BP’s Senior Vice President for the Gulf of Mexico. He was the guy who first told Congress about the negative pressure tests the Macondo well failed, but neglected to mention the company pushed ahead on capping the well in spite of the tests (company lawyers corrected that version). I haven’t heard a peep from Dupree since.

In addition to Hayward’s triathlon partner, after Dudley was chased out by the Russian Oligarchs, BP brought in Lamar McKay.

Mr. Hayward also brought in a top troubleshooter with years of Russian experience, Lamar McKay, to take over talks with the AAR partners instead of Mr. Dupree, the executive who had worked for them inside TNK-BP.

Fearing detention, Mr. Dudley fled Russia in secret in late July. BP’s board was meeting the day he left and several directors were stunned when told of the news, according to people close to the company.

Before being brought into save BP Russia, McKay had negotiated several of the legal settlements–for Texas City and Prudhoe Bay–for which BP remains on probation. McKay was in Russia for just a few months before he got put in charge of BP America. McKay’s the guy who spent a chunk of time in the last month–as President of BP America–testifying before Congress.

Now, I don’t know what any of this means. But I do think it worth noting that BP keeps putting the guys who had been in charge of its failed Russian project in charge of our Gulf. It makes me ask several questions:

  • Some of the dudes who botched the Russia relationship are portrayed as very close to Tony Hayward. Is this part of a pissing contest between Hayward and Chairman Carl-Henric Svanberg? (The Guardian article that reported this has Hayward denying tensions between himself and Svanberg.)
  • Is this, instead, an effort to isolate the ballooning financial responsibilities of BP from the rest of BP?
  • Why has BP chosen to put a bunch of guys who fought the Russian Oligarchs–and lost–in charge of our Gulf?

I can’t help but wonder whether this move is about protecting Tony Hayward, rather than protecting what’s left of the Gulf Coast.

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34 replies
    • prostratedragon says:

      Derivative plays such as CDSs can be used to short, too. But I don’t know if there’s a way to track new contracts.

  2. YYSyd says:

    The execs can’t stop the leak or fix the problem, except by getting in the way. Somewhere (hopefully) very far away from the visible leaders of the effort, in BP there are some technical people, who have access to technical specifications and parameters at “hand” (mile below the water) with access to material and fabrication equipment to deal with the mechanics of the problem.

    It’s a real worry when saws get stuck and shears have to be brought in and you see robot arms but no custom jigs. And what we hear next on media is that it is difficult because it is a mile under water. Then Haywood says something about a toolkit. I wouldn’t trust Haywood to be able to even change a flat tire, let alone tell us about took kits.
    The media in the meantime speculate the next solution must be to nuke it. The order of tools in the tool kit is circular saw, shears, then a nuclear weapon. I’m surprised there is no public call for prayer. (or maybe I’ve not been paying attention)

    • PJEvans says:

      Hayward has a PhD in geology (and has worked for BP for quite a few years), so I assume he knows about toolkits and tire-changing. If he’d come in from finance and accounting, I’d expect him to be more ignorant.

      • YYSyd says:

        Scientists have a tendency to be not so skilled with non-lab non-theoretical tools. I know he’s a geologist but what do geologists know about machining metal toolings ? Or for that matter changing tires?
        My worry is the focus seems to be on the apparent decision makers who have time to come on TV. These are not the people that are trying fix the problem and they may very well be the ones that are getting in the way. The reason I say this is because they are inarticulate as to detail and inarticulate as to what is going on. They probably spend too much time with their counsel and pr advisors.
        These people do, however, set priorities. It appears to me that the priorities are not mile under water but
        what do I know.

        • PJEvans says:

          I didn’t say he’s not responsible for anything.

          (On the other hand, geology does involve tools like hammers. Even if he’s never changed a tire, he probably has some idea of how to do it. Someone who came in as an MBA, or a journamalist – I expect them to be clueless about tools and mechanical stuff. And some people are just not mechanically apt, and shouldn’t be allowed to use them.)

      • bobschacht says:

        Hayward has a PhD in geology (and has worked for BP for quite a few years), so I assume he knows about toolkits and tire-changing.

        I think he does. But the systemic considerations contributed to the screw-up.
        Suppose BP had a Mitigation Division to clean up messes. That Division would need staff, equipment, office space, etc. But blow-outs are a fairly rare event. How many years do you carry a Mitigation Division, and all its expenses, when for a string of years there’s nothing to mitigate, or the mitigation needed is off the shelf stuff, requiring little expertise, and not much staff or equipment? Chances are that you begin to believe that you don’t “need” all that expensive staff, equipment, and office space. So you start to cut that Division’s budget. And pretty soon you get to where you don’t have enough tools left in the toolkit to handle a major event.

        What we should do instead is tax all the oil companies a fee that is designated to fund a Mitigation Service that is maintained year in, year out, and is available to serve any oil company. The staff of the service would maintain full-time expertise, and also maintain a database of independent experts available on call. When not involved in mitigation, the staff would participate in mitigation research funded by Federal grants.

        This Mitigation Service would be able to bill oil companies for mitigation services, but would not depend on the happenstance of disasters for maintenance of its staff.

        At least, we need cutting edge mitigation services that are not dependent on company profit lines for their existance. Since the five most profitable companies in the world are all gas companies, they can afford to pay a substantial annual fee to maintain this service, which would be kinda like an Insurance policy.

        Bob in AZ

        • fatster says:

          You are so right on, Bob.

          And in the context of “looking forward”, your proposal should be a hands-down winner. However, in the era of hypocrisy and duplicity in which we live, the response will probably be “stop making sense”.

  3. tejanarusa says:

    Well, knowing nothing whatsoever about the first option, I’ll go with numbers two and three.

    Knowing how byzantine relations in Russia can be, I’m not sure that being run out of Russia necessarily means that person isn’t qualified to run something in the U.S. Probably less looking over one’s shoulder to see if assassins are after you could leave some room in your brain to actually accomplish your tasks.

    That’s way short, of course, of saying this guy is competent. A separate issue.

  4. PJEvans says:

    All of the above?
    I think part of this is an effort to get the guys who were running BP’s Russian affiliate out of the company without actually firing them.
    I suspect that it will also protect Hayward from the consequences of the mess – in theory, at least – because it will make him ‘not the guy in charge’.

    And I hope that the mess becomes an albatross for both BP and Hayward.

  5. fatster says:

    If the Gulf weren’t dying, all this moving of dubious, demonstrably incompetent characters around globally and organizationally would be highly amusing.

    But the Gulf is dying and the denizens of Washington seem incapable of mounting an energetic, coordinated and appropriate response to it. And the corporations who were responsible for the mess continue to dither while thousands of life-forms and livelihoods reach an abrupt and painful end.

    I don’t know how the ordinary citizens of Rome felt as the flames got closer and closer and Nero fingered and stroked his fiddle, but I got a hunch about it.

  7. fatster says:

    US experts find underwater oil plumes

    “Laboratory tests have confirmed that oil from the Gulf of Mexico spill has accumulated in at least two extensive plumes deep under the surface, scientists [from the University of South Florida] say.”

    LINK.

  8. YYSyd says:

    The other worry I have is like any other industry and organization (like the military), specialized services are subcontracted. Expertise is thus spread throughout the industry but not necessarily at BP. In times of no emergency, this leads to sharing and saving of specialist skills. In times of war and such it leads to electrocutions in the shower.

  12. fatster says:

    Interesting.

    BP chief Tony Hayward sold shares weeks before oil spill
    The chief executive of BP sold £1.4 million of his shares in the fuel giant weeks before the Gulf of Mexico oil spill caused its value to collapse.

    LINK.

    • fatster says:

      Well, Saturday’s a good enough day to have a big “DUH!” moment, followed by an apology. Thanks so much for making the correction, Bob. I do appreciate it.

      • bobschacht says:

        The “Duh” moment was not directed at you, but at BP engineers, who took more than a month to think of this possibility. A typical BOP has valves for kill, choke, and mud lines that are normally used for injecting something into the BOP (e.g., from the manifold) but can also be used to suck oil from the BOP itself. This is normally not done, of course, because IIRC those are all 4″ lines, whereas the normal riser pipe is 21″. Still, the more oil you can take from the BOP itself, the less there is to leak from the top.

        Bob in AZ

        • fatster says:

          Oh, I see. I thought I got the date of the article all wrong. Well, thanks for correcting everything, Bob, and, in particular, for your clarifying remarks @ 29. It’s just a mind-blower to think that this whole disaster–which is far from over yet–was not likely the result of some conspiracy, but of regular people not doing their jobs well, or–even worse, much worse–not being allowed to do their jobs well.

  14. fatster says:

    It’s not much, but we’ll take what we can get.

    Two lawsuits against ‘hot fuel’ practice in Kansas get class-action status

    BP among the defendants

    LINK.

  15. jdmckay0 says:

    Hayward attempted to shrug off the personal criticism saying words “could not break his bones”.

    Funny, I at first read that as… “could not break his bonus”.

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