by Tom Bower
Nick Starritt, BP’s director of human resources since 1998, had for some time warned Browne that BP’s culture was unsuited to overriding the traditions of Amoco and Arco and integrating the acquisitions within a single corporation. The new circumstances, Starritt repeated in memos, personal conversations and group discussions, required special measures to cope with the dramatic expansion and cost-cutting. BP, he warned, remained a collection of companies without the glue of a common culture and adequate “diversity of management experience.” Starritt’s ideal model was ExxonMobil, but Browne preferred devolution to centralization. By the end of 2002, although Starritt had been acclaimed by professionals as “Human Resources Director of the Year,” his relationship with Browne was unwittingly fractured. Anyone expressing dissent was vulnerable. Browne executed his control through Rodney Chase. “It’s time for a change,” Chase told Starritt, who was bewildered by his fall. His sin was misunderstanding Browne’s management culture, an error shared by Ford and Kozinski. Both were required to scrutinize Browne’s cost-cutting challenge, and if necessary to reject the targets. Acceptance meant delivery, or else. Ford was unable to adapt to that style. “Rodney wants him out,” observed a board member. “Ford’s got on the wrong side of the beast. Rodney’s fingerprints won’t be on the knife, but it will be stuck between Ford’s shoulders.”
In 2002, Ford retired. John Manzoni was appointed his successor on the board of directors, although he had never managed or operated a refinery. Manzoni, a tireless accountant and marketing expert, obedient to Browne’s mantra and methods, was enthralled by the expensive advice showered upon BP by consultants. “I’ve never seen a budget which can’t be cut,” he had told Kozinski toward the end of one of his regular 18-hour days. Bedazzled by figures, Manzoni rarely saw the big picture, but as a conceptual thinker he could translate Browne’s thoughts into a coherent argument. At presentations in BP’s New York headquarters he praised “Beyond Petroleum,” and in the conflict between oil and Washington, he criticized the API as the “hopeless bad guy” and the oil industry’s “own worst enemy.” US audiences were impressed by his candor compared to American oil executives. He had been told that either he or Tony Hayward, a geologist in charge of exploration, would emerge as Browne’s heir.
Unwilling to work with Manzoni and Chase, Al Kozinski had taken early retirement. He was replaced as the vice president of refining by Mike Hoffman, an American engineer in tune with Manzoni’s requirements. Since he intended to run the refineries from London rather than regularly visit the sites, Manzoni expected a constant stream of updated data reporting every refinery’s performance. Browne’s priority, he knew, was to cut the losses. In 2004, Browne decided to sell Grangemouth, BP’s star refinery. He expected an independent to be the purchaser. In America, between 1998 and 2003 Valero had increased its daily output from 170,000 barrels to two million by purchasing refineries from the oil majors. Browne wished he could unload all of BP’s refineries. His hostility toward them had internal repercussions. “It sends a bad signal to the remaining refineries,” admitted one of Browne’s aides. “They find it hard to get more finance.” Among the casualties was the unloved outpost of Texas City. By never visiting the 1,200-acre site, Browne remained unaware of the state of BP’s inheritance, which Exxon or Shell would have instantly remedied.
Texas City was not pretty. Except to the engineers who perfect the distillation of crude oil into fuels and chemicals, refineries are rarely attractive. But even they regarded Texas City as “decrepit.” Yet, despite the rust and the lack of paint, 460,000 barrels of crude were processed there every day into 11 million gallons of gasoline. On a rare visit by Manzoni in July 2004, Don Parus, the latest manager, presented a slide show showing the consequence of Amoco’s underinvestment in the refinery. His plea for more money was denied. Instead, in 2005 he was ordered to cut costs by 25 percent. Manzoni would say that that figure was a “challenge,” and not a “directive.” Parus never met the “challenge,” because he departed, the fifth manager of Texas City to leave within six years. Before he went, he told the staff, “The Texas City site has undoubtedly experienced the best profitability ever in its history last year.” Part of that success was due to BP persuading local regulators in Texas not to enforce stricter environmental controls. An exemption from upgrading monitoring equipment in all five of its American refineries contributed to BP saving about $100 million. The history of the company’s thrift would become contentious after the departure of Ford and Kozinski.
In August 2002, Mike Hoffman had written identifying financial cuts as responsible for Texas City’s eroding infrastructure and “poor state.” His report passed up the chain toward Manzoni. Hoffman’s complaint was not new. Maintenance spending, on some disputed calculations, had fallen during the 1990s under Amoco, but BP’s imposition of a 25 percent cut on fixed costs soon after the merger had compounded the deterioration. And then BP added more cuts. Hoffman had not protested about the reduction of the refinery’s central training staff from 30 in 1997 to eight in 2004, or about those eight instructors also being assigned to other duties. Nor did he complain about the widespread use of casual labor: to save money, about 800 contractors regularly worked on the site alongside the 1,800 permanent staff. He would deny that Parus had specifically asked for extra money, but he accepted Manzoni’s congratulations for contributing to a reduction of the maintenance budget.
A warning to BP about the consequences of the cuts at Texas City was commissioned and delivered in January 2005. After surveying the employees, Telos, a firm of security consultants, reported that BP was judged by them to be most interested in money and least interested in people. “Production and budget compliance gets recognised before anything else at Texas City,” Telos reported. “We have never seen a site where the notion ‘I could die today’ was so real… This had a profound impact on us all.” The existing culture, Telos found, was of “things not getting fixed,” and BP was accused of suppressing notification of accidents. The report was discounted by BP as lacking credibility. Although Browne’s overall directive was to cut costs, to improve the safeguards for all the refineries, expenditure had been increased between 2001 and 2004 from $40 million to $115 million. Nevertheless, within the overall budget of a $90 billion corporation, the additional money was less relevant than the prevailing attitude toward the albatross.
John Browne was unaware of Texas City’s disintegration. Greg Coleman, the vice president of BP’s health, safety and environmental programs, was later even prepared to allege publicly that Browne had “no passion, no curiosity, no interest” in safety issues. Browne’s indifference toward the unprofitable Texas City, as he would later admit, meant silence about safety instead of a “clamor for funding.” He relied on his management model: Mike Hoffman was responsible for meeting the contract or the targets agreed upon with Manzoni. The flaw was Manzoni’s failure to supervise Hoffman’s performance, or to notice his inability to pinpoint the precise responsibilities of Texas City’s section managers. Hoffman recognized his own impotence. Weakened by the departure of a succession of managers, he hired consultants to compose a request to Manzoni for extra funding. The submission revealed that engineers were employed for 12-hour shifts over 30 continuous days, and also commuted long distances. On the site, alarms and gauges were broken, and some critical equipment was known to be malfunctioning. There was, Hoffman’s report would mention, widespread noncompliance with standard procedures. Secluded in London, relying on jargon-splattered reports, Manzoni could not connect the facts to arrive at the obvious conclusion that judgment and discipline at Texas City had withered. “They were being led by the blind,” a BP executive would later admit. With hindsight, what followed was inevitable.
On March 23, 2005, a group of contractors completed the maintenance of an isomerization unit, used to boost octane levels in gasoline. To save money, obsolete “blowdown stacks” had once again been installed. Other refineries had phased out that device, but Amaco’s and BP’s engi
neers had rejected incorporating new and more expensive safety equipment during three previous renovations, in 1995, 1997 and 2002. To reignite the unit, the engineers were expected to follow strict guidelines, including evacuating the area around the unit. On that day, all the rules were broken. Unaware of the imminent refiring, a group of contractors remained inside a nearby trailer while unsupervised engineers ignored every safety procedure. Unseen, a drum overfilled with fuel and overheated. An experienced engineer would have spotted the pressure increasing and stopped the process. Instead, the contractors allowed 7,600 gallons of flammable liquid to vaporize. Within two minutes the gas spread across the refinery, until it was ignited by an electrical spark. The ground shuddered as a huge clap of thunder was followed by a surging fireball. In the rush to escape, employees scrambled over barbed wire fences. Left behind among the 15 fatalities were James and Linda Rowe, childhood sweethearts. Their daughter Eva had difficulty identifying their charred corpses. Over 170 workers were injured in America’s worst industrial accident for a generation.
John Browne arrived at Texas City the following day. Waiting for him at the Four Seasons hotel were Manzoni and Hoffman. Others at the meeting heard Manzoni complain that he had been summoned from his vacation. “This has cost a precious day of my leave,” he would repeat in an e-mail. Browne had thought long and hard about his own conduct. A spot check had already blamed human error for the explosion. “Surprising and deeply disturbing” mistakes by employees was the company’s conclusion within weeks. Browne recalled the consequences for Exxon’s public image of the company’s stubborn manner after Exxon Valdez. To avoid similar damage to BP, he decided on unusual candor. After moving among the bereaved and the survivors, engaging in four-minute conversations with large men with calloused hands and sunburned faces, he emerged to address the media. His shareholders, and more importantly his erstwhile admirers and critics, he knew, would pass instant judgment on his performance. Contingency lawyers, ambulance chasers, trade union officials and Big Oil’s enemies were waiting to pounce.
“The dead are contractors, not employees. What can you do for them?” he was asked. His reply was disarming. “In BP we are responsible for what happens within our facilities, and we will make amends. We cannot repair the past, but because of BP’s resources we can make the future a bit more secure. We will conduct a full investigation.” Browne’s candor, he hoped, would defuse some antagonism. In the darkest hour, his friends noted, he was at his best. After all, explosions and fatalities had occurred at other refineries. In 1989, Phillips had paid $4 million to settle charges after an explosion in Texas killed 23 people; in 1990, Arco had paid $3.5 million to settle violations of laws after an explosion killed 17 in Channelview, Texas; Shell had had two fatal accidents — in May 1988, seven had been killed and scores injured after gas escaped from a corroded pipeline, and the company had paid $160 million to settle 17,146 claims, while in 1990 a fire at the Shell refinery at Deer Park, Texas, had caused injuries and widespread damage. Single fatalities also happened regularly.
But times had changed. The inevitable fine and even the compensation would be untroublesome to a corporation whose annual profit in 2004 had been $15.73 billion, while the first quarter net profits in 2005 were $5.49 billion, 29 percent up, largely as a result of the oil price rise to $57 a barrel. The mood in Texas was unforgiving toward Lord Browne, whose mantra had been “more for less.” His announcement that BP had set aside $700 million for compensation to victims, including $20 million for each fatality, and had agreed to pay a $21.4 million fine with limited admissions of liability, was received with suspicion. A bitter blame game erupted between BP and Amoco’s retired engineers and directors. The Americans regarded BP’s executives as paper-pushing accountants, obsessed by analysts but ignorant of maintaining refineries. BP’s directors referred to the “cultural misunderstanding” between the American and British staff, and claimed that Amoco’s staff were negligent. “The British manager was a bully,” complained one of Amoco’s senior directors. “I left when they appointed him my boss.”
Outside Texas, the damage was greater. “Beyond Petroleum” was transformed into a spectacular bonehead play, and its originator was recast as a star pupil caught cheating. Not only was BP’s image marred, but the financial repercussions were serious. To save money the company had decided not to insure against losses of the kind it would incur as a result of the Texas City explosion. The minimum cost in lost profits and compensation would be $4 billion. Avoidable catastrophes such as this one reinforced the antagonism toward a hated but essential industry. “BP is too arrogant in the way it wanted to profit,” commented an oil trader in New York, a victim of the “Cushing Cushion.” Beyond his contrite public appearances, Browne felt the pressure in London from Peter Sutherland and his fellow directors. There was talk of internal inquiries, criticism of his integration of Amoco and suggestions of “slashing his remuneration.” His good fortune was BP’s care to avoid publicly compounding its legal liabilities. But eventually, he knew, there would be a reckoning. First, there were formal rituals he could not avoid.
The official investigation was entrusted to the Chemical Safety Board (CSB), led by Carolyn Merritt, a chemical engineer. Browne’s hopes that the small agency with its low-paid staff could be persuaded to show understanding were dashed. Merritt focused on “systemic lapses” by BP’s management and, in a preliminary report, warned that BP’s managers, scarred by “a cultural issue,” still posed “an imminent hazard” to safety. Browne feared the worst. Merritt was heading toward damning conclusions. Her preliminary conclusions blamed BP for budget cuts that knowingly left “unsafe and antiquated designs… in place, and unacceptable deficiencies in preventive maintenance were tolerated.” Even though supervisors knew that instruments were unreliable or broken, she discovered, repairs were deferred or abandoned to save money. Merritt’s criticism temporarily united the warring BP and ex-Amoco directors to accuse her of ignorance and prejudice.
Browne needed to limit the damage. The CSB’s staff, he complained, was unqualified to understand the complexities of Texas City, and he believed Merritt was grandstanding. While willing to accept that human error was to blame, he wanted to demolish the idea that a policy of reducing costs and increasing profits could have caused the accident. Merritt, he rightly feared, was ignoring BP’s case that people, not budgets, were responsible. He preferred not to understand her criticism that under his direction, BP’s money had not been spent on curing “problems [that] were many years in the making,” and that there had been a failure to invest in equipment and the processes of ensuring safety. The CSB’s final report, he decided, was certain to be flawed. “Our enemies are stoking up the criticism,” he complained to aides. “They want to create antagonism toward us in America.” Convinced of a conspiracy, Browne had no alternative but to mitigate the CSB’s condemnation by commissioning BP’s own report. James Baker, the former US secretary of state and a Texan oilman, agreed to conduct an inquiry financed by BP. Browne believed that Baker would be receptive to his reason and intellect. His ploy of an independent investigation did not receive universal approval.
Brent Coon, a Texan lawyer famed for his hostility toward industrial corporations, had introduced himself into the saga, representing hundreds of claimants on a contingency basis. “I hate big corporations,” Coon announced. “They cheat wherever they can and put people’s lives at risk. BP has blood all over their hands. I’d like to depose Lord Browne over a roasting pit. You’re not supposed to die if you work in a petro-refinery plant.” Even before its publication, Coon criticized Baker’s report as “a whitewash written by Browne’s friend.” He was not entirely wrong. While criticizing BP’s lack of “safety leadership” as a “corporate blind spot,” Baker acquitted BP of “purposefully withholding resources” and shortchanging safety. In a direct contradiction of the CSB report, which quoted BP’s challenge to refinery managers to cut budgets by an additional 25 percent, Baker declared that there was no
evidence of BP cutting costs. Citing John Manzoni’s own admissions, Coon scoffed that Baker’s report was specious. “Fixed-cost reductions,” Manzoni had told the CSB’s investigators, contributed to the “situation” at Texas City. Some BP insiders understood that Manzoni was alluding to a “lack of trust, motivation and sense of purpose” within the corporation.
Two months later, the CSB’s report unequivocally criticized BP: “Warning signs of a possible disaster were present for several years, but company officials did not intervene effectively to prevent it.” The CSB found “a broken safety culture at BP,” and that equipment maintenance was based on “run to failure.” Manzoni later acknowledged that he had not properly carried out his responsibilities. Despite visiting Texas City, he said, he “did not know which questions to ask, did not ask the right questions and was not told about the plant conditions.”