Furious Growth and Cost Cuts Led To BP Accidents Past and Present

Furious Growth and Cost Cuts Led To BP Accidents Past and Present

(AP Photo/Gerald Herbert)

by Abrahm Lustgarten
ProPublica, Oct. 26, 2010, 10:32 a.m.

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A ProPublica and PBS FRONTLINE investigation. “The Spill,” a PBS FRONTLINE documentary drawn from this reporting aired Oct. 26. Watch it here.

Jeanne Pascal turned on her TV April 21 to see a towering spindle of black smoke slithering into the sky from an oil platform on the oceanic expanse of the Gulf of Mexico. For hours she sat, transfixed on an overstuffed couch in her Seattle home, her feelings shifting from shock to anger.

Pascal, a career Environmental Protection Agency attorney only seven weeks into her retirement, knew as much as anyone in the federal government about BP, the company that owned the well. She understood in an instant what it would take others months to grasp: In BP’s 15-year quest to compete with the world’s biggest oil companies, its managers had become deaf to risk and systematically gambled with safety at hundreds of facilities and with thousands of employees’ lives.

“God, they just don’t learn,” she remembers thinking.

Just weeks before the explosion, President Obama had announced a historic expansion of deep-water drilling in the Gulf, where BP held the majority of the drilling leases. The administration considered the environmental record of drilling companies in the Gulf to be excellent. It didn’t ask questions about BP, and it didn’t consider that the company’s long record of safety violations and environmental accidents might be important, according to Carol Browner, the White House environmental adviser.

They could have asked Jeanne Pascal.

Jeanne Pascal was a senior attorney for the Environmental Protection Agency for 26 years. (Abrahm Lustgarten/ProPublica)

For 12 years, Pascal had wrestled with whether BP’s pattern of misconduct should disqualify it from receiving billions of dollars in government contracts and other benefits. Federal law empowers government officials to “debar”—ban from government business—companies that commit fraud or break the law too many times. Pascal was a senior EPA debarment attorney for the Northwest, and her job was to act as a sort of behind-the-scenes babysitter for companies facing debarment. She worked with their top management, reviewed records and made sure they were good corporate citizens entitled to government contracts.

At first, Pascal thought BP would be another routine assignment. Over the years she’d persuaded hundreds of troubled energy, mining and waste-disposal companies to quickly change their behavior. But BP was in its own league. On her watch she would see BP charged with four federal crimes—more than any other oil company in her experience—and demonstrate what she described as a pattern of disregard for regulations and for the EPA. By late 2009 she was warning the government and BP executives themselves that the company’s approach to safety and environmental issues made another disaster likely.

A close look by ProPublica and PBS FRONTLINE at BP’s explosive growth corroborated and expanded on Pascal’s concerns. The investigation found that as BP transformed itself into the world’s third largest private oil company it methodically emphasized a culture of austerity in pursuit of corporate efficiency, lean budgets and shareholder profits. It acquired large companies that it could not integrate smoothly. Current and former workers and executives said the company repeatedly cut corners, let alarm and safety systems languish and skipped essential maintenance that could have prevented a number of explosions and spills. Internal BP documents support these claims.

A ProPublica analysis of state and federal records revealed that BP has fared far worse in the United States than the rest of the industry in terms of spills and serious safety violations.

In Alaska, home to one of BP’s longest-standing and most important business units, the company produced nearly twice as much oil as ConocoPhillips, the other major company operating there, but since 2000 it has also recorded nearly four times as many large spills of oil, chemicals or waste. In the Gulf of Mexico, BP had more spills than Shell between 2000 and 2009, even though Shell produced more oil there.

BP’s workers also appear to be more at risk. In Alaska, it has had 52 worker-safety violations since 1990, compared with ConocoPhillips’ seven. Nationally, according to an extensive analysis of data from the Occupational Safety and Health Administration, BP had 518 safety violations over the last two decades, compared with 240 for Chevron and even fewer for its other competitors. Since those statistics were compiled, in 2009, OSHA has announced 745 more violations at two BP refineries, one near Toledo, Ohio, and the other in Texas City, Texas, where 15 people were killed and 170 injured in a 2005 explosion.

BP’s Texas City Refinery is the company’s largest and the third largest in the United States. (Abrahm Lustgarten/ProPublica)

“They just weren't getting it,” Jordan Barab, OSHA’s deputy assistant secretary of labor, told ProPublica and FRONTLINE. In the last decade, OSHA records show that BP has been levied 300 times more in fines for refinery violations than any other oil company.

“BP's cost-cutting measures had really cut into their plant maintenance, into their training, into their investment in new and safer equipment,” Barab said. “When you start finding the same problems over and over again, I think you are pretty safe in saying they've got a systematic problem.”

According to documents obtained exclusively by ProPublica and FRONTLINE, some of the inspectors BP was using to monitor its pipelines in Alaska, where two serious spills occurred in 2006, weren’t properly certified or trained.

Oil Company	Total OSHA violations from Jan. 1, 1990 to June 1, 2009	Total Alaska Occupational Safety and Health Violations Jan. 1, 1990 - June 1, 2009
BP	518	52
Chevron	240	3
ConocoPhillips	193	7
Exxon	108	0
Shell	217	13

Oil Company	Total OSHA penalties since 1/1/2000 for Refineries Only
BP	$108,911,950
Chevron	$170,620
ConocoPhillips	$200,685
Exxon	$359,740
Shell	$306,675

Even today, four years after former CEO Tony Hayward pledged to keep a “laser-like” focus on safety, maintenance on the massive turbines that run the company’s Alaska plants has been deferred. Many of these facilities operate without fire and gas detectors, because theirs are outdated and are expensive to replace. Workers in Alaska told ProPublica they fear another deadly BP accident could happen at any moment.

The pattern extended to BP’s Gulf of Mexico operations. BP’s flagship $1 billion Thunder Horse drilling platform nearly sank in 2005 after engineers installed ballast valves backward. And a federal lawsuit over safety concerns on another BP rig, Atlantis, was making its way through the courts even as the Deepwater Horizon exploded.

BP declined repeated requests for comment and for an interview with its new CEO, Robert Dudley. When sent a list of more than 30 questions, it replied with a three-paragraph statement saying that BP will establish a new safety division reporting directly to the CEO. Monday, in a press conference in London, Dudley said that he did not believe that BP is an unsafe company, and warned that the ProPublica and FRONTLINE report would be unflattering.

The Prudhoe Bay drilling field on Alaska’s North Slope covers some 330 square miles. (Abrahm Lustgarten/ProPublica)

For Pascal, the explosion in the Gulf heightened the frustration she’d felt in the last months of her job. BP’s Prudhoe Bay and Texas City units had been automatically blocked from government work on her watch—that’s the minimum debarment action after a prominent air or water pollution crime in the United States—but she’d never been able get the company to change. She’d used all the normal tools to bring BP into what the government calls “compliance.”

The only thing she hadn’t done was bring down the big hammer: the EPA’s power to ban an entire company from doing business with the federal government.

Many companies have been debarred, but never has one as large as BP, or as important to the U.S. economy and security. Debarment would have severed BP’s contracts with the American military and jeopardized the company’s long-term access to reserves that generated nearly $16 billion in revenue for the company last year. BP’s stock price would likely have gone into a tailspin.

Now, with the Deepwater Horizon disaster unfolding on her TV screen, Pascal believed such a move was finally warranted.

Curious for more news, she called her old office in downtown Seattle. But the EPA was already in lockdown. Just weeks out of a 26-year EPA career, she was told she couldn’t talk to her old team. She’d have to call the public affairs office if she wanted information.

Pascal then dialed another number, for Scott West, a retired EPA criminal investigator who had also worked the BP case. He, too, was enraged by what he saw happening in the Gulf, and reporters were pressing both of them for information. Together they decided they had an obligation to tell people what they knew about the company at the core of this unfolding tragedy. If the public had known sooner, Pascal thought, perhaps the Deepwater Horizon disaster might have been prevented.

BP’s Historic Ambition

BP’s ascent to the top tiers of the oil industry hit full stride in 1995, when John Browne became CEO. The company was founded as the Anglo Persian Oil Company in 1909 but languished after Middle Eastern countries nationalized their oil in the 1970s. By the time Browne took over, it was so far behind Exxon and Shell, the world’s largest independent oil companies, that it could hardly feel their tailwind.

Browne was an engineer who had practically been raised in BP’s business. But with a passion for art and the London Opera, he was hardly a typical oilman. He did, however, have a vision for a bigger, sleeker BP.

In 1998 he put together what was at the time the largest merger in corporate history—the $61 billion buyout of Amoco Corporation. By mid-2001 he had also bought ARCO and four other companies.

Spills greater than 50 barrels in the Gulf of Mexico between 2000 and 2009

Company	Volume Spilled (Barrels)	Number of Spills	Oil Produced (Barrels)
BP	8,638.88	23	879,356,448
Shell	5,546.97	21	1,339,203,125
Chevron	3,465.77	19	592,998,061
Noble	1,474.58	8	29,877,928
Apache Corporation	1,118.63	7	144,674,625
Stone	1,192.78	6	40,898,883
Murphy	1,641.60	6	77,618,538
Anadarko	2,107.30	5	93,437,525
Devon Energy	704.20	5	89,445,419
Mariner	2,322.62	5	28,055,560
W & T	1,351.42	5	31,285,206

Alaska Spills of Oil, Chemicals or Waste Greater Than 100 Gallons Between Jan. 1, 2000 and May 31, 2010.

Company	Number of Spills	Total Volume Spilled (gallons)	Oil Production 2000-09 (Barrels)
BP	364	1,034,968	1,975,260,738
ConocoPhilips	107	234,403	1,035,279,479
Unocal	21	9,359	55,709,224
XTO	0	0	12,929,192
Pioneer	17	12,908	3,383,798

“We’ll be the largest producer of oil in the non-OPEC world,” Browne said when he announced the ARCO merger.

On paper, the company quadrupled in value and became a huge global competitor overnight. Browne was hailed in Britain as the “Sun King,” and in 1999 BP’s stock soared to what was then an all-time high.

BP’s next challenge was not only to integrate its thousands of new employees and numerous industrial facilities, but to do it without increasing the company’s already-significant debt.

Fadel Gheit, a managing director at the investment bank Oppenheimer, said that during the time of the mergers BP's debt ratio was at least 10 percentage points higher than was normal for the company.

"BP has historically maintained higher debt levels and debt ratios than its peers,” he said. “It believed that debt is the cheapest source of capital.” In contrast, he said, “U.S. majors Exxon and Chevron believe in low debt, or even no debt, and investors seem to like that."

Browne, with little wiggle room, brought the companies into the fold by slashing jobs and cutting costs. He squeezed out $2 billion in savings from the Amoco merger alone.

At the same time he steamed ahead with extracurricular projects that Tony Hayward would later describe as distractions. Browne delivered speeches on climate change. He rebranded the company from British Petroleum to BP and added the “Beyond Petroleum” tagline to put it in a more cosmopolitan, ecological light.

But Browne and other senior managers weren’t deeply engaged in the day-to-day operations of their facilities, and the disparate corporations they acquired were never fully integrated. More than a decade later, employees still identified themselves as ARCO, or Amoco, or wherever else they came from. And each of those cultures approached safety and maintenance differently.

“Growth creates challenges to management,” said Ronald Freeman, a former managing director for Salomon Smith Barney. “BP in this case just grows beyond its management ability to watch everything they need to watch when they need to watch it.”

While Browne reveled in the spotlight—he was even knighted by Queen Elizabeth—cracks began to appear in his burgeoning company, cracks that Jeanne Pascal would be among the first to spot.

The Government Was Warned

Pascal was assigned to BP in 1998, when the company’s Alaska division was settling a criminal case involving a contractor who had illegally dumped hundreds of gallons of toxic waste back into a well hole. It was the company’s first federal felony, Pascal’s first assignment to BP and the first dot in a crude portrait of what would shape up to look like a repeat offender.

Pascal was 49 at the time. An affable woman, with carefully coiffed hair and residual southern charm, she grew up in Tennessee and got a law degree from University of Memphis. After graduation she landed a job as a prosecutor in a small town north of Seattle and married a sheriff’s deputy.

But Pascal wanted to “make a difference,” and she decided to move into environmental law. She set her sights on getting a job with the EPA, and after sending her resume to the agency every month for a year, she was finally hired in 1984.

“I actually put the memo of hiring into a scrapbook,” she said.

By the time she was assigned to the BP case, Pascal had handled at least 600 EPA cases against large and small companies, usually juggling 25 to 50 at a time.

Almost any time a company is convicted of a crime it faces the possibility of a ban on federal contracts, or debarment. When debarment kicks in—or in some cases to avoid it in the first place—companies reach a settlement with the EPA that establishes benchmarks they must meet, so the government can eventually lift the sanctions.

In Pascal’s experience, most companies settled quickly and in good faith, and at first BP seemed to be following that path. After pleading guilty to felony charges, it avoided debarment by signing a settlement agreeing to five years of probation and promising to institute a “revised corporate attitude.” It pledged not to punish employees who reported environmental concerns and said it would spend $15 million on an environmental management program for its operations in Alaska, Texas and the Gulf.

As part of the agreement, BP Exploration, the company’s Alaska division, also agreed that its Health, Safety and Environment director would report directly to the division president, so top executives couldn’t avoid hearing about serious safety concerns. The EPA identified this as one of the most important things BP could do to reform its safety culture in Alaska.

For several years, BP appeared to be complying with the agreement.

The monthly reports it sent to Pascal detailed the success of its maintenance and safety programs. Senior managers assured her personally of the company’s progress when they met in the conference room of Seattle’s Fairmont Hotel. There were a couple of accidents, but executives blamed irresponsible employees or assured her the problems had been fixed.

Then, in early 2004, Pascal was sitting at her desk at the EPA when she got a phone call from a BP mechanic who was a member of the United Steelworkers Union on Alaska’s North Slope.

“There are awful things happening on this oilfield,” Marc Kovac told her.

Kovac was referring to the facilities where he was working near the shore of the Arctic Ocean.

He described serious corrosion in some sections of pipeline and said BP was manipulating environmental inspection reports to show that the pipelines were fine. He told her that workers who complained about the problems had been fired. And he said that a leak—or worse, an explosion—could happen any day.

“I’m scared for my life,” Pascal recalls Kovac telling her. “If you have a case against BP Alaska you don’t want to let them go.”

Pascal’s phone kept ringing, and workers began sending her documents and internal company e-mails to support their claims. Among them were documents from the mid 1990s describing BP’s decision to put off or cancel corrosion maintenance in order to save money and meet John Browne’s budget targets. Other documents showed that BP had delayed replacing the gas detectors that warn of a potential explosion.

Oil worker Don Shugak was injured in 2002 when a well blew out in his face. (Kendra Shugak)

Pascal learned that a BP oil worker, Don Shugak, had been severely burned in 2002 after a well exploded in his face—and that BP had misled investigators about the cause of the accident. And she discovered that in 2003 the company had failed to report a small oil spill until after it had begun cleaning it up.

The BP case was turning into a case unlike any other she had handled. “I’d had whistleblowers come forth before, like one or two, maybe three,” she said. “I’ve never had 35 to 40 people come before me.”

Pascal was furious. It appeared that BP had deliberately misled her and had violated its compliance agreement, but she needed an investigation to find out for sure.

“I tend to take people at face value,” she said. “One of the hardest moments of my life with BP was in the first six months of 2004 when I realized that I had been managed, and that I had been so easily manageable. They lied. I had swallowed their line hook, line and sinker.”

Losing trust in BP was a hard lesson for Pascal, and the events of 2004 changed the way she approached the company in the six years that followed. For the first time she thought she might have to actually debar this company.

Pascal demanded that BP investigate the workers’ claims. In a meeting in Seattle in late 2004, the company’s lawyers from the firm Vinson & Elkins showed the EPA an internal investigation that—while critical of BP in some aspects—dismissed many of the concerns.

“We did not find any evidence that the allegations regarding data fraud in the CIC program had merit,” the report stated, referring to the corrosion maintenance program.

Pascal remained convinced that an accident was inevitable. She shared her fears with the EPA’s Criminal Investigation Division but said she was told that until an accident occurred, there was nothing to investigate.

Pascal then took her material to the Department of Justice.

“I said I had documents which showed the pipelines were in bad shape and that sooner or later there was going to be some kind of a failure,” she said.

An agent from the Federal Bureau of Investigation traveled to the North Slope to poke around but found nothing that could be knitted into a prosecution. The federal government, Pascal was again told, didn’t have jurisdiction to interfere with oil and gas infrastructure unless a crime had been committed or an accident had already happened. In the meantime BP’s five-year probation period had run out, taking most of Pascal’s leverage with it.

“I explored that with all kinds of people and I couldn’t find a jurisdictional way in, other than to let it happen,” she said. “So we had to wait.”

A Deadly Disaster in Texas

It didn’t take long for the disaster to happen—it just happened 4,600 miles from Prudhoe Bay.

On March 23, 2005 a tower used to boil hydrocarbons at BP’s sprawling 1,200-acre Texas City refinery was overfilled as the system was being restarted. Fumes, and then volatile liquid, filled an antiquated “blow down drum” meant to catch the overflow and spewed from the top like a geyser. When the fumes reached the engine of a truck idling nearby, the place blew up.

The blast obliterated a nearby office trailer. Fifteen people died.

That night, in her quiet country home outside Seattle, Jeanne Pascal broke down in tears. This accident could have been avoided, she told her husband, Dallas Swank.

“She was fairly certain that when the dust settled that they were going to find out that this was due to lack of maintenance and all the same things happening in Alaska,” he said.

Pascal was right.

Though Texas City was a refinery, not a production field, the circumstances were nearly identical. The BP executive responsible for refining at the time, John Manzoni, was managing maintenance issues in Alaska in the 1990s, when some of the cost cutting described in the e-mails that workers had sent to Pascal took place.

Texas City had been operating under budget cuts since BP took it over from Amoco in 1999. Workers—including the plant’s manager—had explicitly warned top corporate executives that they didn’t have the equipment or the resources to prevent a deadly explosion.

An internal BP safety report completed just months before the explosion said executives were “not in control of management of major hazards. The cost cutting has gotten to an extremely critical stage … there is not any slack in the system.” It continued: “There is an exceptional degree of fear of catastrophic incidents.”

Manzoni, now the chief executive of Talisman Energy, based in Calgary, Alberta, declined to comment. BP also declined to answer questions.

Investigators later found that Texas City’s isomerization unit—the refining tower that ignited—was relying on what is called a “blow-down drum,” a piece of equipment that was considered state of the art in the 1950s, to catch overflowing fuel. Amoco had been told to replace the drums as far back as 1977 but hadn’t acted. BP considered switching them out in 2002 but held off because of the $150,000 cost.

“Capital expenditure is very tight,” said an internal BP e-mail from management about the decision at the time. “Bank $150k in savings now.”

The Texas City blast was the largest industrial disaster in the United States in decades. Former Secretary of State James Baker, who led an investigation into the accident on BP’s behalf, said: “BP has not adequately established process safety as a core value.”

The explosion knocked BP, and John Browne, off their meteoric trajectory.

“BP gets it, and I get it too,” Browne would later say. “This has happened on my watch, and as chief executive I have a responsibility to learn from what has occurred. I recognize the need for improvement.”

The Largest Spill Ever on Alaska’s North Slope

BP was still coming to terms with what had happened in Texas when disaster struck again, this time in Alaska.

At 5:58 a.m. on March 2, 2006, an Alaskan field operator radioed in an emergency “code black.” He had discovered an oil leak—a melted pool in a drift of pure white snow—near the central pipeline that gathers oil from the western half of the Prudhoe Bay oil field. Some 212,000 gallons—the largest spill ever on the North Slope—had leaked from a dime-sized hole in the line over three days. The pipeline’s spill-detection alarm system had malfunctioned, failing to alert BP.

BP revealed that it had not “pigged” the line—the standard maintenance process, in which a bullet-shaped robot is run through the pipe to clean it and measure corrosion—in eight years, in part to save money.

Congressional investigators turned up a set of e-mails—including some of the same documents Pascal had taken to the Justice Department—explaining that BP had also stopped using chemical corrosion inhibitors on the pipelines, even though it knew that would increase the chance of a spill.

“Due to budget constraints, the decision has been made to discontinue the PW inhibitor,” a manager with BP’s corrosion program wrote in 1999. “The GC2 bulk tank should run out within the next two days and it will not be refilled.”

Three days later, a colleague responded, “I thought the PW lines were the ones in least control and therefore the ones we are most worried about.”

In an April 2005 exchange, BP’s corrosion management team discussed three ways to meet budget cuts: stop pigging, stop using chemicals to control corrosion or cut back inspections.

“We have huge infrastructure that is hanging on with no margin for error,” wrote Kip Sprague, a corrosion manager. “Bitch, bitch, bitch … I will try to wrestle down some middle ground between the reality of the situation and some feel-good placeholders.” Sprague declined to comment on his e-mail.

Experienced oil workers said the Alaska spill was years in the making. Conditions in the 330-square mile drilling field are unusually harsh. Drilling operations are based in the town of Deadhorse, an industrial hashmark scratched out of the barren permafrost. It has an airport and thousands of temporary workers, but almost no year-round residents. In the winter, the sun never rises; in the summer, it never sets.

In the last miles before the shoreline of the Arctic Ocean, roughly 8 percent of America’s oil supply flows through an extraordinary network of oil wells and pipelines and dozens of factory-sized facilities, down through the TransAlaska Pipeline, south to the port of Valdez. From there, it is shipped to California and beyond.

The drilling rigs and pipelines on the North Slope were built in the 1970s, when it was expected the field would last maybe 15 years. But the oil deposits were much larger than expected, and BP has reaped unforeseen profits by pushing existing equipment to handle production for decades longer than was ever intended.

Marc Kovac, one of the mechanics who first complained to Pascal, told ProPublica that the company follows what he called a policy of “run to failure”—minimizing maintenance as it tries to squeeze the maximum possible production from each link in its chain of facilities. Now that the output of the North Slope has peaked, Kovac said BP managers see little incentive to upgrade equipment that will eventually be sold or abandoned.

The March 2006 spill jolted BP into crisis mode. In August Browne flew to Alaska to do damage control, touring the field with reporters and showing them how BP was attending to the mess.

But just two days later, a second smaller leak was discovered in the field’s major eastern oil artery. That pipe hadn’t been pigged since 1991, and an investigation found that 16 miles of it were severely corroded and could leak at any time.

As a precaution, the company cut off the entire flow of oil from the North Slope overnight, sinking BP’s stock and sending oil prices skyward.

“Shutting down the whole oilfield seemed a little extreme,” Browne wrote in Beyond Business, his memoir. “I knew the repercussions would be massive. … I did not think things could get much worse.”

Pascal was horrified—but not surprised—by what was unfolding. She also saw the opportunity she had been waiting for to help the North Slope whistleblowers.

“If a catastrophe has to occur to get others to belly up to the plate, it’s regretful, but it may be necessary before real change will take place,” she had written to Marc Kovac a year earlier. “I think this is win-able—the issue is at what cost.”

Now that a spill had occurred in Alaska, the EPA could formally begin a criminal investigation of the workers’ complaints. With Pascal’s help, Scott West and the EPA’s criminal investigation division quietly began work. Texas City was outside Pascal’s jurisdiction at the time, but a separate criminal investigation had begun there, too.

Bob Malone, the newly appointed president of BP’s American operations, told Congress there were “similarities” between the spills in Alaska and the Baker report on the explosion in Texas City. He acknowledged that the Prudhoe Bay spills were the result of “extreme” budget pressures and cost cutting that had discouraged preventative maintenance. He promised to create an independent ombudsman office so workers throughout the nation could communicate anonymously with management about safety concerns.

By the beginning of 2007, however, BP’s board was growing impatient with Browne’s now-numerous blunders. The scathing Baker report about the Texas City explosion came out just a week after BP learned that Browne had been having an affair with a man. According to news accounts and Browne’s memoir, the company had already decided to replace him the following summer with Tony Hayward, a longtime BP executive who had worked closely with Browne for years. But before the switch could be made, news broke that Browne had lied under oath about meeting his partner through London’s premier male escort service. He resigned the next day.

Years later, Browne wrote in his book that he still couldn’t understand how the Alaskan oil transit lines had deteriorated so badly: “We had inspected the line regularly, so why had the corrosion accelerated so rapidly?”

BP’s Inspectors May Not Have Been Qualified

One answer to Browne’s question might lie in information that BP hadn’t shared with Pascal, the public or congressional panels in 2006 and 2007: The inspection program the company relied on to check its pipelines was in disarray.

E-mails and letters obtained by ProPublica show that the main contractor BP was using to check its facilities, Acuren, employed inspectors who weren’t certified to perform their jobs and may not have been properly trained. The certification issues affected at least 19 inspectors responsible for more than 13,000 locations along the line and were serious enough that they were reported to BP’s board of directors in London.

Concerns about the inspectors were raised in early 2007 by Acuren’s training supervisor, Marty Anderson, according to an e-mail last year from BP’s deputy ombudsman. Acuren had hired Anderson after the 2006 spill, first to oversee the inspection program and later to audit the program’s overall effectiveness.

“He revealed a significant quality control breakdown in everything from the company’s procedures … to inadequate record keeping … to having actually unqualified inspectors in the field performing inspections,” Billie Garde, BP’s deputy ombudsman, wrote to BP’s general counsel. “The concerns were serious, and although people try to downplay the significance of the issues, they reveal a complete breakdown.”

Anderson, who has more than 20 years’ experience and has worked with companies including Shell and Chevron, couldn’t tell ProPublica about his findings because he signed a confidentiality agreement with Acuren. But he confirmed that the company had, indeed, employed uncertified inspectors, and he explained in general terms why this was significant.

“The worst problem is to be certified but not qualified, because that means the person did not meet the qualification standard but yet someone testified that they did,” Anderson said. “To me, that’s fraud and could be a criminal offense.”

BP and Acuren didn’t respond to Anderson’s complaints until he contacted the ombudsman’s office.

“The procedure did not move quickly enough or with enough rigor at the beginning both on our side and on Acuren’s side,” said an internal BP memo.

Pascal also learned of Anderson’s complaint. But since the ombudsman’s office had already taken on the issue, she decided to sit back to observe how BP would respond.

In October 2007—14 months after the shutdown and seven months after Anderson first reported his findings—Doug Suttles, BP Alaska’s president at the time and now the executive responsible for drilling in the Gulf of Mexico, began to act. BP hired an independent auditor and launched a three-part review of Acuren’s inspection program that confirmed Anderson’s claims. Acuren re-inspected more than 10,000 locations along the line. It also transferred two senior executives.

BP declined to answer questions about the inspection program, but BP later assured members of Congress that its inspectors were properly certified. Acuren did not respond to calls for comment.

Garde, the BP deputy ombudsman, said Acuren inspectors weren’t responsible for the exact sections of the line that leaked in 2006 and that most of them were competent to perform their jobs. But she was troubled that BP hadn’t uncovered the problems that Anderson found when it vetted the Acuren contract.

“BP has oversight responsibility of all of its contractors, and it should have identified these issues without the need for a worker to come forward and speak about them,” Garde said. “It would be a rare occasion to have another Marty Anderson in other contracts, and you can’t rely upon that.”

Garde was also concerned about how Anderson was treated after he reported the problem. Instead of being praised for his vigilance, he suddenly had trouble finding another job.

“Marty became the subject of both overt and subtle retaliation by Acuren and BPXA personnel,” Garde wrote in a letter to BP’s general counsel. “There is no question that there remains a high degree of hostility toward Marty by Acuren for ‘getting them in trouble.’ ”

BP was “Too Top Down, Too Directive, and Not Good at Listening”

By late 2007, BP’s internal problems were no secret. They had helped push the company’s celebrity CEO out of his job, and Browne’s replacement, Tony Hayward, minced few words about why.

“We diagnosed … a company that was too top down, too directive, and not good at listening,” he said in a speech to business students at Stanford.

“We failed to recognize we're an operating company. We had too many people that were working to save the world,” he continued, in a clear jab at Browne’s speeches on climate change.

Most famously, Hayward promised to turn the company around and to maintain a “laser-like focus” on safety. But it was unclear how he planned to do that.

In fact, soon after Hayward became CEO, BP’s Alaska division made a bold change that deemphasized safety and was a direct affront to Jeanne Pascal and the EPA: It removed the division’s Health, Safety and Environment director from a vice presidential position and dropped it several tiers down in the management hierarchy.

In Pascal’s first settlement with BP Alaska back in 1999, the company had agreed that the HSE director would report directly to the division president. But now HSE was being put into what the company calls a “technical directorate”—a group tasked with corrosion management and balancing maintenance with budget priorities.

“When you have environment and health and safety reporting to a business unit, what do you think gets the first attention?” Pascal said recently. “Business.”

Several former BP executives and managers say the move created a conflict because it meant that the person responsible for raising profits was also responsible for deciding how much to invest in safety. It also sent a clear message to employees that, in practice, safety was less important.

“Symbolism's important. The big stick’s gone,” said a former BP executive. Like other executives and managers interviewed for this story he declined to be named because he did not want to be seen as working against BP.

A spokesman for BP Alaska told ProPublica that the reorganization was meant to clarify leadership authority at the top of the organization, improve efficiency and emphasize safety rather than diminish it.

“For someone to look at a line on an org chart and determine that we had devalued the importance of HSE—that would just be wrongheaded,” said the spokesman, Steve Rinehart. “I don’t think that anybody could spend much time working around BP Alaska and not see pretty clearly how focused that organization is on safety and HSE.”

In an October 2008 letter to BP’s attorneys, Pascal and Carson Hodges, her junior co-counsel on the BP case, demanded that the HSE group be placed back under the president. They also wanted a specific BP staff member selected as their liaison in ensuring that the company complied with an eventual debarment agreement—a guarantee to Pascal that she wouldn’t be duped again.

BP rebuffed the government’s demands.

“BP was very recalcitrant,” Pascal said. “It was turning into a major impasse.”

The HSE issue was critical because the communication gap between BP’s senior executives and its operational managers had caused problems for the company before.

“Good news traveled instantly and bad news didn't travel at all,” Tony Hayward joked in that critical speech at Stanford.

When Bob Malone, the president of BP America, testified before Congress in late 2006, he swore that cost-cutting measures in Alaska hadn’t been a factor in the pipeline spill. He looked sheepish six months later when he testified again and had to admit that he hadn’t been aware of the extent of the cost-cutting program and that budget pressures had indeed compromised the pipeline.

After the Texas City explosion, BP’s head of worldwide refining, John Manzoni, gave a sworn statement that he, too, had been unaware of the cost-cutting pressures on the Texas City refinery and that he hadn’t been informed of the risks.

Pascal was beginning to wonder whether BP could be trusted to do business not just in Alaska but anywhere in the United States. A nationwide debarment had always been a possibility, but now it seemed it might actually be warranted. Such a move would cancel the billions of dollars in fuel contracts BP gets from the Department of Defense and prohibit BP from taking out new leases to drill on federal lands or waters. Since 39 percent of BP’s oil and gas production comes from U.S. territory, a nationwide debarment would have a critical impact on the company.

But Pascal wrestled with the implications. BP paid the federal government more than $674 million in royalties in 2009 for its government leases, and it provides nearly 12 percent of the U.S. military’s fuel supply.

“The question is does the environmental damage outweigh the government’s need for and reliance on BP’s oil and gas?” she said.

BP Focused on Safety but Didn’t Make Things Safe

On the surface, BP appeared to be getting safer in the years leading up to the Deepwater Horizon disaster.

Signs went up warning workers to hang onto handrails. Employees were forbidden to run in icy conditions. Meetings started with safety sermons. And each time a BP employee parked a pickup truck, he had to place a small yellow raft under the drive train in case a drop of oil fell from the gear box.

The number of recordable safety incidents dropped. Even as its profits increased, BP managed to achieve an exceptional safety record in terms of lost man-hours, said Robert Bea, an industry veteran and engineering professor at the University of California, Berkeley, who is independently investigating the Gulf spill.

But something was missing.

In Alaska, many of the same system-wide maintenance issues the company had been criticized for ignoring in 2001 remained unfixed. The conditions of the pipelines were as much a concern to workers as they were before the Prudhoe Bay spill.

“Everything was around lost work days, or recordables,” said one former senior executive. “That was what the board wanted.”

While BP was focusing on slips, trips and falls it wasn’t paying enough attention to “low-probability, high-consequence systems failures lurking in the background,” Bea said.

Texas City was a good example, said Don Holmstrom, who headed an investigation into the refinery blast for the Chemical Safety Board, a government agency that investigates industrial accidents. In the months before the disaster there—just as on the Deepwater Horizon rig—BP had achieved an excellent safety record as measured by recordable injuries and lost man-hours. But after the blast—and after “safety” became the company’s staple refrain—the dangers persisted at Texas City. Four more workers have died in accidents there since 2005.

“Citing personal safety statistics as an indicator,” Holmstrom said, does “not necessarily speak to how well one is doing.”

If the safety stats touted in annual reports were mostly window dressing, then the maintenance and reinvestment in the performance of BP’s facilities—in what the company calls “operational performance”—were the structural studs holding up the business, and they were neglected.

Former BP executives say the company’s top management made too many maintenance decisions while peering into a spreadsheet and that it was difficult for them to justify to their bosses making long-term, preventative investments.

“It’s been a struggle,” said a former BP executive who asked not to be identified because he still works in the industry. “I’m not going to make more money this quarter, but I have to increase spending in order to have a long-term viable business. That’s hard. I was just always explaining or trying to explain what we were trying to do in a language that is not purely financial.”

Nowhere were the risks created by underinvestment as palpable as at the company’s Prudhoe Bay operations.

In September, 2008, Karl Massera was walking along a high-pressure gas pipeline when it suddenly blew apart. There was no fire, but a 28-foot-long section of steel vaulted through the air, landing with a thud on the Alaskan tundra a fifth of a mile away. Massera hit the ground, expecting to die, as the 10-ton steel pipeline whipped through the air like a wild snake. Shouting over the roar of the leaking gas, he radioed the control center to warn them not to shut down the field’s electricity, because if they did, a spark could kill him. An electrical spark had once ignited an explosion in a similar incident and burned several nearby facilities to the ground.

Just 30 minutes after Massera radioed for help, another unrelated leak occurred on a separate line a couple of miles away.

A little more than a year later, a staging valve stuck closed at a large central compressor plant in Prudhoe Bay. Gas backed up, enveloping the facility in flammable fumes. Although flares had been installed to prevent a disaster like the one in Texas City, they weren’t lit and didn’t function. So the gas built up and spread around the plant. Sleeping barracks were nearby, and just a spark of static electricity in the bone-dry arctic air could have ignited an explosion that could kill hundreds of workers and shut down Alaskan oil production for years. That it never happened was just sheer luck.

Then, in November 2009, ice built up in a 25-year-old pipeline to the Alaska division’s Lisburne Production Center—a facility so large that it dominates the horizon at the edge of the Arctic Ocean. The frozen line eventually split open, dumping nearly 46,000 gallons of crude oil, toxic wastewater and natural gas onto the frozen ground. BP had been warned by workers months before the spill that numerous problems at Lisburne were increasing the risk of such an accident.

The incidents enflamed Pascal’s distrust, and she began to ratchet up her demands that BP agree to a set of rigid checks in order to fend off debarment. BP’s progress reports on its maintenance projects were no longer good enough. Now she demanded receipts.

“I was no longer willing to accept their word,” she said. “Show me, what did you maintain? I want to see what you paid, who you paid. What did you replace? I wanted the details.”

“They did not like that at all,” she added.

ProPublica gave BP a detailed list of questions about each of these incidents and asked for examples of how the company had strengthened operational safety in Alaska since 2001. But BP's response did not address the incidents or the Alaska safety issues.

The End of the Line

By the end of the decade Pascal again began to think that the only way to make the company improve was to debar the entire corporation. “There comes a point where the events conspire to basically show federal regulators that a particular company, for whatever reason, has no intent of complying with U.S. law and regulations,” she said.

The company now had three criminal convictions—in Endicott Bay, Texas City and Prudhoe Bay—and a deferred criminal conviction in a price-fixing scandal. It also had a record of ongoing problems and employee harassment.

Pascal began carrying the completed debarment papers tucked under her arm as she made her way into work. Yet she still held to one last hope that a compromised compliance agreement could be reached.

By 2009 her demands included extra regulations and oversight of BP operations not just in Texas and Alaska, but also in the Gulf. It included moving the HSE group back up in the company command.

Pascal, at this point, was on the verge of retirement—she had promised herself she would leave at the age of 60. But she postponed her departure several times in order to see the BP case through. She said company executives acted confident—“arrogant”—as if they believed BP was so important that the U.S. government would never dare to debar it. “BP told me multiple times that they had direct access to the White House and they would go there.”

In a last-ditch effort, she decided to call the company’s bluff. If BP thought the Defense Department needed it so badly it would never allow debarment, Pascal would show them they were wrong.

In the spring of 2009 she called a meeting with BP’s new general counsel, Jack Lynch, at the Fairmont in Seattle to show him an e-mail her office had received from the Defense Department. In it, an official with the Defense Logistics Agency, the division responsible for BP’s fuel contracts, offered unconditional support for debarment.

“You could do anything you wanted to BP and we could deal with it,” the official, Normand Lussier, wrote, adding that he didn’t think defense concerns should play into Pascal’s judgment.

The message was clear. The government was united in its concern about BP. Now the company needed to act.

Pascal thought she had reached a turning point with BP. Lynch was new to his job, and she said he seemed genuinely intent on a reaching a resolution.

But months passed, and still the agreement wasn’t signed. Pascal began to suspect that BP was waiting her out.

Her concern grew when she learned that Marty Anderson, the inspection supervisor who had raised the alarm about BP’s pipeline inspection program in Alaska, was accusing the company of blacklisting him. Here she was, working out a final agreement that pivoted around open safety communication between workers and their managers, and the company appeared to be punishing the man who had raised a flag about one of its worst spills in a decade.

“It appears that BP, regardless of its code of conduct and statements to the government, will do whatever is necessary to cover up the improper actions of its senior managers,” she and Hodges, her junior co-counsel, wrote in an e-mail to Lynch and BP Alaska’s new president, John Minge, on January 19, 2010. “This promotes intimidation, retaliation, blackballing and unethical behavior in the management ranks, and a culture of fear and lack of ethics in the employee ranks.”

“Nothing has been done in TWO YEARS,” the letter continued. “This is a current graphic example of why EPA does not trust BP.”

When she wrote that letter, Pascal had all but made up her mind. If BP didn’t sign the settlement agreement soon, she would double back on her case, make sure the documents behind her claims were rock solid and send the debarment papers up the flagpole for a final signature from the EPA’s suspension and debarment official.

Two days later, Pascal was walking into the elevator at the EPA’s downtown Seattle offices when her foot caught on an uneven lip at the door. She fell, hard, and was taken to a hospital, her face bruised, her rotator cuff so badly torn that her doctor said it was one of the worst shoulder injuries he’d seen.

For a few weeks, she tried to work from home. But she needed surgery and faced a six-month recovery period before she would be able to resume her full workload. She couldn’t type. She couldn’t drive. She couldn’t even raise her arm to put a dish in the microwave.

On March 1, Jeanne Pascal submitted her retirement papers, leaving the BP case she had worked on for nearly 12 years unresolved.

***

The decision about whether or not to finally debar BP now falls to Carson Hodges, Pascal’s former junior co-counsel. The EPA confirmed to ProPublica that it suspended its settlement negotiations with BP after the Gulf disaster and that it will add whatever findings result from the Gulf investigations to any future settlement. Neither Hodges or the EPA would comment for this story.

Pascal, for what it’s worth, has finally reached her decision.

“I have to conclude that BP has a corrupt culture, and had I arrived at that conclusion while I was handling the case I would have immediately debarred them,” she said last week. “I would have just let the chips fall where they may.”

Contributors to this report include Ryan Knutson, Nicholas Kusnetz, Sasha Chavkin, Sydney Lupkin, Lisa Schwartz, Sabrina Shankman, Marian Wang, and Sheelagh McNeill at ProPublica and Martin Smith and Marcela Gaviria at PBS FRONTLINE.

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Documents

• All Questions Sent to BP
• Jeanne Pascal Emails Re Anderson
• 2008 Gas Line Break Case Report
• 2006 Congressional Testimony Bob Malone
• BP Letter to Eva Rowe With $25K
• BP Alaska President Letter to Anderson
• Top 10 Fuel Suppliers to Military
• Billie Garde Letter to Marty Anderson
• Billie Garde Email Re Inspectors and Anderson
• 1999 Edict From Browne About Cutting Costs
• Email From George Carter 1 9 2002 ABOUT SAVING 150K
• The Telos Report
• BP’s 1999 Cost Cuts at Texas City

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