Royal Dutch Shell Group .com Rotating Header Image

Daily Mail: Oil giant is baked in Alaska

EXTRACT: The company has some serious questions to answer. It has been better at replacing reserves than rival Shell, which made a remarkable recovery from its own dodgy accounting scandal a couple of years ago. In the Shell affair, the company’s reputation was trashed but financially it emerged virtually unscathed. The outcome is likely to be similar for BP.

THE ARTICLE

RUTH SUNDERLAND, DAILY MAIL DEPUTY CITY EDITOR
8 August 2006

BP IS DESPERATE to establish its green credentials but it is still a big dirty oil company. The indefinite shutdown of its Prudhoe Bay oilfield in Alaska is a huge blow to the company’s attempts to hone its reputation.

The fact it did not seem able to organise a conference call yesterday to explain what is going on did not help.

It is important, however, to keep a sense of perspective. The impact on its figures will probably be relatively small. Citigroup reckons that even if production halts for the rest of the year, there will only by a 2% hit on 2006 earnings.

The shares – I hold a very small number – were down yesterday, but I would not rush to sell.

In a touch of irony, the rise in the oil price caused by the shutdown will help BP and other oil majors, whose bottom lines automatically benefit when crude goes up.

Not for one minute, though, should anyone underestimate the extent of BP’s troubles in the US. The company is already facing a criminal investigation after a huge spill in March from the same field.

Shockingly, it failed to carry out corrosion and maintenance tests known as ‘pigging’ on some sludgeclogged Alaskan pipelines for up to 16 years.

Then it was fined $2.4m for ‘unsafe operations’ in Ohio in the spring and the Texas City accident in 2005, which killed 15 workers. On top of that are accusations that it illegally cornered part of the propane market.

Some will no doubt conclude that BP, which increased its profits for the quarter to June by 23% to £3.3bn, is hell bent on banking more and more millions with no regard for safety.

That is too simplistic – but oil companies are an obvious target in current conditions and BP cannot afford many more horrible headlines.

The company has some serious questions to answer. It has been better at replacing reserves than rival Shell, which made a remarkable recovery from its own dodgy accounting scandal a couple of years ago.

But it looks as though BP may have been concentrating on finding new gushers while neglecting ageing infrastructure and basic housekeeping.

The Alaskan misadventures also beg the question: if things are this bad in America, what on earth are they really like in Russia, where BP has its TNK joint venture and has also taken a $1bn stake in Rosneft?

In the Shell affair, the company’s reputation was trashed but financially it emerged virtually unscathed. The outcome is likely to be similar for BP.

As for chief executive Lord Browne, those ‘friends’ who have been agitating for him to stay on beyond the company retirement age of 60 should perhaps take the view he is getting out while the going is good.

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

Comments are closed.

%d bloggers like this: