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Press & Journal (Aberdeen): BOSSES AND BACTERIA – A CALLING TO ACCOUNT

There is a saying that we are masters of our own destiny. Moreover, we reap what we sow. So if we fail to be diligent, perhaps cut corners in some manner or lack competence, then we deserve what’s coming. If you’re a big corporation and something goes wrong that puts your reputation on the line, the chances are that deficient management lies at the root of whatever happened. Right now, we have two of the biggest names in European corporate history being given the “third degree” in the glaring light that only the media are capable of – BP and Shell.

The hottest storyline being peddled is about BP because of the Prudhoe Bay pipeline-consuming bacteria debacle that could yet land the company with a stack of lawsuits, a US senate inquiry and fines.

Indeed, a group of US shareholders have already filed the first action.

It says: “A lawsuit filed on Monday (August 4) alleges the company, its executive directors and board members ‘allowed one of BP’s prized assets’ to decay to the point that it was forced to shut operations in the eastern half. The legal action is seeking unspecified monetary compensation.

“Defendants became aware of the problem of corrosion in the pipeline years ago, but took no substantial steps to remedy the situation,” the lawsuit says.

It accuses BP bosses of choosing to “squeeze out every last penny in current profits at the expense of properly and safely maintaining the pipeline and the company’s future profitability”.

At the root of this one is a simple basic fact – the company should have been more diligent about how it cared for its Alaskan asset. It should never have got to a situation where there was such a build-up of harmful bacteria that pipelines were eaten up from within, leading to two known oil spills and the near shutdown of 8% of US domestic oil output.

Management should have been both smarter and more rigorous in their approach – including, one suspects, ensuring adequate OPEX budgets to fund inspection work, however it was carried out.

Already, BP has essentially admitted that it could/should have done a better job.

Of course, what many Americans will be asking themselves is, “How come BP is so careless?”, remembering the Texas City refinery fire of March, 2005, in which 15 workers perished and 180 were injured.

BP subsequently admitted that management should have been both smarter and more rigorous in its approach.

On the face of it, there appear to be disturbing similarities between the Texas City and Prudhoe Bay incidents.

But there is a third BP event that also begs questions. Not such a headline-grabber, but the near loss of the Thunder Horse floating production unit during last year’s Gulf of Mexico hurricane season also raises questions about the competence of management – in this instance, during the engineering and construction phase of the giant installation which, we are assured by BP, will begin production in early-2007.

Now for Shell.

The last few years have been tough for the company, and at the heart of the woes has to be the way in which it is run.

Despite massive restructuring, heads rolling and so forth, the troubles continue, such as the staggering 10billion cost overrun for the Sakhalin II project that was revealed just over a year ago.

Moreover, it was reported last November that Russian president Vladimir Putin told Shell’s top man, Jeroen Van der Veer, that Shell’s 20billion revised budget for Sakhalin was “economically unfounded” and would not be approved.

In July, the company approved its Qatar gas-to-liquids project, despite the budget more than doubling to 12billion. And more bad news was delivered to investors when it became apparent that the Athabasca oil sands project in Canada would likely cost three times the estimate of 10 years ago.

Of course, there is huge cost inflation at work within the upstream oil &gas sector – that is acknowledged. But Shell’s budget overruns appear spectacular, which begs questions of management.

But I’m going to come much closer to home – the Brent affair, sparked by the deaths of two North Sea workers who perished in an inspection shaft of the Brent Bravo platform in 2003.

It is an incident that has received much media coverage, perhaps the most authoritative being that of Chris Hopson in Upstream. One of the most important questions to have emerged from this tragedy is, “What is the real physical condition of North Sea platforms?”. Another is, “Has the planned non-maintenance of the past left an irreparable legacy?”.

Energy recently received a copy of a confidential report prepared for Shell. The subject: “A close visual inspection of the Brent Bravo utility shaft”.

It was carried out by a team from Motherwell Bridge Inspection on February 22-23 this year. Their specific target was the tubular diagonal supports and wall mounting plates of the utility shaft stairwell.

The report’s summary reads: “The condition of the sections and wall plates is poor, improving to generally good as you go up the shaft. Several of the holes found are weeping. In a bigger opening it can be seen that there is a substantial build-up of corrosion on the inside of the tubular sections and when tapped with an inspection hammer you can hear movement of material inside of approx 50% of tubular sections.”

Besides a list of 59 specifics, there is also a suite of telling photographs.

And having been made aware, Shell very recently admitted that it failed to action the report and is now “investigating” why this was allowed to slip through the net.

Sweeping statement this may be, but I believe firmly that the Brent Bravo affair is indicative of a wider asset integrity malaise in the North Sea – one that might ultimately kill the industry almost as fast as Margaret Thatcher got rid of most of Britain’s mining industry.

It is a sickness that unions have warned of time and again and that the much criticised UK Health & Safety Executive (which is cutting jobs) is alert to and apparently now willing to deal with. However, the manner in which the UK Offshore Operators Association leapt to the defence of its members’ maintenance backlog a couple of weeks back is noted.

I’m not an engineer of any kind – at least in the formal sense – but I have a considerable knowledge of the maritime world and how destructive it can be. Moreover, I have first-hand experience of how rapidly corrosion can tear through the fabric of fishing vessels and merchant ships unless effective coatings are applied and kept in good order.

Planned non/limited maintenance of steelwork in the marine environment is plain asking for trouble.

Regulatory environment aside, ultimately it is management who call the shots as to what happens. And by that, I don’t just mean at boardroom/senior level, I mean middle and even junior management.

I suppose middle/junior management – that amorphous blob that top bosses too often love to blame and seem unable to get to grips with – can be compared with bacteria.

There’s the friendly probiotic “Yakult” variety that does an excellent job of ensuring the corporate body thrives, and then there’s the MRSA variety that has its own negative agenda and must be eliminated.

But the bottom line is that it is the top guys who must lead and who must be called to account and carry the can when things go wrong.

Whether a BP or Shell or a mid-ranking independent – or a minnow – that same tenet must apply right across the board.

08:50 – 04 September 2006
 

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