BP disaster: How the US views disgraced British giant

Posted on: 09 June 2010 by Gareth Hargreaves

The Deepwater Horizon oil gusher (it is not a “spill”), in the Gulf of Mexico, is only the latest (but certainly the worst) of a series of very serious problems that BP has had with its US operations, writes our US correspondent Gerald Lewis.

The BP oil spill oil gusher (it is not a “spill”), in the Gulf of Mexico, is only the latest (but certainly the worst) of a series of very serious problems that BP has had with its US operations. In fact, in recent years the company has been convicted of several environmental and safety crimes and has paid fines or settlements amounting to well in excess of $200 million for these to the US government. These included a fatal Texas refinery explosion; dumping hazardous materials down oil well shafts on the North Slope; and willfully under investing in routine maintenance at its pipeline in Prudhoe Bay, leading to corrosion, leakage and serious environmental damage. A single one of these fines covered 270 safety violations at the Texas refinery. While recognizing that oil exploration, transportation and refining are inherently risky operations, it is notable that BP is said to have the worst safety and environmental record of all oil companies operating in the US.

How is this related to the company’s British parentage? The answer may well be that BP is the adoptive parent of three native-born American companies – and, like many adoptive parents with the best of intentions, it didn’t handle its new family very well. In 1987, British Petroleum (now BP) took majority ownership of Standard Oil of Ohio (based in Cleveland, the hometown, foundation and base of John D. Rockefeller’s Standard Oil empire), which sold gasoline primarily under the Sohio and Boron brands. In 1998, the company acquired Amoco (formerly Standard Oil of Indiana); and in 2000 it acquired Atlantic Richfield which marketed under the Arco brand. Atlantic Richfield had been formed earlier through a merger of the Atlantic Oil Company – a former component of the Standard Oil Trust – and the Richfield Oil Company of California. Prior to these acquisitions, BP had been a very small factor in the US market with the BP brand being quite insignificant here. So it is quite ironic that BP’s actual US operations are quintessentially American – in fact they are a partial re-assembly of the original Standard Oil.

However, BP’s actions, since putting these assets together, strongly suggest that BP’s English top management did not fully understand either the value of the brands they had acquired or the unforgiving nature of the market they had bought their way into. The old Standard Oil brands – particularly Amoco – rated, in every research study I ever saw, as the best and most trusted products you could use in your car. In fact, they traditionally commanded 2 or 3 cents more at the pump than secondary brands (including BP). With a hundred years of experience in the US market, the managements of these companies knew what it took to maintain their standards of operation and to compete fiercely against the other majors for market share.

BP were in a hurry. They were riding high and seem not to have felt any need to take the time to evaluate and learn from the companies they had acquired. They wanted to take control and put their stamp on what they had assembled. So their London-based top management made what I felt at the time was one of the dumbest moves I had seen a major company undertake – and one that I believe no US based management would have made. They decided to abandon the brands which had been the foundation of the retail marketing of their products in the US – great brands on which hundreds of millions (probably billions) of dollars had been spent over 100 years – Amoco, Sohio, Boron, Arco, Standard - in favor of rebranding everything to BP. That they did this in spite of recognizing that Amoco was the best respected brand in the whole oil business is shown by the fact that they kept the Amoco brand and grade names on the gas dispensers even while placing them under a BP branded canopy and pole sign. They then ran a 200 million dollar rebranding advertising campaign, after changing the names at over 11 thousand locations (including canopies, pole signs, building signage and virtually everything in use at each location) and issuing new credit cards to millions of customers. And all for what? To get back to being considered a major brand so that they could continue to command a premium price at the pump and avoid losing customers to the other majors as well as to the growing low-priced gasoline competition.

And, since oil companies generally were not the favorite businesses of an increasingly environmentally conscious public, BP decided also to project themselves as a green energy company. BP no longer stood for British Petroleum – it stood for Beyond Petroleum - a brilliant bit of word-smithing ... if only they had been able to execute it in more than words.

But where did the money for all these changes come from? While major oil companies generate billions of dollars of profits, BP management clearly did not want their financials to look bad against their peers. So it does not seem to be just a coincidence that, while they were projecting a new unified green image, they were also slashing costs at their decidedly un-green operations. Cutting corners at a refinery; cutting maintenance at a pipeline; disposing of waste down an oil shaft; these don’t seem like the actions of a corporation truly committed to being green. They seem like the actions of a corporation that believes that just saying it is so can make it happen – not one that has been in business in the US for a hundred years and that knows that, first, you have to get the fundamentals right.

So is it a surprise that word is now coming out that the Deepwater Horizon gusher might have been caused as much by BP’s pressure from the top as by oil pressure from below? You be the judge.

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