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Oil spill cleanup: After digging deep to kill well, BP faces long climb

A big squirt of concrete and it was done.

A big squirt of concrete and it was done. Five months after the start of the Gulf oil spill, BP on Sunday finally killed the renegade Macondo well, which shared its name with the doomed town in Gabriel Garcia Marquez’s book “One Hundred Years of Solitude.”

The final relief well “kill” – performed 18,000 feet below the sea floor – provided little more than a symbolic end to a summer-long disaster that put the Gulf oil industry, resort towns, and fishing communities in the grip of a crude-infused calamity that reopened wounds from hurricane Katrina five years earlier.

To be sure, troubling questions remain about the amount of oil left in Gulf waters, its impact on the complex coastal biology of the region, and the long-term economic effects of a six-month drilling ban and the 20 percent premium that explorers now expect to have to pay to drill new wells in the Gulf because of drilling delays and insurance rate hikes.

Despite a loss of nearly one-third of its stock value (or $70 billion) since the spill began, BP will endure in the Gulf, where untapped deep-water deposits shape its future as an oil company. But given the overall hit to its corporate reputation and stock price, and after a series of PR blunders under former chief Tony Hayward, BP knows it must build a new image, much as Exxon did after the Valdez disaster in 1989. And with deeds, not words.

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“This is ultimately a story about corporate reputation and corporate liability,” says James O’Rourke, a management professor at the University of Notre Dame in Indiana. “Clearly, the litigators want everybody to shut up and say nothing and then fight the battle in court. But ultimately the court of public opinion may determine more of the company’s forward success than a court of law.”

Impact on bottom line
BP has paid out $9.5 billion to combat the spill, kill the well, and remunerate victims – a figure that BP says could ultimately climb to $32 billion. Though that’s not likely to doom a company with an average annual revenue stream of nearly $250 billion, uncertain liabilities could increase the impact on BP’s bottom line beyond that figure. Unresolved issues include restrictions on BP’s ability to drill and the settlement of thousands of civil lawsuits piling up in courthouses along the Gulf Coast.

More broadly, the accident is likely to alter how business gets done in the Gulf, and not just for BP. The result may be that drilling will be safer, but it will also be more expensive, which could shake out some industry players and affect everything from gasoline prices to US energy independence. Four major drilling rigs, including the Deepwater Ocean Confidence, have left or are leaving the Gulf due to the drilling moratorium.

Tougher regulations and higher insurance rates present a “significant change [that] could affect the rate of oil production from the Gulf many years from now and ultimately the amount of oil that can be recovered from the region — another long-term blow for the import-dependent U.S. economy,” writes James Herron for The Wall Street Journal’s “The Source” blog.

BP is starting its rebuilding effort in a series of down-to-earth ads showing locally born executives talking about the company’s efforts to stay until the clean-up is complete and lives are restored. Communications experts say that’s evidence of a company that’s settled on a “paid-media” strategy to go around the geyser of negative press that surrounded the spill and BP’s role. The strategy also earned BP the ire of President Obama, who in June said about BP’s $50 million image campaign: “What I don’t want to hear is, when they’re … spending that kind of money on TV advertising, that they’re nickel-and-diming fishermen and small businesses here in the Gulf who are having a hard time.”

Words and deeds
Nifty branding is what had set BP apart before the Deepwater Horizon accident, as the company transformed itself, according to past CEO John Brown, into a moral market leader that understood that BP “needs a sustainable planet for its own survival.”

That concept was enshrined in the introduction of the green helio and the phrase “beyond petroleum” to replace British Petroleum.

BP, however, may have failed to undergird its corporate messaging with responsible behavior on the ground, either out of complacency or a focus on the bottom line as the Deepwater Horizon rig faced cost overruns battling the troublesome Macondo well.

“There was an accumulation of small decisions at the margins about this risk versus that risk, and they all went wrong,” says Mark Isaac, an economics professor at Florida State University in Tallahassee. “Ultimately BP would have been better for the environment if they’d decided to be a better oil company.”

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Indeed, economists say BP has begun to move, often in fits and starts, from trying to control the messages around the oil spill to heeding its lessons. In other words, even in the world of corporate communications, talk is ultimately cheap.

“I think the best thing they can do, and it will take years, is cleaning up the area and getting people back to work,” said Tim Sellnow, a crisis communication expert at the University of Kentucky in Lexington, in a university news story. “Then, they need to be proactive and move to the forefront of their industry in oil drilling and oil transportation safety. That would require an entirely new culture in the organization.”

Replacing BP’s Euro-centric leadership, epitomized by former CEO Tony Hayward, with Gulf Coast-born Robert Dudley and fellow American Doug Suttles hints at the company board’s willingness to redirect the BP “culture” toward paying more attention to the frontlines, where drill meets dirt.

Moreover, the future BP, experts say, may be built more as “financial participant,” where it would let other companies do some of the exploration work, Phillip Weiss, an analyst with Argus Research, told Bloomberg News.

“My sense is that BP has deep pockets, good leadership, and a solid business model,” says O’Rourke at Notre Dame. “It’s going to be a rough go for a while for them, and what they’ve got to say is that the mistakes which led to the explosion … were an aberration rather than the core of the culture. People affected by this are not going to forget, but people are willing in many instances to forgive.”