Wayne O’Leary

BP, Perils of Privatization

BP, formerly British Petroleum, has in the wake of the Deepwater Horizon oil spill become a byword for both incompetent business management and bad stewardship of the environment. As such, it has supplanted ExxonMobil, profit-mongering perpetrator of the 1989 Exxon Valdez disaster in Alaska, as Big Oil’s bad-boy designate. It’s a sad comedown for a historic company that aspired to greater things.

BP started life in 1909 as the Anglo-Persian Oil Company (APOC), pioneering in the discovery and exploitation of petroleum reserves in the Middle East — in Iran, Iraq, and Kuwait. Its patrons included future Prime Minister Winston Churchill, who held shares in the company, lobbied for it in Parliament, and successfully urged government support for its operations. In 1923, APOC obtained a monopoly over British oil development in the former Persian Empire. (American companies concentrated on Saudi Arabia following the post-World War I “carve-up” of Middle Eastern oil rights.) In 1935, it became the Anglo-Iranian Oil Company, after its geographic focal point, and in 1954 was christened British Petroleum — later (2000) shortened to BP.

The company expanded into Alaska in the 1950s and in 1965 became the first to strike oil in the North Sea. By the turn of the 21st century, it had merged with America’s Amoco and acquired ARCO (Atlantic Richfield Co.), making it the biggest UK-based firm and one of the four largest multinationals in the oil industry worldwide, with annual revenues approaching $300 billion and yearly profits in excess of $20 billion. But by then, BP was a far different corporation from the one Winston Churchill had sponsored.

For one thing, its nature had fundamentally changed in the 1980s. Almost from the outset, BP was in part a government-owned enterprise, with slightly over half its stock (51%) held by the public. This “half-nationalization,” as petroleum historian Anthony Sampson termed it, was instituted on the eve of World War I and was intended by then First Sea Lord Churchill to guarantee the British navy’s control over its crucial oil supplies. It remained BP’s signature ownership arrangement following the war, serving as the model for Britain’s equivalent to the US antitrust movement — a way, according to Sampson, to limit the power of big business. That countervailing balance was totally disrupted by Conservative Prime Minister Margaret Thatcher’s ideologically-driven privatization strategy, which resulted in the British government selling off all of its holdings in BP between 1979 and 1987.

The Thatcher privatization made BP just another oil company and undermined its carefully cultivated image as a good corporate citizen whose behavior took into account the public interest. Freed of government supervision, BP could behave as badly as competitors like Exxon, money grubbing with the worst of them. But befitting its legacy as a public (and public-spirited) company, the firm viewed itself as a step above the rest.

Under CEO John Browne (1995-2007), the infamous Tony Hayward’s high-profile predecessor, BP positioned itself as a “green” company concerned with reducing its carbon footprint and promoting alternative sources of energy. Until a homosexual scandal prompted his premature retirement, Browne (now the honorific Lord Browne) was the industry’s antithesis to global-warming deniers like ExxonMobil’s irascible CEO Lee Raymond; he had “left the church,” one of them told Fortune magazine in 2004.

The unacknowledged price Browne paid for BP’s toleration of his pro-environment stance — his pact with the Devil — was looking the other way as profits were increased at the cost of safety considerations. BP’s “Beyond Petroleum” ad campaign went hand-in-hand with escalating government fines for operating violations that included dumping hazardous wastes on the Alaska North Slope (1993-95); failing to correct safety hazards leading to a catastrophic refinery explosion in Texas City, Texas, killing 15 workers (2005); and permitting lax pipeline maintenance to result in toxic spills at the Prudhoe Bay, Alaska oil field (2006-07). In all, the company received 97% of all “willful” health and safety violations levied against US refineries between 2007 and 2010, most of them the product of bottom-line cost cutting. The bloom was clearly off the BP rose long before Deepwater Horizon erupted this spring.

The lesson to be drawn from BP’s recent history is that private petroleum companies motivated solely by profit are an economic and environmental menace in the modern world. Their ingrained culture of cowboy capitalism, accurately depicted in popular films from Giant in 1956 to There Will Be Blood in 2007, never changes despite the corporate veneer. What is changing is the economic world in which these dinosaurs exist.

Surprising as it may seem, private oil companies are becoming a thing of the past. In terms of their proven reserves, the biggest of them, ExxonMobil, is only the 14th largest oil firm in the world; the other 13, led by Saudi Aramco, are all state-run enterprises. Some are familiar names to Americans: Mexico’s Pemex, for example, and Venezuela’s PDVSA, which sells its gasoline in this country under the name Citgo. And some have histories as checkered as BP. Nevertheless, the best of them, such as Norway’s Statoil and Brazil’s Petrobras, have enviable records. For instance, safety-conscious Statoil and Petrobras both employ remote-control shut- off switches on their offshore drilling rigs as a hedge against underwater spills; profit-oriented BP had none on its Deepwater Horizon well.

The inherent advantage national oil companies have over private corporations like BP is their lack of dividend-hungry stockholders. State-owned firms can certainly experience blow- outs and spills, but except where an entire national economy depends on ever-rising oil production (e.g. Venezuela), the market pressure to cut corners is lessened. Environmentally speaking, freedom from the demands of investors is no small thing.

Since the US is unlikely to nationalize its oil industry any time soon, there is another contrarian suggestion that could minimize BP-style disasters; namely, to accept the necessity of imports and substitute modernized oil tankers for deepwater drilling rigs. Requiring all tankers entering US waters, regardless of registry or port of origin, to be equipped with double- bottomed hulls, could actually be a safer proposition than continued offshore exploration. Yes, we would have to import more oil in the short run from “countries that don’t like us,” as the canard goes, but the trade-off would be fewer ruined coastlines and destroyed ecosystems.

Wayne O’Leary is a writer in Orono, Maine.

From The Progressive Populist, August 15, 2010