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Closure threatens BP's image

'Beyond Petroleum' effort likely to be hurt by multiple mishaps

Posted: Tuesday, August 08, 2006

NEW YORK - In an industry known for butting heads with environmentalists, British oil company BP has long managed to convince Americans that it is a responsible "green" corporation.

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But that carefully crafted "Beyond Petroleum" image led by its green-friendly chief executive John Browne may be in jeopardy as BP deals with the latest blow to its U.S. operations - the shutdown of its massive Prudhoe Bay, Alaska oil field after a spill from a corroded pipeline.

Closing the pipeline follows a rash of environmental and safety issues with which BP's U.S. arm has dealt over the past two years, including a 2005 explosion at its Texas City, Texas refinery that killed 15 workers.

Troubles at BP

Other company incidents:

• The pipeline: BP is already facing a criminal investigation over a march spill of 267,000 gallons of oil at the same field.

• In Texas: BP and U.S. officials are investigating the death of a contractor last month at the texas city refinery where 15 workers were killed and more than 170 were injured in an explosion last year. That accident led to a $21.4 million fine by regulators who said they found more than 300 willful or serious violations of health and safety regulations. bp has set aside $700 million for compensation claims.

• Gulf of Mexico: The $1 billion thunder horse platform, left listing by a hurricane in 2004, is now set to begin production early next year, instead of the second half of this year.

• Regulatory: U.S. investigators allege BP traders cornered the u.s. propane market in the winter of 2004 to manipulate prices, which drove up heating costs for rural consumers. the company has denied any wrongdoing but has called in external auditors to review compliance systems at its U.S. trading business.

Analysts say the latest shutdown may have limited impact on BP's finances and stock price. But it could still be costly for the company in the United States.

"The wider implications for BP are more sentiment driven," Credit Suisse analyst Ed Westlake wrote in a research note.

"The company, consistently seen by the public as the 'greenest' energy company, will be hurt hard by these reports, particularly following hot on the heels of the blowout at the Texas refinery, as well as explosions at Prudhoe Bay," Westlake wrote.

Credit Suisse said that future project approvals in the United States could be difficult given that BP attracted regulators' attention after the Texas City blast.

Citigroup called the pipeline shutdown the latest "slur on BP's US credentials," but said the effect on the bottomline would be minor. Even if production from the field - about 9 percent of BP's U.S. output - was shut off for the rest of the year, it would crimp earnings by 2 percent this year, Citigroup estimated.

Investors have paid the price for BP's woes. Since March last year, BP's share price is up about 13 percent, while Exxon Mobil Corp.'s shares rose 17 percent, and ConocoPhillips' stock rose more than 29 percent in the same time period.

For more than a year, BP's U.S. operations have been beset by problems, starting with the Texas City blast. BP agreed to pay U.S. safety regulators $21.3 million in fines related to that explosion.

In March, a ruptured pipeline at the Prudhoe Bay field spilled at least 200,000 gallons of crude oil. Soon after, federal regulators fined BP's U.S. refining unit $2.4 million for safety violations at an Ohio refinery.

"There's an emotional element to this. BP is known as a foreign company and they've portrayed themselves as environmentally conscious, and that's going to lose some luster," said John Parry of John S.Herold.

In June, BP appointed Robert Malone to head its U.S. operations. Malone has made cleaning up BP's public image a priority. He has ordered that an ombudsman be hired to handle tips from BP employees over environmental or safety concerns.

Still, at least one U.S. lawmaker said that BP has a history of poor management in the United States.

"Today's shutdown of BP's eastern operating on the North Slope field appears to be the result of the chronic mismanagement of its drilling operations in the U.S.," said Rep. Edward J. Markey, a senior member of the Energy and Commerce and Resources Committees.



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