Brand Self Destruction: BP’s Bean Counters Drive a Stake into the Company’s Heart.

Companies that build their business and brand on acquisitions have to justify the cost of their purchases through increased earnings per share, which seems reasonable enough. But when the acquisition target is a capital-intensive entity, and new revenues aren’t easy to find, cost cutting becomes the means to the end. It seems that BP’s number-crunchers have put the company on a collision course with public opinion, investors and possibly even legislators in Washington, D.C., risking its workers' lives and your and my pocketbook in the process.

Two major mishaps, thousands of miles away, seem related to us at Swelled Head. The widely-reported shutdown of the Prudhoe Bay section of the Trans-Alaska Pipeline last August was due to deferred maintenance. An explosion at the Texas City refinery, also was caused by cost-related deferral of maintenance and lax procedures which put its workers in harm’s way (15 were killed and many more wounded). Both facilities generate billions of dollars of profits and can support proper maintenance and safety procedures. More troubling for the company, its reputation and stock price is that both events were avoidable and caused by issues known to management in advance.

It’s this last point that is the potential brand-killer here. Callous calculation by management caused economic harm in the pipeline case and avoidable death and injury in the second. Like a cover-up, disregard for the welfare of employees, the environment or economy are very difficult to recover from. And unfortunately for BP, they’ve got all three on their hands.

This isn’t the first time BP has mangled a branding issue. If you pull into a BP gas station in the U.S., you’ll be treated to brand confusion at work. They sell Amoco gasoline here…as a result of the acquisition of Amoco in 1998. Amoco was a very strong brand, with a reputation for quality fuels that enhanced performance (not bad for a commodity category). BP’s corporate agenda is to have its anonymous brand everywhere so it tried to bury the Amoco brand – however somewhere in the company someone said, "but the Amoco brand is worth keeping." So we are left with confusing co-branding for no apparent reason to the consumer. No doubt experts at global branding consultancy Landor will have reams of data justifying the ultimate branding solution here, but you just have to wonder… If you really do wonder you can visit Landor’s Web site and see their thinking for the brand here http://www.landor.com/?do=cPortfolio.getCase&caseid=322 - there is some very cool work here (especially the Beyond Petroleum concept and campaign), but Swelled Head can’t get the lost value of the Amoco brand out of our heads.

Will all of this kill BP? No way. But the costs will be in the billions for legal settlements, regulatory penalties and the loss of market share from consumers that will avoid BP for its bad behavior. And killing off the Amoco brand (some would say subordinating the brand) won’t do major damage to sales at retail since gasoline sales are driven in large part by location. Swelled Head will keep BP on its radar and keep you informed.

Comments

[Gary Green]

Thanks for acknowledging that the information I provided was correct. Thanks for posting an AP newstory that can serve as an example of the kind of misinformation that gets disseminated as news by reporters who appear to be misinformed on the technical facts but willing to color their news story with their opinion and bias and/or the bias of others quoted. Use of biased language like BP "is the target of a federal grand jury, the Environmental Protection Agency and congressional investigators for letting its Alaska pipeline crumble." can be very misleading and pejorative. I am not an attorney, but use of that kind of language seems to presume facts not in evidence. The regulatory agencies that have oversight responsibility and technical staff that understand the data and the true situation would not use such pejorative words, especially the word "crumble" in describing the technical condition of the pipeline. Many who write with bias or ignorance also have a hidden agenda that is advanced through their writing of stories that are poorly researched and lack factual and technical accuracy. Some who are misinformed reporters are simply lazy reporters. They seem all to willing to pick the "low hanging" fruit" and let that carry the story. Perhaps we have a situation where technical truth is not what sells news stories; but, stories with emotional or shock value may sell. We all suffer when truth is lost or not a requirement for news reporters. This is especially problematic when agencies like the Associated Press, Reuters, Bloomberg get essential or critical facts of a story wrong and other news distributers pass on the misinformation.

[Ken Lempit]

Thanks for reading SwelledHead and your comment Gary. One can google BP's recent disasters and read from many reputable sources how the company hasn’t dealt ethically with this and related issues. SwelledHead isn’t particularly concerned with the technicalities of pipeline geography or ownership (none of which absolves BP of its responsibilities – but yes, BP’s Prudhoe Bay / North Slope pipe feeds into the TAPS, accounting for more than half of its capacity) so much as the impact of such amazingly poor decision making on the brand (we can leave the moral matters to others). Here’s just one damning source, from the Associated Press newswires, placed on its wire August 9.

BP Faces Scrutiny for Pipeline Shutdown

WASHINGTON (AP) - Shutting its North Slope operations is only the latest problem for oil giant BP, which already is the target of a federal grand jury, the Environmental Protection Agency and congressional investigators for letting its Alaska pipeline crumble.

The Justice Department is pursuing possible criminal charges in connection with the oil spill in March on one leg of BP's feeder system in its Prudhoe Bay field.

A federal grand jury is taking evidence in that case in Anchorage. The Justice Department is demanding BP Alaska cut a 12-foot section of pipe where the leak occurred and send it to investigators.

At the same time, members of Congress are pressing for hearings, possibly in September, into BP's maintenance of its pipeline system as the company prepares to complete the shutdown of its North Slope operation to make repairs -- at a loss of 400,000 barrels of oil a day.

"The U.S. Congress has an obligation to hold hearings to determine what broke down here," said Rep. John Dingell of Michigan, the ranking Democrat on the House Energy and Commerce Committee.

Meanwhile, the pipeline repairs -- and loss of more than half of Alaska's crude oil -- are likely to take months, curtailing Alaskan production into next year, according to the Energy Department.

"It will take months to fix so we must deal with the issue at hand," Energy Secretary Samuel Bodman said Tuesday.

"There seems to be a belief that a complete shutdown of the Prudhoe Bay system may not be necessary," Bodman said after talking with BP executives. Bodman said BP was looking at possible ways to allow continued production from half the oil field while repairs are made.

Trying to calm the markets, Bodman said there are adequate supplies of crude oil in inventory and available from other producers to make up for the losses from Alaska. Alaska's oil primarily goes to West Coast refineries.

"Substitutions for Alaska crude oil, we believe, are available," Bodman told reporters. Oil prices retreated slightly Tuesday after Bodman's upbeat assessment.

Even before the spill in March dumped 270,000 gallons of oil onto the tundra, BP's maintenance of its pipelines had come into question.

Company whistleblowers reportedly raised concerns about how the company dealt with pipe corrosion as early as 2004, eventually leading to an inquiry into possible violations of the federal Clean Water Act by the Environmental Protection Agency's office in Seattle -- an investigation that intensified after the March spill.

The EPA, following standard policy, declined on Tuesday to confirm or deny such an investigation.

Charles Hamel, 76, a retired management consultant, said Tuesday that technicians within BP Alaska's pipeline maintenance division contacted him in 2004, complaining of inadequate attention to pipe corrosion.

He produced a letter he said he sent that year to a member of BP's board of directors, Walter Massey, asking that the whistleblower's complaints be investigated, but Hamel said he was rebuffed. Instead, the company dispatched two lawyers from Washington to the North Slope who asked questions about employee discontent, he maintained.

Massey, president of Morehouse College, did not return a message left at his office, and a receptionist referred calls to BP.

"Whenever we receive concerns about safety and integrity of our operations on the North Slope, we investigate and if necessary take corrective action," said BP spokesman Ronnie Chappell. "We also ask our people who raise concerns to provide us with specific information ... so that we can get to that location and verify it."

In a letter in June to the Transportation Department agency that regulates pipeline safety, BP Alaska cited the grand jury probe as one reason it had not been able to comply with agency demands to conduct required corrosion tests on the western half of its feeder pipeline system.

A grand jury subpoena demanded the 12-foot section of pipe where the March spill occurred be cut away and provided to investigators. This could take six months, the company said, preventing the necessary corrosion tests.

But in a letter to PB Alaska last month, the department's Pipeline and Hazardous Materials Safety Administration demanded the company move more quickly and expressed concern about the condition of the pipes.

It noted that BP believed that the "enhanced corrosion" in a three-mile section of pipe, where the March spill occurred, was caused by the development of bacteria in the pipe as a result of too low a dose of corrosion inhibitors being used.

The agency said it also was concerned that months after the spill, some 17,000 barrels of oil had yet to be drained from that section of pipe.

"The stagnant environment ... in combination with other risk factors, including the presence of water in the pipeline, poses an ongoing leak threat," the agency said in its July 20 letter to BP Alaska. If conditions are not corrected, the agency continued, there could be a risk of "serious harm to life, property or the environment."

Thomas J. Barrett, the federal pipeline agency's administrator, acknowledged in an interview with AP Radio on Tuesday that before the spill in March, the agency viewed the BP feeder lines as a low priority.

He said they were low-pressure, in a rural area and had no history of spills. Still, he said, BP should have provided a higher standard of care, and the agency is now paying closer attention to such pipelines.
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AP Business Writer Dan Caterinicchia contributed to this report.
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Thanks to MSN.com for this item. See it in its original context at http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=AP&Date=20060809&ID=5933124

[Gary Green]

This Swelled Head post makes the same mistake many newspapers and other news media have. I am quite certain that the crude oil transfer lines in the Prudhoe Bay Field are not part of the Trans Alaska Pipeline System (TAPS). The Prudhoe Bay Field pipelines are jointly owned by the working interest owner companies of the Prudhoe Bay Unit and are "operated" by BP on behalf of these owners. The Prudhoe Bay Field crude oil transfer pipelines "feed into" the TAPS at Pump Station No. 1 but are not part of the TAPS. The TAPS is an 800 mile, 48 inch diameter common carrier pipeline, owned and operated by the Aleyska Pipeline Company which operates as a separate company but is owned by a consortium of six pipeline companies (BP Pipelines (Alaska) Inc., 50.01%; Phillips Transportation Alaska, Inc., 23.7%; ExxonMobil Pipeline Company, 20.34%; Williams Alaska Pipeline Company, L.L.C., 3.08%; Amerada Hess Corporation, 1.5% Unocal Pipeline Company, 1.36%). Many news stories seem to have been written from an "uninformed reporter" perspective. Too often by reporters have been people who have not even been to the North Slope of Alaska and they were certainly not familiar with the design or function aspects of the specific pipelines they were reporting on. Too often, these stories even mistakenly included photographs of sections of the TAPS crude oil pipeline as if it were the same pipeline which had the corrosion problem being reported upon. I suspect these photos came from stock news photo files. Some television stories have even included stock video footage of the TAPS rather than the Prudhoe Bay Field pipeline. When incorrect visual information supplements a written story, too it often solidifies misunderstandings to the point where the misinformed will even argue on behalf of false information. When visual information is supplied, there appears to be a strong presumption that the rest of the story must be factually correct.

It can be also argued that it was not so much a problem created by "deferred maintenance" as much as it was an "unrealized condition" the required immediate maintenance. The term "deferred maintenance" implies that the condition requiring maintenance was known and that a specific decision had been made to postpone the maintenance or repair of that known condition. I doubt that such a "deferral" was the case, but I could be wrong.