BP's Troubled Times: From Blow Up to Shutdown

August 8, 2006

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August 8, 2006

The oil giant shut down a crucial field in Alaska Monday. But that's not its only problem. BP is defending itself against charges that it manipulated propane prices. Last year, one of its Texas refineries blew up, killing 15 and injuring almost 200. And other plants have been plagued by safety issues.

MICHELE NORRIS, host:

Now, we're going to hear more about the company that's at the center of the storm in Alaska and on world oil markets.

MELISSA BLOCK, host:

Chip Cummins reports on the global oil industry for the Wall Street Journal. And Chip, let's go back in history a little bit to the origins of this company. It all started out with a wealthy Brit in the Iranian desert looking for oil.

Mr. CHIP CUMMINS (Wall Street Journal): Absolutely. William Knox D'Arcy obtained a concession from the Shah of Persia at the time, in 1901. He struck oil in 1908, made a fortune, and then his people who followed him in the business grew the company into one of the largest oil companies of the time.

BLOCK: And for some years, the British government had a controlling stake in the company, as well.

MR. CUMMINS: Absolutely. The Anglo-Persian company needed investors, and the British government needed oil just ahead of World War I, so the two parties agreed to swap, and the British government took over a majority shareholding interest.

BLOCK: How did BP come to be such a big player in the global oil market?

MR. CUMMINS: In BP's modern history, you had essentially, by the end of the 1970s, a company that had overextended itself going into all sorts of things like nutritional businesses, forests and mining. It sort of lost direction. It started to shed then and then found two big new sources of oil as it was getting kicked out of places like Iran and the Middle East. That was the North Sea and Alaska.

BLOCK: British Petroleum goes on to merge with Amoco in 1998, and soon thereafter it's no longer British Petroleum. It's BP.

MR. CUMMINS: The whole industry went through a very tumultuous mergers and acquisitions phase in the late 1990s when oil prices really tanked globally. That caused British Petroleum's chief executive at the time, John Brown, to think how he could squeeze out more oil for less cost, and he came up with the solution of combinations of big oil companies, snapping up in rapid succession Amoco and then Arco.

BLOCK: Let's talk about some of the problems that this company has had in recent years. One of them was a huge explosion at a refinery in Texas last year.

MR. CUMMINS: Yes. March, 2005, BP's largest American refinery suffered a disastrous explosion that killed 15 and injured almost 200, and in subsequent investigations, a number of safety lapses were uncovered.

Since then, BP has been plagued by a number of other safety problems at other plants, and they've been fined by workplace safety regulators. In addition, BP just this summer was slapped with some very serious allegations of market manipulation in the propane market, allegations that BP hiked up prices for consumers.

BLOCK: This does seem to be a company that's doing a very deliberate re-branding of itself. They changed their logo to this green and yellow sunburst. They have a lot of ads, you see them talking about alternative fuels and renewable energy, things like that. What sorts of things are they branching out into?

MR. CUMMINS: Well, the company does have a very long standing history in terms of the modern oil industry of branching out into alternative sources of energy and environmentally friendly or environmentally sustainable practices. The chief executive, John Brown, broke with the industry in a relatively famous speech at Stanford about seven years ago, saying in fact global warming looks real and it looks like it's going to be a real problem, and BP, anyway, is going to do something about it.

So the company staked some ground and it's gained some legitimacy in the eyes of a lot of environmental and corporate responsibility types in terms of taking the high ground on environmental issues.

BLOCK: How damaging do you think this problem up in Prudhoe Bay will be for BP?

MR. CUMMINS: I think it's a huge black eye, but again it comes at the end of a string of black eyes. The shutdown, however, had immediate effects on oil prices, and if that trickles down to gasoline prices, you're going to have a real hit to consumers with only one company to blame in this case, and that's BP.

BLOCK: Chip Cummins, thanks very much.

MR. CUMMINS: Thank you.

BLOCK: Chip Cummins covers the global oil industry for the Wall Street Journal.

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