By now, everyone is probably too jaded to expect anything different, but BP’s latest action in the face of skyrocketing gas prices is just…well, priceless. After posting record profits, they shut down a substantial portion of the Alaska pipeline.


This is from last year, and, well, we all know what prices have done since then:

There is no doubt the pipeline needs repair. It would seem it has needed some serious repairs for decades, but nothing has been done while BP raked in wads of cash…until the summer of 2006, that is, when oil is bringing in record prices per barrel. Oh, and as usual, California's going to take it in the shorts.



A simple Google search found many articles on BP’s neglecting maintenance of the pipeline over the last decade. In 1999, this statement was made (Aleyska is run by BP):

For the first time ever, we the American consumers owe more than we make, with household debt exceeding income by 8.4%. Wages are stagnant, the cost of living keeps rising, and yet giant corporation continue to post embarrassingly high profits and CEO’s pocket obscene amounts of money, and none of that fiscal success seems to trickle down to the workin’ Joes and Janes.

BP has been in trouble many times, is still facing investigation for manipulating propane prices.

Is the timing of the pipeline shutdown suspicious in light of BP’s prior knowledge of the damage, and failure to take action at that time? How so or why not?

With record profits, shouldn’t a company the size of BP be able to maintain its equipment properly?

Would it be smarter, when a company is successful, to invest more of its largesse in its employees, rather than granting gigantic bonuses to already overpaid CEOs?

How will this affect an already stretched American consumer?

Is the timing of the pipeline shutdown suspicious in light of BP’s prior knowledge of the damage, and failure to take action at that time? How so or why not?

No, for the very reasons you cited. Why would a company intentionally stop its ability to produce a product right when it was making the most money? What exactly are you insinuating they're doing? Kicking themselves just for the pain of it? At best, the only logical argument I can envision would be that they're reducing profits for political purposes--in which case all those such as yourself bashing Big Oil profits would really be to blame, so I really have to wonder what it is that's being insinuated here.

With record profits, shouldn’t a company the size of BP be able to maintain its equipment properly? I won't disagree with this point, but what is being missed is the reason the petroleum industry is often so lax in their equipment maintenance (note the various problems with oil tankers, as well, and in refineries). That being that the profit margin in these industries is actually quite small (overall profits are large because of the sheer volume of oil consumed). In any industry with small profit margins, maintenance and other routine activities are always cut back. Sure, it is easy to look at this one example, and wonder why they didn't spend more on maintenance. This was just a few miles of pipeline...how many thousands of miles of pipeline does BP maintain? The maintenance costs can become quite large. Further, this pipeline has been up, as you say, for decades. So, current profit margins really have nothing whatsoever to do with longtime maintenance programs or issues.

Would it be smarter, when a company is successful, to invest more of its largesse in its employees, rather than granting gigantic bonuses to already overpaid CEOs?

What? What the heck does this have to do with the stated maintenance problem on the pipeline? First, the petroleum industry is, in general, pretty generous in employee compensation. For many years, Petroleum Engineering was the top paying job for college grads, considerably higher than whatever was in second place (chemical engineering, I think). Other jobs throughout the industry are also well paying. In fact, the petroleum industry is probably among the top paying industries out there. So, if you're going to bark up that tree, you're definitely in the wrong forest. Second, what would be the impact of paying more to employees? Even less money available to spend on maintenance, thereby making the very problem you cite here worse. What good would that do?

How will this affect an already stretched American consumer? That depends on the effect it has on gasoline prices. The Saudis have stated that they will increase production to make up any shortfalls, and opening up the strategic petroleum reserve has been discussed. So, the impact may be negligible.

With record profits, shouldn’t a company the size of BP be able to maintain its equipment properly?

Without question, unless it costs a billion dollars each time to “run the pig”. Caught a piece on the tube last night that some former workers complained that BP was also negligent by not putting enough corrosion inhibitor through the pipeline because “it was too expensive”. Which might be corroborated with this:


So again it appears another preventive maintenance practice was disregarded because it was “too costly”. It's simply too disgusting for words.

This is one of the reasons I laugh when I see those who scream that the government should leave businesses alone.

Did you bother to read the piece by Greg Palast? BP's profits have increased since this shutdown. Let me help you out a little:

I cited the pieces for a reason. BP has been told, and told again by many, many people and organizations that a problem was bound to happen, and BP ignored it...until now. My question is, why now? Is it somehow "insinuating" of me to wonder that? Unlike some, I don't have unlimited faith and belief in the pureness of intent on the part of big oil. I believe they are valid questions. If you don't, that's your prerogative.

What difference does it make if prices go up on a good you can longer bring to market? Is this some insidious ploy by BP to raise profits for all the other oil companies? How would they benefit from that? This is a classic example demonstrating that just because something is in print doesn't make it true...particularly when the source is clearly biased to begin with. Let's do a little basic math...something the article you cite fails to do, mainly because it demonstrates the ridiculousness of their statement...or because the author is simply incapable of doing so, which doesn't exactly enhance his credibility.

BP produces 400,000 bbls oil per day from this field that it can not bring to market because of this shutdown. If they produce the 4 million bpd stated, that's 10% of their daily production. The price increase cited (which is also likely overstated as the market ALWAYS overreacts to such news) represents an increase of 3 %. Therefore, BP would be losing 7% revenue, which would have an even bigger impact on profits. To put it into absolute terms, BP is losing $21,520,000 dollars/day (current price*current production)-(previous price*previous production). So, again, I have to wonder just exactly what insidious intent they have that they would find worth losing $21 1/2 million dollars per day, for what looks like a period of several months...something that will total several billion dollars in lost revenue, plus the additional costs of repairs, plus likely additional marketing costs to regain market share and restore brand image. Exactly what is being implied that they're gaining that they would find worth that much money, market, and prestige?



Did you bother reading the question you asked, which was in bold directly above my statement, and which this statement was directed towards? Let me help you out a little:

Would it be smarter, when a company is successful, to invest more of its largesse in its employees, rather than granting gigantic bonuses to already overpaid CEOs?

The follow on statements I then wrote describe why this is both unrelated to the article you cite and the issue it describes, but also why the petroleum industry in general is a very very poor choice for this argument, as it pays good wages. All of these issues remain unaddressed..so I gather you are conceding them?

On the surface, no. However, the most obvious answer would be because the leak occurred now. Hakim's Razor, which states 'With all things being equal , the simplest explanation/answer is normally the right one', indicates that that is also then probably the correct one. Realizing the BP's delays in making any repairs is currently costing it billions of dollars only lends even more, and quite substantial, evidence to that conclusion. It would be nice to see at least some credible (and not math-challenged) evidence that anything else occurred, other than the usual bad big oil arguments.

Nor do I. There have indeed been times when oil companies have intentionally and unfairly taken advantage of situations to raise prices at the pump, and I have called them out on it when it occurs. This event, though, clearly works against the company responsible, making any allegations difficult to substantiate.



Or it might not. The corrosion inhibitor wasn't being used as extensively in that section of the pipeline because it was downstream from refining, where most of the chemicals that could cause corrosion are removed. So, essentially you're arguing that oil companies should add additional items into their costs which were deemed unnecessary, thereby driving up prices. Do you really want to pay more at the pump? Further, BP is stating that the inhibitor that was being used was leeching onto the sludge along the pipe, thereby reducing its effectiveness farther down the pipeline. This effect was neither known nor expected.

So again it appears another preventive maintenance practice was disregarded because it was “too costly”. It's simply too disgusting for words.

I am curious, FifeandDrum, just exactly how much more you would like to pay at the pump for enhanced maintenance? I quite sure all the oil companies would be more than happy to spend your additional contributions maintaining their equipment. Or does your disgust not make it past your wallet...which is exactly why such procedures are not done?

I will agree that additional periodic inspections, on at least an annual basis, should have been conducted. However, whenever the issue was spotted, it seems likely that a shutdown might have been necessary, leaving us with exactly the same problem we have now.

Is the timing of the pipeline shutdown suspicious in light of BP’s prior knowledge of the damage, and failure to take action at that time? How so or why not?


Well, please don't mistake sinister plots when incompetence and overactive bean counters will be a just fine explanation! - I personally know many engineers and pipeline workers- and not one of them that has worked on the Pipeline will tell you that the pipeline hasn't needed some major maintenance for going on 15 years or more-

http://www.eyeonwackenhut.com/index.asp?Ty...E7E9E78664F5%7D


In the early 1990s, Wackenhut was hired by Alyeska, an oil and gas company with ties to Exxon-Mobil, and other large oil companies, that run the Trans-Alaska pipeline.

Working for Alyeska, Wackenhut conducted an elaborate, illegal undercover sting operation designed to entrap Alyeska employees who were providing information on company wrongdoing to Chuck Hamel, a whistleblower who was passing information to the U.S. Government and Congress.[13]

Wackenhut conducted surveillance of Alyeska employees, as well as Mr. Hamel, with methods including: analyzing telephone records, collecting and searching trash, and conducting background checks.

Wackenhut set up a bogus environmental organization called “Ecolit,” offering to help Mr. Hamel pursue litigation against the oil industry. But Ecolit’s real purpose was to induce Hamel to reveal the names of his Alyeska sources.[14]

Since Exxon-mobile got whacked by the judges for that one- whistleblowers have been pretty vocal, and at one point, a bunch of employees refused to sign off on electrical stuff on the pipeline.

It goes on and on- and since this is an oil town, we all know folks that work up there, and it is pretty universal- BP bought Phillips, who bought ARCO who bought Exxon Mobile- or some such, I probably don't have enough company names or in the right order LOL-

But, BP inherited a big problem nonetheless. And they had been told about this PRIOR to thier buying interest- so it wasn't like they were snuck up on with it- but they knew they had it. Alaska has very low grade dirty crude, and it has mega tons of sludge that is abrasive pumping through all those pipes day in and day out.

BP pinched pennies, putting REQURED ONLY stop gaps, and trying to limp the system along. They got greedy- you see, a corporation thinks, not in terms of profits of the entire company when thinking of Prudhoe projects- but ONLY IF THAT FIELD IS PROFFITABLE- so another words- though BP is raking in gazzilions of dollars in world wide profits- fixing the problems can make that field unprofitable for NEARLY SIX MONTHS OR ME - every management team up there is always under enormous pressure to make that field proffitable and sustain it's profit yield with no fall off except as the projected fall off in production that happens when a field is drained dry.

Prudhoe bay is a key stone to any oil company exec for gaining big time promotions in the company- that field doesn't produce according to specs profit- that exec does not move up.

So BP took the gamble of big profit margins with just stop gap maintenance like all the companies before it- only what the goverment mandates, no more- and claim "see, we followed all the rules"- but doesn't do one iota of what NEEDS TO BE done.

This is the same thing with the big spill in THE Prince William sound with the Exxon Valdez- except there, they didn't even have all the spill equipment they were supposed to have, and wouldn't have made any difference anyway, and the lawyers for the company hit the beaches before the equipment was all the way down the Sound!

It is a corporate culture that needs to be addressed when it comes to this kind of stuff. They only do what you force them to do, nothing else- and they know they are going to get forced big time- they gambled, and they lost in this one, but usually they win.


With record profits, shouldn’t a company the size of BP be able to maintain its equipment properly?

See above

Would it be smarter, when a company is successful, to invest more of its largesse in its employees, rather than granting gigantic bonuses to already overpaid CEOs?

BP execs are from England- they don't have such big salaries like American CEOs, but they are handsomely paid- but so are the poeple that work on that pipeline.

There will now be another group of "spillionares" on Anchorage - Welders and outfitters working around the clock making 200 bucks an hour day in and day out. They need alot of them- Anchorage economy will be booming big time, in fact, city planners are worried about boom time real estate prices with already high prices already.

It is not the workers they begrudge- it is the cost of the equipment they need to replace- it is almost a complete overhaul of the infrastructure- you see, this field was not supposed to last this long- but new techniques of pumping it out of the ground made it produce longer, and has another 20 years to go probably before it is a dead end.

How will this affect an already stretched American consumer?

I have no idea- but if you want some relief- call you senator and tell them to back a tax on oil companies there that purposely sit on the natural gas pipeline leases. You want your heating bill to go down- Prudhoe bay is known as "a small oil field on a really, really big natural gas field"- a pipline from Prudhoe to Valdez would be immediate cost savings the minute it starting pumping- because it would not even peak for over 20 years! We could just about heat the nation with what we got- and the oild companies know it.

Oh, and Hobbes- they have known the problem for years- they also know they would have simply had to SLOW the flow down, below max capacity, for about a year, and fix the problem that way, and knew there was a big risk of a spill for NOT doing it.

Is the timing of the pipeline shutdown suspicious in light of BP’s prior knowledge of the damage, and failure to take action at that time? How so or why not?
Whenever oil prices go up, the public always views oil companies with suspicion. So yes, the public is going to be suspicious. Now, in order for price fixing to work, all the major oil companies have to act in unision. Unless Exxon and Conoco shut down their pipelines simeoultaneously, BP would not be able to profit from any attempt at price fixing.

With record profits, shouldn’t a company the size of BP be able to maintain its equipment properly?
That's exactly what BP is doing. If they kept the pipeline going, then they wouldn't be able to make the necessary repairs.

Simple economics at work here and I’d say it’s a personal opinion of what’s fair. BP makes BILLIONS in profits per quarter. I never found how much the corrosion inhibitors would have cost, but let’s say it’s ten million a quarter. So instead of making seven billion in profits per quarter, they make ten million dollars less (or what ever the cost of the inhibitors).

Seems to me they have plenty of wiggle room in the profit margins and could afford NOT to raise the price at the pump. Instead, chances are we’ll all be paying at the pump now because they were pinching pennies. I’d be willing to bet they still make billions of dollars in profits during the time the pipeline is shutdown.

And I think the point daffyGrl was driving home is how can a company that makes this much money, who didn’t take the precautionary maintenance measures because of greed, and the resulting consequences could throw the country into a recession. Because there is a price point that the cost of gas will put the economy into a full blow recession.

Is the timing of the pipeline shutdown suspicious in light of BP’s prior knowledge of the damage, and failure to take action at that time? How so or why not?

Suspicious? Because a big spill occurred and now (months later) they decide it's time to fix the problem? The actions by BP here are pretty much in line with how most people (and sadly, companies) deal with known problems...they ignore them until they become a crisis.

With record profits, shouldn’t a company the size of BP be able to maintain its equipment properly?

Record profits which they can now use to fix the pipe. Let's not forget that the oil business wasn't all that profitable just a few short years ago. Even today, the profit margins are not all that great. Sure the absolute dollars are big, but the return on investment--at around 8-9%-- is far better in many other industries.

Would it be smarter, when a company is successful, to invest more of its largesse in its employees, rather than granting gigantic bonuses to already overpaid CEOs?

Like Hobbes, I don't know where this question is coming from. Now if you had said in maintenance, I guess we could debate that. What does CEO pay have to do with anything here? The oil industry pays very well (Hobbes was correct about petroleum engineers, which are a subset of chemical engineers) across the board.

It doesn't mean that it isn't true, either. Well, Hobbes, I believe Mr. Palast’s opinion is valid and carries more weight than any of us here at AD, since he is an energy economist, investigative reporter, and has written several books on the oil industry and corporate fraud in general. I try to cite opinion pieces only when the writer has solid bona fides on the subject. Also, he is not the only one who is suspicious of BP’s motives (and yes, some of them are even Republicans).


Uh, no. The opposite, in fact. It isn’t just the BP employees who will suffer. I’ll concede that they are probably better off than other Alaskans…for now…until BP lays them off due to “reduced revenue” or some other excuse.



The effect of this shutdown, at this particular time is far greater than it would have been before the Middle East nonsense, when oil was relatively inexpensive and plentiful (say, in the last decade). And it will have a more far-reaching effect than just gas prices.

CruisingRam, I don't argue that at all. I agree completely with your analysis of the situation. I am not claiming that BP is without fault here...just that this shutdown wasn't intentionally arranged by them. Rather, it would seem more of an ostrich situation, where they kept their head in the sand hoping this wouldn't happen at all. BP will lose far more money now that they have to shut the pipeline down than they would have spent preventing it in the first place. As you stated above:




Daffy:
No, you're right, it doesn't. However, when one then examines the math, it seems to become pretty clear that BP is losing a LOT of money on this....hardly a reason to something intentionally.



And well they should. This doesn't mean that BP did anything intentionally, though...merely that the government might have to look into maintenance practices on a resource that is so critical to our economy (see Cruising Ram's post).



Again, please read CruisingRam's post....this will create the need for more people, not less. Follow-on activities will almost certainly require more maintenance, requiring more people. Also, the number of people required to run these facilities isn't going to go down any, so there really isn't any way for BP to have any layoff's without affecting production...and production drives a lot more revenue than getting rid of a few employees. Essentially, as I said above, this argument just doesn't apply well to this particular industry--it pays well, and it's not all that labor intensive to begin with, but rather capital intensive. This is why you see maintenance issues as opposed to layoffs...capital expenditures and maintenance are where they can cut costs, not labor.



I agree. This is exactly why it makes no sense for BP to be doing this intentionally, and also why the fact that it happened now will probably bring increased scrutiny (which will also hurt BP's and other oil company profits).

Fife:


They are making that much right now, but this pipeline has been in operation for decades. During that time, profits have varied widely (the petroleum industry is infamous for its boom and bust cycles). Maintenance procedures are very long term processes, and these were put in place long before this current boom cycle. However, as I said in my earlier post, I am not arguing that BP couldn't have spent a little more and avoided this...they could have. CruisingRam does an excellent job of explaining why that didn't happen.

All this being said, though (and this goes for DaffyGirl as well), I suspect we're basically in agreement if we stripped the rhetoric away. We all seem to think BP could have prevented this, and we all seem to agree that their maintenance procedures were lax to increase profits. Given all the money this laxness is going to cost them, the problem will correct itself...BP won't want to lose this much money again.

I do think that two govermental changes need to occur because of this:

1) They should not be allowed to write off one penny of this maintenance, and should be taxed on gross revenue without allowing them to take into account any losses from Prudhoe- and it should be true for all operations in the US jurisdiction. They should not be allowed to recoup one penny from this incompetence and bad behavior that results in a spill- you see, BP does not own the oil outright, Alaska does, they pay royalties to us for the privilage of pumping it out of the ground and getting thier "piece of the action".

So, it is not just thier profits they harm with thier behavior- but the feds and state's royalties as well- they should be required to pay those royalties as if full production was occuring- and not allowed to write one penny off either- make them lose billions with this- mega billions, to the point they have no profit whatsoever- but are taxed on gross revenue.

There is not enough punishment world wide for this kind of behavior that allows spills and what not- it is reallly minor slap on the wrist this loss as it stands right now compared to the effect they have on others with thier behavior. Oil companies only do what goverements force them to do, they don't do any more than that.

2) We need to change they WAY we tax, more than than HOW MUCH we tax oil companies- we need to tax oil companies on gross revenues world wide- and base all tax breaks on goo world wide behaviors. Like total lack of spills world wide, maintenance schedules that go beyond goverment mandates.