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Tanking Hard

Why BP's handling of the spill has the entire oil industry panicked.

Early on Monday, BP’s boyish CEO, Tony Hayward, sat in an open-collared white dress shirt and, rocking back and forth in a studio chair, submitted to a series of four network interviews about his company’s catastrophic oil spill in the Gulf of Mexico. The questions from NBC, CBS, ABC, and the BBC differed slightly, but to all the anchors, Hayward delivered a similar line: “This is not our accident.” In other words, it's not BP's fault. Only after making that point did the 52-year-old Hayward proceed with a vow to clean up the mess and cover any damages.

Hayward is not known to be a gruff oilman. Yet his slow and defensive public response to the April 20 rig explosion has dismayed many oil and p.r. industry veterans who say that BP lost control of public perceptions virtually from the outset. Its first corporate statement after the explosion was a link to a press release from Transocean, the Swiss-based operator of the rig from which BP’s Macondo well was being drilled. And then, for almost two weeks, neither Hayward nor any other London-based executives got in front of the cameras on the scene to explain what they were doing and would do about the spill. When Hayward finally did, the British oil executive seemed intent on conveying only one crucial point—that, unlike a string of accidents in BP-run operations going back five years, this one was not inflicted directly by his company’s personnel. He bristled at comparisons with a deadly 2005 explosion at a BP refinery in Texas City, Texas. Yet, given the typically intense oversight exercised by Big Oil over important contractor-run projects such as Macondo, Hayward might as well have suggested that aliens seized control of the rig. The overall impression was that of an out-of-control catastrophe in which the company's CEO was attempting to fob off responsibility to a no-name contractor.

Now, the fallout from this clumsy response is making petroleum companies extremely nervous. Executives, not just at BP, but throughout the oil industry, are concerned that the disaster will have the effect of restricting or closing off their continued ability to drill in the Gulf, one of the few remaining places on the planet where oil producers are permitted a relatively free hand. That's why Exxon, Shell, and Chevron, which all have significant operations in the Gulf, are pitching in technical assistance—because the blowback from this disaster might harm their interests as well. "I’m really worried. I think this is Chernobyl" in terms of public opinion, says Merrie Spaeth, a Dallas-based corporate crisis consultant. “It plays to the, ‘Don’t drill, the sky is falling’ crowd."

Indeed, to understand the enormity of what's at stake in the Gulf of Mexico, you have to recall the dramatic effect such disasters have historically had on American politics. The most recent similar event was the 1989 grounding of the Exxon Valdez, a supertanker that spilled some eleven million gallons of oil into Prince William Sound, killed more than 100,000 seabirds and other animals, and dramatized the impact that a single accident can have on nature. But, in terms of overall political impact, one must go back another two decades to a more direct comparison—the 1969 blowout of a Unocal well six miles off the coast of Santa Barbara, California, which spilled around three million gallons of oil into the Pacific Ocean and was instrumental in the birth of the full-throated environmental movement that we know today.. Santa Barbara is why oil drilling in U.S. offshore waters is largely outlawed, and why President Barack Obama—even as he moved on March 31 to ease a moratorium on drilling off of America's east coast and off-limits sections of the Gulf—did not dare touch laws governing California.

The Gulf spill is already overturning attitudes in Washington. President Obama has frozen his plans to lift the drilling moratorium. Few believe that he will return to the same formulation regardless of the environmental outcome: experts predict stiffened regulation of drilling, and companies may not be permitted to produce in a wider area at all. But if the oil comes ashore and spills into the marshes of the Mississippi Delta, all drilling in the Gulf will be in jeopardy, not to mention other initiatives that affect the vital interests of energy companies.

“The public perception is that this is a dangerous, dirty business,” says Edward Chow, a former senior Chevron executive, and now a senior fellow at the Center for Strategic and International Studies in Washington, D.C. “Everything is going to be examined more closely—Arctic exploration, shale gas.” (Critics say that shale gas, a fuel source that has the potential to revolutionize American energy production, risks fouling water supplies.)

Already, California Governor Arnold Schwarzenegger has withdrawn support for a plan to re-open the state’s coastline to drilling as a way to reduce its budget deficit. “You turn on the television and see this enormous disaster, you say to yourself, ‘Why would we want to take on that kind of risk?’” Schwarzenegger told reporters in California on Monday.

Meanwhile, petroleum companies are giving the impression that the spill has caught them completely by surprise. “People in the industry are stunned,” says Robin West, CEO of PFC Energy, a Washington consulting firm. West says that the industry has been obsessively focused on safety for the last decade or so, to the point where a recent farewell party for Chevron CEO David O’Reilly included a company executive standing up to deliver a safety briefing about fire exits and other emergency preparations. Because it has created such a culture of safety, the industry assumed that a spill of any significance in the Gulf was simply impossible, as it pushed for broader rights to drill. “I’ve heard of a number of board meetings this week where it has been asked, ‘How could this have happened?’” says West.

The answer has a lot to do with BP. The company's safety procedures were obviously not up to the ambitious task of drilling at ultra-deep Macondo. And on the p.r. front, it made the mistake of not preparing ahead of time for just such an event—something that oil companies usually do as a matter of course, since at least the Exxon Valdez spill. According to Spaeth, the crisis-control expert, an elementary step to take would have been to coordinate who among the Macondo project’s partners would take charge of the public message. In addition, any standard pre-disaster plan should have included “competitive video," meaning pre-prepared company footage that can be offered up to networks as stock shots for broadcast. In BP’s case, this could have included training drills and the application of dispersants “You know there will be horrible pictures” in such a situation, Spaeth explains, so it’s important to get out company images prior to the appearance of pictures in “the dead, soiled bird stage” of a catastrophe. In addition, Hayward and other senior executives should have been put before journalists from the outset, to let them “chew on you,” Spaeth said.

Now the whole industry is furious. As it stands, says Chow, “it looks like it’s out of control, like they they really don’t know what they are doing.”

Steve LeVine, a Washington-based writer on energy and foreign affairs, is the author of The Oil and the Glory.