Post-Gazette Editorial – 8/12/06

This page was last updated on August 13, 2006.

BP’s fiasco / Big profits should deliver better maintenance; Editorial; Pittsburgh Post-Gazette; August 12, 2006.

I find this editorial hysterical. The same newspaper that lobbies against oil production from the Alaskan North Slope is now upset North Slope production is interrupted. Do editorial authors have their memories wiped clean before they write each new editorial?

Below is a detailed critique of the subject editorial.

“The impending BP pipeline shutdown at Prudhoe Bay in Alaska, which will bring another surge in the price of fuel at the pump, raises the questions, first, of whether this had to be, and, second, of how it could have been avoided.

“BP, a $232 billion company, continued to earn record profits, including a 30 percent jump in the second quarter of the year, while it didn’t see to the maintenance of the pipeline that could have prevented it from reaching its current potentially catastrophic state. Although the company said days later it might not have to shut down the entire oil field during the repair, what kind of corporate leadership that was masquerading as responsible allowed that to happen?”

[RWC] The editorial says BP “didn’t see to the maintenance of the pipeline.” That’s simply not true.

Here’s a link to an overview of BP’s corrosion prevention programs.

I’m not defending BP’s decisions because I’m not a petroleum engineer and don’t have the expertise. I’m simply pointing out the misrepresentations of the editorial.

“Also, why was there no federal or state oversight of the company’s operations that would have caught the fact that it wasn’t maintaining the pipeline and perceived the danger that was looming? This was danger in environmental terms as well as danger in the potential cost to the economy and the already tormented consumer. There are also serious implications for the people of Alaska who depend heavily on tax revenues from oil, so as not to have either a state sales or income tax. (If it just wasn’t so far and so cold ...)”

[RWC] Contrary to the editorial’s assertion, there was at least state oversight of the operation. According to BP, “The State of Alaska annually reviews the adequacy of the BP corrosion inspection and prevention program.”

The editorial expresses concern for the “serious implications for the people of Alaska who depend heavily on tax revenues from oil, so as not to have either a state sales or income tax,” yet as I noted above the PG routinely lobbies against North Slope oil production.

“Now, 8 percent of America’s petroleum production is going to go off the market, which will produce an initial 5-cent rise in the cost of a gallon of gasoline at the pump. And no one seems to be able to predict reliably how long the repairs to the pipeline will take. We do know that it will be at least months, not days.”

[RWC] The reduction is now “only” 200 MBPD (4%) after further inspection of the pipelines revealed some were safe for continued use.

“So what is the answer to the questions of the absence of corporate responsibility and the absence of government oversight?”

[RWC] This question is based on two lies in a single sentence.

First, where’s the evidence of irresponsibility on the part of BP? While even BP admits some decisions were incorrect in hindsight, those decisions were made using the info available at the time. BP has been operating these pipelines successfully for 29 years. That doesn’t happen by accident.

Second, there was oversight of the inspection program by the State of Alaska.

“The first comes in observing that the general approach of the Bush administration to business is: deregulate and then let the companies earn as much profit as they possibly can. The ‘deregulate’ part explains the lack of governmental oversight that has let the energy industry descend almost to the level of disorder of the airline industry. The ‘maximize profits’ part explains why BP felt free to continue to pay big dividends to its stockholders and big compensation to its officers while cutting corners on surveillance of and repairs to its critical pipeline.”

[RWC] What disorder is there in the energy industry? This is simply a drive-by accusation.

Did you notice the editorial didn’t cite which specific piece of alleged Bush deregulation was a contributing factor? That’s because the author could not. It’s yet another drive-by accusation.

Did you catch the PG believes the airline industry would be better off somehow with greater government “oversight?” Of course, the editorial didn’t tell us how that would happen.

Let me get this straight. The PG wants us to believe BP got cheap when it came to maintenance for a pipeline that contributed about $28,000,000 of revenue per day or $10.2 billion per year. Yeah, right. I worked for Texaco for nearly 24 years. When it comes to production facilities, oil companies are not cheap because 1) safety concerns won’t allow it, and 2) profit lost by unscheduled downtime is profit lost forever.

Did you notice the editorial didn’t provide the magnitude of the “big dividends to its stockholders?” For the second quarter, it will be a rousing $0.5895/share! On an annual basis, that’s about $2.358 for a share of stock whose market value is about $70. That’s a return of about 3.4%, less than the APY for a 9-month CD. Yeah, that’s “big dividends.”

“The general Bush administration ‘let them be’ approach to BP and other oil companies would come from, first, the number of oil people in the administration, starting with President Bush and Vice President Dick Cheney. The second likely noncoincidence is the fact that a recent study released by the Center for Responsive Politics showed that in the rapidly growing lobbying field, the oil and gas industries gave 84 percent of their contributions last year to Republicans.”

[RWC] This is a hoot. The editorial talks about the “general Bush administration ‘let them be’ approach,” yet all the business scandals uncovered during 2001 took place during the Clinton administration and it’s been the Bush administration that’s prosecuted the cases.

Regarding business interests tending to favor Republicans, what’s new about that? In general, liberals tend to be hostile to business. If you’re planning to support political candidates, whom will you tend to support? The guy who opposes your interests or the guy who may see things your way?

Why do you think labor union management has given from 85% to 96% (depending on the year) of their contributions to Democrats since 1990? Let’s also look at the magnitude of the contributions. While the oil & gas industry has contributed $145 million to Republican candidates since 1990, labor union management has contributed $516 million of worker dues to Democrats. As the editorial, this data came from the Center for Responsive Politics.

“Regulation has its own problems, but wouldn’t it be worth having the federal or state government assure that companies like BP spend more of their money on normal maintenance and less of it on high dividends and compensation?”

[RWC] Now the editorial is just repeating itself.