BP Safety Record Lags Sector Peers: Could Oil Spill Disaster Change How We Value ESG Risks?

[Omaha Steve]

http://blog.riskmetrics.com/esg/2010/04/bp-spill-safety-record.html

By Alan Petrillo on April 30, 2010 4:03 PM

As the Gulf of Mexico oil slick continues to spread, the New York Times and others are considering what it will mean for BP, which controls the oil rig that caused the disaster. Reporter Clifford Krauss wrote that, besides the monetary cost of cleanup, the cost of “long-term damage to BP’s reputation…is likely to be far higher.”

Mr. Krauss quotes BP head Tony Hayward asking his executives, “What the hell did we do to deserve this?” But BP’s historical record for employee safety suggests that while no one “deserves” such a tragedy, the firm may have earned its damaged reputation.

In an April 2009 profile of BP, RiskMetrics analyst Yulia Reuter summed up the direct costs of its health, safety and environmental practices:

The Texas City refinery explosion in 2005, an additional fatality at the same refinery in January of 2008, OSHA safety fines levied on the Toledo refinery in 2005, and spillages in Prudhoe Bay caused by pipeline corrosion in 2006, revealed major operational issues, which cost the company approximately $10 billion, or 40% of 2007 cash flow from operations.

Following the Texas refinery accident in 2005 that killed 15 and injured 180 workers, the Occupational Safety and Health Administration has fined BP a record $21.4 million and prompted a criminal conduct investigation. In February 2009, under the Clean Air Act in the US, the company was ordered to spend $161 million on pollution controls, pay a $12 million civil penalty, and spend $6 million on a supplemental project to reduce air pollution in Texas City.

This follows $50 million in criminal penalties imposed in October 2007 for the Clean Air Act violation in connection with the 2005 explosion. BP has also established a $2.1 billion provisional fund related to the incident and increased spending to $1.7 billion a year over the four-year period from 2007 to 2010, in order to improve the integrity and reliability of its US refining assets.

FULL story at link.