With the press and the Obama administration making British Petroleum (BP) into an arch-enemy of mankind in the wake of the nation’s worst oil spill at BP’s offshore oil drilling facility in the Gulf of Mexico, I found a couple of interesting counterpoints. “Three Myths About Oil,” a commentary about the oil business by energy analyst Alex Epstein of the Ayn Rand Institute, offers an excellent overview of the relevant facts about demand and drilling for oil that challenges the predominant views.
The other is an interesting 1997 interview with then-BP Chief Executive Officer (CEO) John Browne published in the Harvard Business Review. Mr. Browne comes across as a thoughtful company leader. When asked about the changing rules of competition, he replies, in part: “If we drill each well more efficiently than the last one, we can make a lot more money–which is exactly what we’re trying to do.” His point that the profit motive is the best assurance of quality drilling procedures is well taken and, whatever BP’s decisions since he was in charge, the extent of BP’s role in causing the current spill will undoubtedly affect their ability to make money in the future, indeed, if BP even survives as a company.
John Browne also talked about the difficulty of deep water drilling, which is essentially mandated by the government due to environmentalist bans and concerns about closer offshore drilling. Browne said: “We have a big acreage position in the deep water of the Gulf of Mexico, where drilling is an enormous technical challenge. The water there is between 2,000 and 8,000 feet deep, and then you have to drill 7,000 and 12,000 feet below the seabed to reach hydrocarbons. Because the water is so deep, you can’t affix anything to the seabed, and no human being can go down that far. So you have to use special vessels to drill. They are very expensive, and because it’s fashionable to be drilling in this area, they’re becoming even more expensive. In 1995, we spent 100 days on average drilling deepwater wells. We now spend 42.”
That was 1997 and it certainly sounds as though BP was well aware of the risks and was working to measurably reduce exposure to risk. There is no dispute that government regulations and bans on offshore oil drilling are an integral part of the cause of the current spill and the attacks on British Petroleum by the U.S. government are a deflection based on the government’s guilt in causing the destruction. To whatever extent BP made mistakes, they should make amends, but when it comes to oil, safety, and fixing problems, I trust BP more than I trust the government.
I do not know much about the company’s rich history, but I am generally impressed by Mr. Browne in the Harvard Business Review interview, conducted by Steven Prokesch. Asked about business relationships, echoing banker John Allison’s views on self-interest in business, Mr. Browne explains: “You can’t create an enduring business by viewing relationships as a bazaar activity–in which I try to get the best of you and you of me–or in which you pass off as much risk as you can to the other guy. Rather, we must view relationships as a coming together that allows us to do something no other two parties could do–something that makes the pie bigger and is to your advantage and to my advantage.” He goes on to cite a case involving oil field services company Schlumberger, which developed a logging tool for BP which allowed BP to better gauge drilling horizontal wells.
Browne also offered six points on building distinctive relationships. “The most important aspect of any relationship,” he answered, “is understanding what your partners hope to get out of it and to work hard to help them achieve that goal. It is the key to transforming a contractual relationship into a genuine collaboration.” Point two is that you have to deliver on promises. Third, he said, “you never build a relationship between your organization and a company or a government. You build it between individuals.” Fourth, Browne advised keeping relationships relatively open, flexible and cooperative; fifth, that you approach an opportunity with what he calls humility, by which I think he means an awareness of one’s limitations, and sixth, that you build relationships for the long-term. Responding to the follow up question, he recommended that businesses “instill the belief that competitive performance matters–that producing value is everyone’s job and that to produce value you need to focus so that you don’t get distracted by things that aren’t central.”
Later in the interview, he relates the story of how BP’s step-by-step approach to horizontal drilling resulted in oil wells he calls “the longest drilled in the history of the oil industry” that saved the company $ 75 million. Mr. Browne concluded: “So, contrary to what some may believe, you can institutionalize breakthrough thinking.” [Emphasis his]. Yes, you can, if you are free to compete in business, to drill for oil, and, first and foremost, to think.
