What's Up With the Gulf: BP is the Suckiest

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Exxon chief says BP lost time
By FT reporters

Published: April 19 2011 21:10 | Last updated: April 19 2011 21:10

BP lost valuable time at the height of its devastating accident in the Gulf of Mexico last year pursuing solutions to contain the oil spill that were never going to succeed, the chief executive of ExxonMobil has claimed.

In a sharp criticism of the handling of the disaster, Rex Tillerson said Exxon’s engineers knew that one of BP’s initial efforts to stem the oil flowing from the ruptured Macondo well – by building a containment dome – “wasn’t going to work”.

More FT videoEDITOR’S CHOICE
Silent minute to mark year of change at BP - Apr-19.BP clean-up costs to soar, say experts - Apr-19.Graphic: how the BP spill happened - Apr-19.Video: BP one year on - Apr-19.California steps out on bold green venture - Apr-18.Testing times await disaster response units - Apr-17..“We knew they were going to form hydrates [a type of ice], which they did,” he told the Financial Times on the eve of the first anniversary of the accident which killed 11 workers and led to the worst offshore oil spill in US waters. There was, he added, “a significant loss of time while they pursued that option and while that was going on, the integrity of the well itself was deteriorating daily”.

He said: “So I think there was some time lost pursuing some alternatives that most of us felt that in the end were not going to be successful – and with the loss of time the challenges just got greater.”

Exxon, he said, had learnt over the years that in crisis situations like the Gulf accident, companies needed to act quickly and aggressively “because these situations only get worse with time”.

Mr Tillerson has formerly criticised BP about its assessment that there are industry-wide lessons to be drawn from the Deepwater Horizon accident – but his remarks about the handling of the crisis are the most specific to date.

BP responded: “We made all efforts to contain the well and worked closely with industry, US federal agencies and regulators on proposals to respond to the incident at the time. Our response drew on all of those.”

Mr Tillerson said he would be concerned if the public or regulators were to be told that “this industry was operating on the edge of its capabilities as we moved into ever-deeper water”. He added: “[That] flies in the face of 14,000 wells that were drilled without this happening.”

A year after the accident, only 10 fresh drilling permits have been issued in the gulf. “We are not back to business as usual. I can’t really see the end,” Mr Tillerson said.
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From Cleanup to Recovery: "From Cleanup to Recovery"

From Cleanup to Recovery

The relatively few, isolated incidents of oil coming ashore were dealt with quickly and efficiently, say economic developers along the Gulf Coast, but the national press never bothered to report the full story on the cleanup.

Source: Gulf Shores (Ala.) Convention and Visitors Bureau.

In the aftermath of the BP oil spill in the Gulf, what's needed is a massive and expeditious response.

by Ron Starner
ron.starner bounce@conway.com

ine months after the Deepwater Horizon oil rig explosion and ensuing spill in the Gulf of Mexico, the people and communities of the Gulf Coast region are still awaiting the massive relief effort that has never materialized.

Yes, the oil has largely been cleaned up and removed from the Gulf's waters, estuaries and bays, and the Gulf Coast Claims Facility has paid out billions in BP funds to victims of the disaster.

But the real help that is desperately needed, from Florida to Texas, has yet to arrive.

Companies are closing. People are losing their jobs. Whole industries are being shut down. Communities are cutting back services and laying off workers. And the voices of civic leaders are crying out for help.

So far, that aid has been slow in coming, if it has come at all.

"BP's first words to us after the spill were, 'We will make you whole,' " says Bob Higgins, vice president of the Baldwin County Economic Development Alliance in coastal Alabama. "It turned out that this was an overstatement."

Inefficiencies, bureaucratic delays and downright incompetence are all hindering the claims process that was designed to pay restitution to the victims of the spill's economic impact and help beleaguered communities recover.

"More stress has been caused by the broken claims process than was caused by the disaster in the first place," Higgins says. "Without that process being fixed, affected businesses in our region will face a hard road to recovery."

Throughout the five-state region of the Gulf Coast, a clearer picture of the oil spill's devastating effect is starting to emerge.

"The oil spill's effects are expected to last a number of years," according to Samuel Addy and Ahmad Ijaz of the Center for Business and Economic Research at the University of Alabama. "In the worst case, the oil spill results in losses of $3.3 billion in Alabama economic output, $971 million in earnings, and nearly 49,000 jobs for 2010."

The best case results in losses of about $1 billion in economic impact and the loss of 13,600 jobs in Alabama, the researchers conclude in their comprehensive report on the economic impact of the BP oil spill.

Whichever estimate is closer to reality, the bottom line is this: Alabama has been severely damaged by the spill and various public policy decisions and media-generated public opinion in the wake of the disaster.

'We Still Face the Perception Problem'

According to Herb Malone Jr., president and CEO of the Gulf Shores & Orange Beach Tourism agency in coastal Alabama, lodging revenue was down 41.5 percent and retail sales were down 22.9 percent in the summer of 2010 versus 2009 along the state's coast.

Adam Sacks, managing director of tourism economics for Oxford Economics in Philadelphia, extensively studied the oil spill's effect on Gulf Coast tourism in 2010 and concluded that "the interest in beach area vacations along the Gulf Coast plummeted for key destinations."

Among the hardest hit areas, he said, were Gulf Shores, Ala.; Pensacola, Fla.; and Fort Myers, Fla. Hotel bed tax collections were down sharply in Bay, Broward, Escambia, Citrus and Gulf counties in Florida, and recreational sales taxes were down by 50 percent in Franklin County, Fla.

The problem, according to economic development officials along the Gulf Coast, was the media-generated perception that tar balls were washing ashore from Texas to Florida all summer. But that was simply not the case. The relatively few, isolated incidents of oil coming ashore were dealt with quickly and efficiently, they say, but the national press never bothered to report the full story on the cleanup.

"We still face the perception problem," says Chris Laborde, an official with the New Orleans Regional Transportation Management Center and a leader of the multi-state Gulf Coast Alliance. "The perception is that we have oil-tainted beaches and seafood, and that is blatantly not true. And the drilling moratorium by the federal government is a real killer for small businesses, especially for those who sell products and services to the offshore oil and gas drilling, even for shallow draft drilling."

Jeff Helms, vice president of PBS&J in Pensacola and volunteer chairman for Florida's Great Northwest, tells Site Selection that "tourism was hit pretty hard this past summer. Our secondary industries of food and lodging were hit hard in Gulf, Escambia, Franklin, Santa Rosa and Washington counties. Gas stations and fast-food restaurants were hit too. Whenever the beaches suffer, they suffer."

The result was a lost year for tourism and economic development in Northwest Florida, he said. "The perception created by the media hit us badly. It hit our economic development pretty hard," he notes. "We basically skipped a year."

Help that was promised, in the form of relief payments from the $20-billion fund set up by BP, has not come fast enough for the businesses and communities that need it most.

The administration of President Obama took over the relief payment process last summer and assigned that task to new claims czar Ken Feinberg, the official who had earlier presided over the much-criticized relief fund for 9/11 victims.

His track record for helping the victims of the BP oil spill has been even worse, say dozens of business and community leaders interviewed by Site Selection for this article. Queries to the office of Feinberg by phone and e-mail were not returned.

"The bottom line on the claims process is that Mr. Feinberg over-promised and under-delivered," says Helms. "He did make some adjustments, after we complained, and the money started flowing a lot quicker. The problem is that these businesses along the coast were hit, and they have to make 80 percent of their annual revenue in the summer. When it takes such a long time to get your check cut, it is very difficult to pay your workers."

Lack of Accountability Frustrates Local Officials

Help is needed now so that companies can keep their workers employed and so that communities can do remedial marketing.

"If the oil spill fine money is reallocated to the coast, we will be fine," says Helms. "The problem is that we do not want to lose another year. We need some revenue to help the economic development folks reach out and let everyone know we are okay. We need the money to do marketing now, not later."

Higgins adds that the longer Feinberg waits to pay claims, the worse the situation is going to get on the ground. "It is very bad right now. We have 20 mental health people on the ground right here in Baldwin County," he says. "How do we get our arms around this, especially if we don't have the money we need to help these people recover?"

Higgins says that nothing less than a full-scale relief program from Washington is needed to help the region rebuild its economy. "We would like to see programs out of Washington that encourage investment to happen here, similar to the Gulf Opportunity Zone program after Hurricane Katrina and Hurricane Rita in 2005," he says. "We need to incentivize buyers to invest in the entire five-state region."

Donna Watts, CEO of the South Baldwin Chamber, says the sooner that relief arrives, the better. "The impact to our businesses has been dramatic," she says, while fighting back tears borne of anger, frustration and a sense of loss. "The Gulf Coast Claims Facility has been worse than anything I have ever dealt with in my entire life. Our businesses are failing and closing. We are struggling every day, trying to help as much as we possibly can. The money is still not coming to Alabama. We are far, far, far from being made whole."

Appeals for help from Feinberg's office have fallen on deaf ears, says Watts. "The only person I know of who can make a difference in this small area of South Alabama is President Obama, and to get his attention right now is a difficult thing to do," she says. "We have people going out of business who have run their family business for decades. We are seeing our free and reduced-price lunch rolls go up in our schools. Our children who are classified as homeless are increasing. That speaks volumes of our economic crisis here. People are not dying from starvation, but there is human suffering going on here."

Watts wants to make it clear that the proud people of South Alabama do not want charity. "We have said all along that we do not want a handout," she notes. "We don't want to just get a check. We want to help BP save us, and we know how to do that better than anyone else. We know how to recover. Living on the coast, you learn how to do that, but we need a shot at recovery. If you give us a shot at recovery, we will make it work."

Tourism-dependent communities are not the only ones looking to Washington for relief. The hard-hit oil and gas exploration industry is desperate for help as well.

"The moratorium on new oil drilling in the Gulf of Mexico is and was unnecessary from the outset, and the delay of future drilling only adds to the cost burden that American consumers will experience in gasoline and diesel prices," says John Hofmeister, former president of Shell Oil Company and the founder and CEO of Citizens for Affordable Energy.

"The federal government is in shutdown mode," he says. "In six months, the shallow water of the Gulf has received the equivalent number of permits that it used to receive monthly, and there are zero new permits for deepwater — therefore, no new drilling since the May 25 shutdown of the industry. Meanwhile, the rest of the world keeps drilling for oil offshore in deepwater."

A Proposed Four-Step Action Plan

The Houston-based Hofmeister says that while large companies can absorb the impact caused by the moratorium, small businesses cannot. "For the small companies directly dependent on the Gulf of Mexico for most if not all of their livelihood, they are either shut down or operating on longstanding maintenance projects," he says. "The head of the Gulf of Mexico for a major services firm told me in September that they had effectively shut down payments to about 2,000 companies for Gulf of Mexico work."

When asked what was needed to prompt change in Washington, Hofmeister said, "It will take more than industry pressure to move the administration to a different permitting environment. Until American consumers pay an exceedingly high price for gas at the pump, there will be no change in policy."

What's needed to help the devastated economy of the Gulf Coast region is swift and remedial action. A broad-based aid plan should include the following:

Expedited Gulf Coast Claims Facility payments, whereby damaged companies and individuals are recompensed appropriately and quickly. A deadline for paying out the $20 billion in damages should be set and the payment process fixed to match it.
A new GO Zone program, created to specifically jumpstart investment in the hardest hit communities along the Gulf Coast, should be fully funded and ramped up to incentivize new investment into coastal economic development as soon as possible.
The U.S. Department of Interior should scrap its ill-fated, de facto drilling moratorium in the Gulf in exchange for a common-sense policy compiled by a coalition of private industry engineers and government scientists.
An influx of marketing dollars targeting beleaguered industries to help them recover. This should include fishing, tourism, restaurants, recreation, lodging and other industries in Florida, Alabama, Mississippi, Louisiana and Texas.

If Washington would devote the same attention to helping Gulf Coast communities recover from the BP oil spill as it did to helping the victims of Katrina and Rita, then places like Foley and Gulf Shores in South Alabama would recover sooner rather than later.
These communities have already lost one year to the economic fallout of the spill. If they lose another, it will be only because decision-makers in Washington lacked the political will to act.

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