Speech to CBI annual conference
Speaker: Bob Dudley, group chief executive, BP
Speech date: 25 October 2010
Venue: CBI annual conference
Speech date: 25 October 2010
Venue: CBI annual conference
Ladies and Gentlemen,
Thank you very much for your welcome. It is good to be here today at this event hosted by the CBI. I am a strong supporter of the CBI, and have seen the impact it has had on building contacts for trade in various countries. I have travelled with a number of the CBI delegations in the past, most notably to Russia early this past decade. This CBI event is the first place I have spoken externally since taking on this role with BP earlier this month.
I have spent my career working in various places around the globe. And have had the good fortune to live and work in the UK several times. My wife and I even have the best souvenir from Scotland – where our son was born.
So it’s a pleasure as well as an honour to be invited to speak with you today.
Thank you very much for your welcome. It is good to be here today at this event hosted by the CBI. I am a strong supporter of the CBI, and have seen the impact it has had on building contacts for trade in various countries. I have travelled with a number of the CBI delegations in the past, most notably to Russia early this past decade. This CBI event is the first place I have spoken externally since taking on this role with BP earlier this month.
I have spent my career working in various places around the globe. And have had the good fortune to live and work in the UK several times. My wife and I even have the best souvenir from Scotland – where our son was born.
So it’s a pleasure as well as an honour to be invited to speak with you today.
It’s also humbling, not least because of the circumstances in which I stepped into this role – a tragic accident in which 11 people lost their lives and an oil spill that has impacted livelihoods, businesses and the environment.
All of us at BP are deeply sorry for what has happened and its effect on the communities and families involved. And while everyone is working hard to repair the damage, we know nothing can restore the loss of those 11 men to their loved ones and friends.
I want to take this opportunity to thank the UK business community and the UK government for your support during what has been a very difficult time. Believe me, at the height of the crisis it made a big difference knowing we had such good friends at home. The British ambassador in Washington was constantly helpful, and the Prime Minister’s visit to DC had real impact with President Obama. I am grateful for their support.
I imagine many in this room will have been following this story over the past six months with dismay. Some of you lead global companies with vast operations around the world and complex risks to manage. I hope that some of our circumstances may perhaps have some insights for you as you consider your risks and crisis response planning.
All of us at BP are deeply sorry for what has happened and its effect on the communities and families involved. And while everyone is working hard to repair the damage, we know nothing can restore the loss of those 11 men to their loved ones and friends.
I want to take this opportunity to thank the UK business community and the UK government for your support during what has been a very difficult time. Believe me, at the height of the crisis it made a big difference knowing we had such good friends at home. The British ambassador in Washington was constantly helpful, and the Prime Minister’s visit to DC had real impact with President Obama. I am grateful for their support.
I imagine many in this room will have been following this story over the past six months with dismay. Some of you lead global companies with vast operations around the world and complex risks to manage. I hope that some of our circumstances may perhaps have some insights for you as you consider your risks and crisis response planning.
This is a story of the damage that can be wrought by a single accident in one segment of a giant company’s operations. From a terrible accident and environmental spill grew a corporate crisis that threatened the very existence of our company – a major loss of value and loss of trust.
I want to talk today about the challenges of dealing with that crisis – about our response and how we set about meeting our obligations.
But I also want to look forward – to share some of the lessons we’ve learned, and set out what we’re doing to earn back trust and to re-establish confidence in BP as one of the world’s great companies.
Earning and maintaining trust is central to our licence to operate in society, as for any business. Crucial to that is re-establishing confidence in our ability to manage risk. I am determined for BP to succeed in both.
I want to talk today about the challenges of dealing with that crisis – about our response and how we set about meeting our obligations.
But I also want to look forward – to share some of the lessons we’ve learned, and set out what we’re doing to earn back trust and to re-establish confidence in BP as one of the world’s great companies.
Earning and maintaining trust is central to our licence to operate in society, as for any business. Crucial to that is re-establishing confidence in our ability to manage risk. I am determined for BP to succeed in both.
The accident and BP’s response
Let me start with the accident itself, and our response. Everyone in BP remembers exactly where they were and what they were doing on April 20 when the Deepwater Horizon rig exploded.The event was shocking in many dimensions. The human tragedy. The environmental consequences. Our difficulties in stopping the leak on the sea-bed. The protracted media and political firestorm it generated in the months leading up to the elections, both in Washington and the states of the Gulf of Mexico.
Not least of the shocks was that it could happen at all. A subsea blowout of the kind that happened here was seen by us and the entire industry as a very low-probability event. We thought we had the appropriate mitigations in place.
It quickly became clear that we would need to mount a massive response. From the outset, my predecessor Tony Hayward defined our aims with great clarity. We would do the right thing and stay the course. Ultimately, he said, we would be judged by our response - by what we do, not what we say.
That meant stopping the leak, containing and cleaning up the damage, and compensating those affected. It also meant making every effort to understand what happened and learning lessons so that something like this could never happen again.
So how are we doing? The first thing to say is that we have stopped the leak and made huge progress in cleaning up the spill.
After months of work involving more than 150 companies and multiple government agencies, we fitted a sealing cap on the well on July 15th. No oil has flowed into the ocean since that date, and on September 19 the US Government declared the Macondo well finally sealed.
Second, our containment and clean-up efforts have gotten results. Our efforts significantly reduced the amount of oil reaching the shore and environmentally sensitive marsh areas.
So how are we doing? The first thing to say is that we have stopped the leak and made huge progress in cleaning up the spill.
After months of work involving more than 150 companies and multiple government agencies, we fitted a sealing cap on the well on July 15th. No oil has flowed into the ocean since that date, and on September 19 the US Government declared the Macondo well finally sealed.
Second, our containment and clean-up efforts have gotten results. Our efforts significantly reduced the amount of oil reaching the shore and environmentally sensitive marsh areas.
In fact, we believe this has been the largest and most extensive maritime response effort ever undertaken. At its peak it involved the mobilization of 48,000 people, deployment of some 15 million feet of boom (more than 3,000 miles) and co-ordination of nearly 7,000 vessels. That is more than during the Normandy invasion.
A silver lining of the event is the significant and sustained advance in industry preparedness that will now exist going forward from the learnings and the equipment and techniques invented by necessity under pressure to contain the oil and stop the well.
Third, we are meeting our commitments as a responsible party of this accident. On June 16, we agreed with President Obama at the White House to set aside $20 billion in a compensation fund with an independent adjudicator. To date claims totalling more than $1 ¼ billion have been paid out to affected individuals and businesses.
That is on top of the substantial costs of the clean-up and the many hundreds of millions of dollars we have paid to help the affected states to mitigate the economic impact and to fund long-term environmental research in the Gulf.
A silver lining of the event is the significant and sustained advance in industry preparedness that will now exist going forward from the learnings and the equipment and techniques invented by necessity under pressure to contain the oil and stop the well.
Third, we are meeting our commitments as a responsible party of this accident. On June 16, we agreed with President Obama at the White House to set aside $20 billion in a compensation fund with an independent adjudicator. To date claims totalling more than $1 ¼ billion have been paid out to affected individuals and businesses.
That is on top of the substantial costs of the clean-up and the many hundreds of millions of dollars we have paid to help the affected states to mitigate the economic impact and to fund long-term environmental research in the Gulf.
Clearly, these commitments represent a substantial burden, but BP does have the financial strength to shoulder this. As you may know, in June we cancelled dividend payments for the rest of this year and we have also announced our intention to sell assets worth up to $30 billion over the next 18 months to help fund the cost.
Finally, we committed to investigate the causes of the accident, to publish our findings, and to apply the lessons so as to avoid a recurrence.
Our internal investigation of what happened was published last month by a team of experts led by Mark Bly, BP’s head of safety. It found that no single factor caused the tragedy, and that the well design itself, despite what you have heard, does not appear to have contributed to the accident. This has been further verified by recent retrieval of equipment.
Rather, a sequence of interlinked failures involving a number of companies led to the explosion and fire. It was a combination of equipment and system failures.
We have accepted the 26 recommendations Bly made to improve practices in deepwater drilling, and are implementing them in our operations around the world. My hope is that others in our industry are as well.
Finally, we committed to investigate the causes of the accident, to publish our findings, and to apply the lessons so as to avoid a recurrence.
Our internal investigation of what happened was published last month by a team of experts led by Mark Bly, BP’s head of safety. It found that no single factor caused the tragedy, and that the well design itself, despite what you have heard, does not appear to have contributed to the accident. This has been further verified by recent retrieval of equipment.
Rather, a sequence of interlinked failures involving a number of companies led to the explosion and fire. It was a combination of equipment and system failures.
We have accepted the 26 recommendations Bly made to improve practices in deepwater drilling, and are implementing them in our operations around the world. My hope is that others in our industry are as well.
Winning back trust
This was a devastating industrial accident that should never have happened. We have mounted a substantial response and have stepped up to meet our obligations to all our stakeholders. We fully intend to continue doing so until the job is done.That is the basis, I believe, on which we will earn back trust in BP and begin to restore the company’s battered reputation.
We have to earn back the trust of governments, of our customers, our employees, our shareholders, the people of the Gulf Coast and of society at large. It is a challenge, but I am quietly confident we can do it.
Why am I confident? As I see it, we have three strong foundations to build on for the future.
First, we are committed to learning the lessons from these shattering events at all levels and in a way that goes far beyond the specifics of deepwater drilling.
There are lessons for us relating to the way we operate, the way we organize our company and the way we manage risk.
Many of our businesses have excellent safety records, and indeed BP has been working intensively to improve its safety systems and processes in recent years.
But there is always more that can be done to enhance protection and resilience.
There are lessons for us relating to the way we operate, the way we organize our company and the way we manage risk.
Many of our businesses have excellent safety records, and indeed BP has been working intensively to improve its safety systems and processes in recent years.
But there is always more that can be done to enhance protection and resilience.
I have been spending time in recent weeks with experts from other hazardous industries including the nuclear and chemicals industries, and I am convinced we in the energy industry have a lot to learn from them and others.
So this is my commitment to governments, regulators and society. Our Board and our management team are determined that BP will learn from and apply best practice from wherever it can be found, and that it will, over time, become one of the best companies in our industry at managing risk.
To that end we have announced a number of initial steps. We are creating a powerful new safety division with authority to oversee and intervene in the company’s operations around the world.
It will have its own expert staff, independent from the project teams, and will be fully empowered to intervene in all aspects of BP’s technical activities. That new function will be headed by Mark Bly and report directly to me and that role will join the most senior executive team.
So this is my commitment to governments, regulators and society. Our Board and our management team are determined that BP will learn from and apply best practice from wherever it can be found, and that it will, over time, become one of the best companies in our industry at managing risk.
To that end we have announced a number of initial steps. We are creating a powerful new safety division with authority to oversee and intervene in the company’s operations around the world.
It will have its own expert staff, independent from the project teams, and will be fully empowered to intervene in all aspects of BP’s technical activities. That new function will be headed by Mark Bly and report directly to me and that role will join the most senior executive team.
We are also re-structuring our upstream segment from a single business into three functional divisions – Exploration, Development and Production. I believe this will foster the long-term development of specialist expertise and reinforce transparency and accountability for risk management.
In addition we are reviewing how we manage third-party contractors and how we incentivize and reward performance. While that review is underway, we have suspended all performance contracts for all our employees, except for those measures related to safety, compliance and operational risk management. They will be the sole criteria for performance reward for the remainder of the year.
These are fundamental and far-reaching changes designed to strengthen safety and risk management across the group. Together they will provide renewed and strengthened assurance that we have the right checks and balances in place to manage the risks in our business.
In addition we are reviewing how we manage third-party contractors and how we incentivize and reward performance. While that review is underway, we have suspended all performance contracts for all our employees, except for those measures related to safety, compliance and operational risk management. They will be the sole criteria for performance reward for the remainder of the year.
These are fundamental and far-reaching changes designed to strengthen safety and risk management across the group. Together they will provide renewed and strengthened assurance that we have the right checks and balances in place to manage the risks in our business.
BP’s global strengths
Our second foundation for the future resides in the strength of BP’s existing global businesses. I have spent my entire career in the energy industry and I know that BP has a great portfolio of assets – one of the best in our industry – and that will still be the case even after we have completed our current divestment programme.We are financially healthy. Our operations around the world - from Alaska to Australia and Angola to Azerbaijan – are delivering as they should. Our underlying operational and financial performance is sound.
We have unique technology and excellent capabilities in our global workforce. And we have strong local relationships in the many countries where we operate around the world.
This network of relationships has been a strength of BP for decades and it is definitely not broken despite our current problems in the United States.
On the contrary: I have spent much of the last few weeks travelling the world and visiting our partners. The message I have come back with is strong support and a powerful desire for BP to succeed and prosper. And of course, that interest is shared by the British Government, which gave us such stalwart support during the recent crisis.
Let me spend a moment talking about the US, because there has been much comment in recent months suggesting the US might turn its back on BP or BP could leave the US. I am confident that neither of these propositions is true.
Contrary to what is sometimes said, BP is not widely seen over there as “British Petroleum”: we’re part of the American community.
That certainly applies to our Gulf response, where we’ve been working intensely with a whole range of Federal and state government departments and agencies. I believe it would be fair to say that BP now has more points of contact across the US government than any other company.
Let me spend a moment talking about the US, because there has been much comment in recent months suggesting the US might turn its back on BP or BP could leave the US. I am confident that neither of these propositions is true.
Contrary to what is sometimes said, BP is not widely seen over there as “British Petroleum”: we’re part of the American community.
That certainly applies to our Gulf response, where we’ve been working intensely with a whole range of Federal and state government departments and agencies. I believe it would be fair to say that BP now has more points of contact across the US government than any other company.
All of these people have of course been saddened by what happened. But they have not completely lost faith in BP.
Our relationships have survived and are now beginning to recover. The scale of our response, much of it going beyond the demands of legal compliance, has not gone unnoticed. Make no mistake, we have a long way to go to earn back trust – but the journey is well under way.
And for our part, I can promise you that I did not become chief executive of BP in order to walk away from the U.S. BP will not be quitting America.
There is too much at stake, both for BP and the US. The US has major energy needs. BP is the largest producer of oil and gas in the country and a vital contributor to fulfilling them. We also employ 23,000 people directly, have 75,000 pensioners and have ½ million individual shareholders. Our investments indirectly support a further 200,000 jobs in the US. We have paid roughly $25B in taxes, duties and levies in the last several years. These are significant contributions to the US economy.
Our relationships have survived and are now beginning to recover. The scale of our response, much of it going beyond the demands of legal compliance, has not gone unnoticed. Make no mistake, we have a long way to go to earn back trust – but the journey is well under way.
And for our part, I can promise you that I did not become chief executive of BP in order to walk away from the U.S. BP will not be quitting America.
There is too much at stake, both for BP and the US. The US has major energy needs. BP is the largest producer of oil and gas in the country and a vital contributor to fulfilling them. We also employ 23,000 people directly, have 75,000 pensioners and have ½ million individual shareholders. Our investments indirectly support a further 200,000 jobs in the US. We have paid roughly $25B in taxes, duties and levies in the last several years. These are significant contributions to the US economy.
A future in the deep water
That brings me to the third foundation for BP’s future: the world’s growing need for our products.By 2030, it is estimated that the world could be consuming as much as 40% more energy than today, thanks largely to growth and urbanisation in the emerging markets. This will require investments of $25-30 trillion – more than $1 trillion per year for the next 20 years.
So provided we can earn back trust, BP has a vital economic role to play for decades to come. We plan to continue to invest in growth and deliver excellent returns for our shareholders. One of the most important sources of that growth will be finding and producing oil and gas in the deep waters of the world’s oceans.
The deep waters are becoming an increasingly important source of energy to fuel the global economy. They account for around 7 per cent of total oil supplies now, growing to a projected 9 per cent in 2020. And we are one of only a handful of companies with the financial and technological strengths to undertake development projects in these difficult geographies. And it can be done safely.
That’s why the response to what has happened in the Gulf of Mexico matters so much. We – together with the rest of the industry and our regulators around the world – simply have to ensure that public confidence in deepwater drilling is restored.
The encouraging news is that this message is not lost on governments. The US Administration rightly ordered a shake-up of environmental and safety regulations after the accident. But it has now lifted its temporary moratorium on deep-water drilling, which should allow industry to start safely getting back to work.
We also welcome the broad policy discussions taking place in the US and other jurisdictions in response to the spill. In a few months we will see the recommendations of the Presidential Commission launched by President Obama. And we look forward to working constructively with the European Commission on its recent Communication about offshore safety.
I need hardly emphasise the importance of these issues to the UK, where the North Sea remains such a strong contributor to the economy and a major part of BP.
The encouraging news is that this message is not lost on governments. The US Administration rightly ordered a shake-up of environmental and safety regulations after the accident. But it has now lifted its temporary moratorium on deep-water drilling, which should allow industry to start safely getting back to work.
We also welcome the broad policy discussions taking place in the US and other jurisdictions in response to the spill. In a few months we will see the recommendations of the Presidential Commission launched by President Obama. And we look forward to working constructively with the European Commission on its recent Communication about offshore safety.
I need hardly emphasise the importance of these issues to the UK, where the North Sea remains such a strong contributor to the economy and a major part of BP.
Here, too, we’re working with the Government, the Health and Safety Executive and the industry to ensure we incorporate lessons learned from the Gulf into our work.
It’s clear that major changes are called for around the globe. The industry needs better safety technology. We all need more effective equipment and capabilities to deal with a blowout in the deepwater. And we need to ensure risks are fully understood, owned and managed.
But if we truly learn the lessons from this accident, I see no reason to close off the deepwater as an area of future oil exploration and production. The fact is that until this incident, over 5,000 wells had been drilled in over 1,000 feet of water with no serious accident. BP had drilled safely in deep waters of the Gulf of Mexico for 20 years. As business people are telling political leaders all the time, we cannot eliminate risks, but we must manage them.
This task is important in itself, and even more so in an age of increasing political and media scrutiny. We live in an atmosphere where many things are often exaggerated, opinion can quickly becomes polarized and it is tempting to react to events in extreme ways. The demand for information and instant conclusions is insatiable. But as business leaders we have to be wise, pragmatic and proportionate. There are difficult balances to strike, but we cannot afford to shy away from risk.
It’s clear that major changes are called for around the globe. The industry needs better safety technology. We all need more effective equipment and capabilities to deal with a blowout in the deepwater. And we need to ensure risks are fully understood, owned and managed.
But if we truly learn the lessons from this accident, I see no reason to close off the deepwater as an area of future oil exploration and production. The fact is that until this incident, over 5,000 wells had been drilled in over 1,000 feet of water with no serious accident. BP had drilled safely in deep waters of the Gulf of Mexico for 20 years. As business people are telling political leaders all the time, we cannot eliminate risks, but we must manage them.
This task is important in itself, and even more so in an age of increasing political and media scrutiny. We live in an atmosphere where many things are often exaggerated, opinion can quickly becomes polarized and it is tempting to react to events in extreme ways. The demand for information and instant conclusions is insatiable. But as business leaders we have to be wise, pragmatic and proportionate. There are difficult balances to strike, but we cannot afford to shy away from risk.
Conclusion
I will conclude with one related observation about this last aspect of the crisis, the political and media attention it generated.Over 87 days as the oil kept flowing into the ocean, it frequently felt as if we were the only story on the news, 24/7. I have seen figures that in some months fully 30% of the 24 hour news coverage was devoted to the incident.
I recall registering two particularly vivid sensations from this period.
First, an overwhelming public sense of frustration over the failure of efforts to stop the flow, visible in real-time on TV. And second, a great rush to judgment by a fair number of observers before the full facts could possibly be known, even from some in our industry. I watched graphic projections of oil swirling around the gulf, around Florida, across and around Bermuda to England - these appeared authoritative and inevitable. The public fear was everywhere.
We fully accept our share of responsibility but I hope for everyone’s sake that over the next month and years we can reach a balanced and informed judgement about what happened and what we need to learn.
As I said at the outset, this was a human tragedy and a terrible event with major environmental and economic impacts. It was an accident from which we must and will learn.
We were certainly not perfect in our response. But we have tried to do the right thing and we are making significant changes to our organisation as a result of the accident.
That is the standard by which we expect to be judged as we work to restore trust in BP. And that is how we ultimately expect to emerge stronger from what has been a thoroughly traumatic event.
Ladies and Gentlemen, thank you for listening, and I’m now happy to take your questions.
As I said at the outset, this was a human tragedy and a terrible event with major environmental and economic impacts. It was an accident from which we must and will learn.
We were certainly not perfect in our response. But we have tried to do the right thing and we are making significant changes to our organisation as a result of the accident.
That is the standard by which we expect to be judged as we work to restore trust in BP. And that is how we ultimately expect to emerge stronger from what has been a thoroughly traumatic event.
Ladies and Gentlemen, thank you for listening, and I’m now happy to take your questions.
