Containment-boom makers and their vendors that ramped up supply for BP PLC after the Gulf of Mexico oil spill say the company suddenly stopped accepting deliveries weeks ago, leaving them with millions of dollars in unused product.
Several makers of the vinyl protective sheaths known as boom and their suppliers say they are deeply in debt and have been forced to lay off workers and delay payment to vendors.
During the height of the oil spill this summer, more than four million feet of containment boom was laid on the water’s surface to shield the Gulf Coast. But BP began putting boom orders on hold or rejecting them about the second week in July, as efforts to stop the flow of oil gained ground. On Tuesday, BP said concerns about storms in the Gulf would delay by several days work on a relief well expected to help permanently seal the well.
To be sure, some of the suppliers and manufacturers were speculating on demand, ordering boom and increasing production before they had contracts in place. But The Wall Street Journal interviewed 11 manufacturers and suppliers who said they had contracts with BP or were delivering to those who did. Ten of those manufacturers said they now were out money.
“We are reaching out to our suppliers to understand their individual situations and explore possible solutions,” said a BP spokesman.
About a dozen manufacturers make all the boom used by oil companies, emergency-response companies and marinas in the U.S. The supply on hand dissipated quickly after the Deepwater Horizon oil rig, leased by BP, exploded in April, sending millions of barrels of crude oil into the Gulf. BP suddenly needed boom and lots of it.
But recently the Industrial Fabric Association International, which represents companies including boom makers and their suppliers, says it has received dozens of calls from members who say they are suddenly saddled with containers of inventory, canceled orders and no way to pay their mounting bills.
If BP doesn’t make good on what it owes the manufacturers, “it will literally add insult to injury for the U.S.,” said JoAnne Ferris, the organization’s director of marketing.
The need for boom will probably increase going forward, as part of revised emergency-preparedness plans for drilling, according to a spokeswoman for the American Petroleum Institute, which represents oil and gas companies.
But manufacturers and their suppliers say they are way behind on their bills now and the present glut is suppressing prices below their costs.
Gene Bautista, a BP integrity-assessment coordinator whose team inspected many of the companies doing business with BP, says he knows that some boom suppliers have been left in the lurch. “It is kind of crappy to tell people to build as much boom as they can and then don’t accept it,” he said.
Larry Buck, chief executive of Victory Awning in Fort Worth, Texas, says BP owes him about $400,000 for boom it placed purchase orders for but refused to accept. He has laid off 15 workers in the past two weeks and is considering taking a second lien on his factory to pay his suppliers.
Mr. Buck says he did mark up his prices to cover overtime and tooling costs, but says his profit margins were still considered industry standard. Prices for boom ranged from $13 to $19 a foot in documents reviewed by The Wall Street Journal.
Victory Awning passed BP’s inspection hurdles in early June. “[Victory Awning is] more than qualified to produce quality containment boom for BP,” wrote BP’s Mr. Bautista on June 21.
A few days later, BP ordered $680,000 of boom, according to documents reviewed by the Journal. The first shipment, for $70,000, was moved on June 24.
In subsequent emails and phone calls, BP assured Mr. Buck it could increase boom production. “This email approves production through July 31,” wrote BP purchasing agent Don May in an email. Mr. May didn’t return calls seeking comment.
Victory Awning sent two more shipments—for a total of $400,000—in early July and BP inspector John Cavenah found “no problems” with them, according to the inspection report.
On July 8, BP contacted Mr. Buck in an email and told him that it rejected his shipments for not meeting specifications, though BP previously approved the deviations on specifications because of the difficulty in finding the right boom supplies, according to BP documents.
Mr. Buck complained to BP. But with mounting bills, Mr. Buck also wanted to get things back on track and offered to retrofit the boom—now that certain raw materials were available—to meet BP’s requirements at his own cost—about $75,000. So far, BP hasn’t agreed. Mr. Buck says he has an additional $500,000 in raw material in his plant.
Randy Busch, president of Value Vinyls in Grand Prairie, Texas, is holding three to four years of vinyl—valued at what he estimates at $500,000—since BP canceled his customers’ orders in recent weeks. In May, Mr. Busch says he placed orders for vinyl, getting his overseas producer to cut production time to 10 days from four weeks. By June, he had purchase orders and deposits from boom makers for all of it.
“We’re doing our best, delicately holding our customers to firm purchase orders,” said Mr. Busch, who didn’t have a contract with BP, but with about 12 makers. “But if it forces them into bankruptcy, no one wins.”
One boom manufacturer says he is in debt some $6 million for boom and other costs to fulfill BP orders the company told him it now won’t accept.
The manufacturer didn’t provide documentation to the Journal for the $6 million, but BP’s Mr. Bautista said he knew the manufacturer was out at least $2 million.
In early June, BP’s Mr. Bautista inspected the manufacturer’s plant and product and then accepted about 250,000 feet of boom. BP paid the manufacturer for the product and said it wanted as much as he could make, according to documents reviewed by the Journal. By then, the manufacturer had leased a larger space, ordered new machines and hired crews to work shifts day and night.
“Just get the boom coming,” Raymond Butler, a contractor who was buying boom for BP out of the Mobile, Ala., command center, wrote to the manufacturer on June 5.
The email asked the manufacturer to send an invoice for the shipment and added: “You guys are lifesavers.”
Mr. Butler, who still works for BP, confirmed that he purchased more than 100,000 feet of boom from this manufacturer.
In mid-July, the manufacturer says BP told him in an email it would need 300,000 feet of 18-inch boom. But after several phone calls to BP’s Houston office, the manufacturer says he was told BP had changed the specifications, now wanting the skirt attached to the boom to be 24 inches long.
BP ordered 700,000 feet of the longer boom to be delivered by the middle of August, the manufacturer says. But so far the company hasn’t picked up either order. the 18-inch or the 24-inch orders. BP’s Mr. Bautista confirmed that these orders were still with the manufacturer, although the product passed inspection.
The manufacturer says he will have to file for bankruptcy protection if BP doesn’t honor his agreement.
“We did everything BP asked us to do with honor. We thought we were doing the right thing to help a larger cause,” says the manufacturer.