U.S. Drills Deep Into BP as Spill Drama Drags On


NEW ORLEANS—Bob Dudley, BP PLC’s lead executive in the Gulf of Mexico, spotted his U.S. government counterpart, retired Adm. Thad Allen, at the New Orleans hotel where both were staying earlier this month. Wanting to say good night after a long day, Mr. Dudley instead got fresh orders.

Adm. Allen said the government wanted BP to pay for community representatives in states affected by the oil-well blowout. “What does that mean?” Mr. Dudley asked. “I’m reluctant to agree without understanding what you are asking us to do.” On Tuesday, the government ordered BP to set up such teams, which are designed to handle local concerns.

Another day, another directive. The Obama administration now is controlling BP’s checkbook and resources in the Gulf as the two sides respond to the disaster, from use of oil-busting dispersants to the language of announcements.

BP managers say they frequently hear that “Potus has ordered” such and such, “Potus” being Washington shorthand for “president of the United States.” A few weeks ago, BP’s coordinator of oil-containment booms got a call from an official flying on Air Force One about where to send 80,000 feet of the barriers.

On a smaller scale, BP just received a $75,000 nonitemized bill for a one-day visit by Vice President Joe Biden to the New Orleans crisis center.

“We effectively work for the government here,” BP’s Mr. Dudley says.

Joe White discusses why BP is considering yet another method to kill its ruptured Gulf of Mexico oil well amid concerns that the cap it installed last week could allow oil and gas to seep out the sides.

When the well first blew out, the administration largely left the job of responding to BP. Then it tried partnering, while still leaving the British company in the lead. Now, facing public criticism, the White House has tightened its grip over BP’s spill response.

The White House believes its actions have forced BP to deploy more resources in the fight. At the same time, some at BP say the government’s hand has been heavy at times, complicating their efforts.

Politically, the evolving dynamic holds both promise and peril for the White House, not to mention for BP. Now that it is possible the well might soon be killed, the administration might reap some of the credit if it is seen to be riding herd on BP. But publicly taking so much control risks the opposite result in case of further setbacks.

“The public will hold President Obama responsible whether he has real control or not, so the appearance of being in control is important,” says Mark Mellman, a Democratic pollster and strategist.

As for the oil company, Mr. Mellman says that “BP is looking for any way it can get out of the line of fire, including getting behind Obama’s pants leg.”

Some BP executives aren’t unhappy the government is going to great lengths to show it’s in control. Said one manager: “Now the administration gets as much blame as we do.”

The relationship between the U.S. government and the private sector has gone through wrenching changes in the past two years, from the quasi-nationalization of two car companies to the bailouts of financial institutions. This U.S.-BP version is a new breed: the government going toe to toe with a foreign corporation in which it holds no financial stake.

The Justice Department has asked BP to give the U.S. advance notice of any asset sales—which it did before Tuesday’s announcement of a $7 billion asset sale to Apache Corp. Based largely on White House pressure, BP has stopped paying dividends for the year.

But as much as administration officials disliked BP Chief Executive Tony Hayward’s gaffes and found fault with his management of the crisis, says an administration official, the White House couldn’t insist on the CEO’s ouster even if it had wanted to, as the White House did at American International Group Inc. and General Motors Co.: The U.S. wasn’t giving BP federal money that it could condition on the CEO’s removal.

BP acknowledges the leading role of the government, in the person of its “national incident commander,” the recently retired Coast Guard commandant. “Adm. Allen is the ultimate decision maker…and we’re fully supportive of that,” Kent Wells, a BP senior vice president in Houston, said recently.

One small sign: Adm. Allen says he recently called BP’s Mr. Dudley in the early morning hours and woke him up to tell him of an approaching tropical storm and how it would affect BP’s operations.

The White House chief of energy and climate policy, Carol Browner, a Florida native keenly aware of that state’s importance in national politics, told Mr. Dudley in early July to speed up paying claims lodged by local governments in Florida.

Within 36 hours over the July 4 weekend, Mr. Dudley personally reviewed more than $5 million in claims for the state, not all of them yet paid.

BP is spending about $100 million a day on its massive spill response, according to an internal tally, and Washington’s input adds to the cost.

BP is paying for command centers in Houston and New Orleans where the federal government has moved in hundreds of its employees. The oil company is billed $19,000 an hour for the Coast Guard cutter Resolute, which has become part of the flotilla of vessels at the spill.

How much the administration’s forceful role is affecting the effort—from wrangling the well to trying to limit environmental harm—isn’t easy to assess.

“There’s a newfound precautionary approach that the administration is applying to wellhead management. It is forcing BP to monitor and respond to every bubble or seepage,” says Richard Charter, a senior policy adviser at the environmental group Defenders of Wildlife.

At times, it appears, the government’s reach has resulted in confusion or delay. For example, BP sends daily recommendations on the dumping of oil dispersants from planes, but one manager complains that the answer from federal authorities occasionally has arrived too late for the planes to go out 43 miles offshore. An administration official says many factors, including weather, can require time to evaluate.

For Mr. Dudley, this isn’t his first challenging assignment. As head of a BP joint venture in Russia, he was embroiled in a bitter dispute with BP’s partners and ultimately had to leave Moscow when the authorities wouldn’t extend his visa.

A low-key executive adept at working with disparate interests, Mr. Dudley, a BP board member and managing director, found himself running the Gulf cleanup after CEO Hayward became a lightning rod for criticism.

Mr. Dudley grew up in the region, in Hattiesburg, Miss. In preparation for his new job, Mr. Dudley paid individual visits to cabinet secretaries and White House officials.

He and Adm. Allen are in constant touch as each heads up his respective camp. Two weeks ago, they flew together by helicopter to the well site to view one of the oil industry’s largest-ever collections of vessels in one location.

The helicopter weaved between two ships expelling flares of burning oil to land on the Discoverer Enterprise, directly above the rogue well.

On board, Adm. Allen led as he and Mr. Dudley inspected the new cap that has since been activated. On the flight back to New Orleans, the two shared information, trading BlackBerries to show emails from each other’s team. They brainstormed about how to proceed with the new cap as a break in the weather was opening.

The next day, Adm. Allen issued a public “directive” asking for a “detailed plan” and “decision points” within 24 hours on exactly the topic the men had discussed a day earlier. Even though he and Mr. Dudley had ironed out some issues, the administration needed plans in writing before it could approve the action, according to a senior U.S. official.

To respond to the demand, BP had to pull off some engineers working on the new cap, a BP manager said.

Asked about relations between the government and BP, Adm. Allen described them as “dynamic tension.”

The U.S. last month ended the practice of holding joint news conferences with BP. Administration officials didn’t like some of BP’s responses, particularly after the failure of a “top kill” effort that involved injecting heavy drilling fluids into the runaway well.

On July 5, BP officials noticed that the “unified command daily report,” to which it had contributed data on resources and personnel, no longer bore the BP logo or input.

Occasionally, BP has pushed back. When the White House turned up the rhetoric against BP in early June, a time when BP shares were sinking, Mr. Dudley privately asked the president’s chief economic adviser, Lawrence Summers, to ease up.

“Have you seen the performance of our credit-default swaps?” Mr. Dudley said, according to a person at the White House meeting, referring to insurance-like financial instruments. “They’re illiquid for the moment, and that can’t be good for the country or BP if we are going to be able to meet our obligations.”

Last week, the administration dispatched a team of scientists from the government, academia and industry to take part in planning for the eventual sealing of the well. When Mr. Dudley realized that people from Shell Oil Co. and Exxon Mobil Corp. were on conference calls, he drew the line.

“We shouldn’t have competitors reviewing and being involved in decision-making here,” he told Adm. Allen.

Most recently, tensions flared as BP made plans to lower its newly designed cap onto the gushing well. Last Thursday, when the cap appeared to stop the oil, all weren’t happy at the Houston crisis center. Instead, a squabble broke out between government scientists and BP engineers.

Scientists from the U.S. Geological Survey began raising issues about the well’s integrity, said a person in the Houston crisis center, and Energy Secretary Steven Chu posed questions about “worst-case scenarios.” The scientists offered different interpretations of test results and argued that the well or seabed still could be breached.

BP’s engineers on the scene resisted the idea that it might be necessary to open valves in the cap to let oil resume flowing to the surface for capture, said two people in the meeting.

Conference calls went into the night, involving Sec. Chu and BP’s global head of exploration and production and their representatives. Adm. Allen, mediating the heated discussions, finally decided the new cap needed additional testing, even though BP expressed concern about the extensive moving of vessels that this would require.

Confrontations continued over last weekend as tests showed possible seepages on the seabed, leading Adm. Allen on Sunday to issue a terse directive for BP to make preparations to let the oil start flowing to the surface again. So far, the cap continues to hold back the oil and the valves haven’t been opened.

In one area, Mr. Dudley wants to continue working with the administration: the creation of new regulations and technology to prevent such a disaster in the future. “No company knows more about sub-sea and shoreline response now than BP,” he says.

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
Cooper Law Firm

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