BP (formerly British Petroleum) has become one of the world’s most controversial giant corporations because of its involvement in a series of major environmental disasters and industrial accidents. The company has been the target of intense criticism for its role in the April 2010 explosion at a drilling platform in the Gulf of Mexico that killed 11 workers and unleashed a vast underwater oil leak that flowed largely unchecked for weeks. This incident occurred while BP was still contending with the legal and public relations fallout from a deadly explosion at a refinery in Texas, oil spills in the Alaskan tundra, and charges of manipulating energy commodities markets.
BP got its start exploring for oil in Persia (now Iran), where, in the 1950s, it enlisted the help of the US CIA to overthrow a populist leader who had nationalized the company’s assets in the country. Over the past quarter-century BP has solidified its position as one of the premier global oil companies with a series of acquisitions in the United States: Standard Oil of Ohio (1987), Amoco (1998) and Atlantic Richfield (2000).
BP had its origins in the exploration efforts of Englishman William Knox D’Arcy. In 1908, seven years after securing a large concession in Persia (now Iran), he made the first oil discovery in the Middle East. With the financial backing of Burmah Oil Company, he formed the Anglo-Persian Oil Company in 1909.
A plan for U.S. participation in TPC, renamed Iraq Petroleum, was worked out in 1928. The American companies, Standard Oil of New Jersey and Standard Oil Co. of New York, along with Anglo-Persian, Royal Dutch/Shell, and the French state-owned Compagnie Française des Pétroles, agreed not to compete with one another for concessions in a huge area representing the old Ottoman Empire.
To supplement what came to be called the Red Line arrangement, the heads of Jersey Standard, Royal Dutch/Shell, and Anglo-Persian met secretly at Achnacarry, a hunting lodge in Scotland, in 1928. Forming what became known as the As-Is agreement, the oil giants pooled the world market (aside from the United States and the Soviet Union), and divided it up according to existing shares of the major producers. Any expansion of the business was supposed to preserve those relationships. This was the first international oil cartel.
Although the architects of As-Is continued to dominate the global oil market outside the United States, they were unable to prevent competitors from expanding. Standard Oil of California got a foothold in Bahrain, and Gulf Oil in partnership with Anglo-Iranian (the new name Anglo-Persian took after the Shah changed the name of his country to Iran in 1935) obtained a valuable concession in Kuwait.
After the Second World War, many oil-producing countries began to demand greater control over their petroleum production—especially in Iran. Dissatisfied with the 50-50 arrangement established in countries such as Venezuela, Iran's National Front, led by Mohammed Mossadegh, demanded complete control over the country's oil industry. In 1951, after Mossadegh became prime minister, the country expropriated Anglo-Iranian's assets.
The company got back at Iran by seeing to it that other large petroleum producers effectively boycotted its oil output. The U.S. Central Intelligence Agency provided the coup de grâce in 1953 by helping to overthrow the Mossadegh government and put the Shah back in power. A consortium of Western oil companies was formed to re-establish foreign control over Iranian oil. Anglo-Iranian (which changed its name to British Petroleum in 1954) ended up with 40 percent of the new entity. In addition, the Iranian government was to pay BP £25 million in compensation over ten years, and the other companies in the consortium agreed to pay BP £32 million and 10 cents a barrel in recognition of Anglo-Iranian's investments over the preceding decades.
Apart from resuming operations in Iran, BP expanded its exploration activities in many other parts of the world, including Nigeria, Trinidad, and Canada. The biggest strikes came in Alaska and the North Sea. In 1965 BP discovered natural gas in the North Sea, and five years later struck oil there. The company made a major oil find in Alaska's Prudhoe Bay in 1969. BP thus found itself the owner of some of the largest petroleum reserves in the world.
The company took advantage of the situation to make its first foray into the American market. This was done by merging its Alaska assets with Standard Oil of Ohio (Sohio) in exchange for a 25 percent holding (later increased to 55 percent) in the company, which was the original base of the Rockefeller empire.
BP began to expand its chemical activities in the late 1960s following the purchase of the interest of Distillers Co. in the joint venture the two firms had formed in Scotland in 1951. BP later bought the European chemical and plastic operations of the U.S. companies Union Carbide and Monsanto. During the 1970s BP also got into coal, purchasing properties in Australia, Canada, and South Africa. The company later diversified into animal feed as well, aided by a 1986 purchase of Purina Mills in the United States.
In the late 1980s BP also consolidated its oil holdings, first by ousting the top executives of Sohio and spending $8 billion to acquire the remaining shares of the company (which was renamed BP America)—a step that made BP the third largest oil company in the world. The move came after a number of years of unfriendly relations between BP and the management of Sohio, which had experienced disappointing results from further oil exploration and from the acquisition of Kennecott Copper in 1981. BP expanded its presence in the North Sea in 1988 by acquiring Britoil for some $4 billion in 1988.
The ownership structure of BP itself changed in 1987, when the Thatcher government decided to sell off its shares. The Kuwait Investment Office was the largest purchaser, ending up with a 21.6 percent stake in the entire company. Under pressure from the British government, that holding was later reduced to a less threatening 9.9 percent. BP brought that about by buying back the other shares with the $4.4 billion in proceeds from the sale of its minerals operation to RTZ.
In 1990 BP chairman Robert Horton announced Project 1990, an aggressive plan to streamline the company’s complex structure and cut costs, which turned out to include the elimination of tens of thousands of jobs. One of those who lost his job was Horton himself, who was forced out in 1992 by what was described as a coup by other board members unhappy at the fact that BP, despite the cuts, had experienced the first quarterly losses in its history.
Before long, BP decided it needed to get larger rather than smaller. In 1998 it spent about $50 billion to acquire U.S. oil company Amoco in what was then the largest oil industry merger, and the largest takeover of an American corporation by a foreign firm. The combined company took the name BP Amoco.
Two years later, BP Amoco spent nearly $30 billion to acquire another large U.S. oil company, Atlantic Richfield (known as Arco). BP had to sell off Arco’s Alaskan assets to get approval for the deal from the Federal Trade Commission. In 2000 BP also acquired motor oil producer Burmah Castrol for about $4.7 billion. That year the company removed “Amoco” from its name and became known as BP PLC.
In 2002 BP acquired the German company Veba Oil, including its network of Aral service stations. In 2003 BP merged its Russian operations with those of Tyumen and Sidanco to form TNK-BP, the third largest oil company in Russia.
In 2005 and 2006 the company was rocked by scandals relating to an explosion at a refinery in Texas that killed 15 workers and to oil spills in Alaska. Those controversies, along with revelations about his private life (about which he gave false testimony in a court case), prompted BP’s chief executive John Browne to resign in 2007.
Browne’s successor Tony Hayward had his own crisis in 2010 when an offshore drilling platform leased by BP suffered a major explosion, killing 11 workers and sending huge quantities of crude oil into the waters of the Gulf of Mexico.
BP was one of the first companies to exploit Iraqi oil. In 1925, a 75-year concession contract was granted to a consortium 23.75% owned by BP, together with other British, French and US companies. Combined with two further contracts signed in the 1930s, the consortium gained control over all of Iraq's oil. The terms of the contracts, reflected the fact that Iraq was occupied by Britain. The deals gave most of the oil revenue to the companies, along with complete control over decision-making. . Ultimately, following the overthrow of the British-installed monarchy in 1958, the consortium's rights were restricted in 1961 to cover only existing producing fields. Between 1972 and 1975, those fields too were brought under national control, like those of all major oil producers of the Middle East. Yet these terms long outlasted the occupation The historical parallels to present days are stark.
In October 2002, five months before the bombs started falling on Baghdad, BP's then Chief Executive John Browne insisted that "there should be a level playing field for the selection of oil companies to go in there." In other words, Iraq's oil should benefit not just US companies, but European companies too. (The idea that it might benefit the Iraqi people was somehow neglected).
There has long been a revolving door between BP and the British Foreign Office. Indeed, of the last five (civil servant) heads of the Foreign Office, four have gone to become directors of oil and gas companies - including BP.
BP was also one of six oil companies that sponsored a lobbying effort beginning in June 2003, The purpose was to pressure the Iraqi government to grant the companies long term contracts called production sharing agreements (PSAs) which would give them exclusive rights to extract Iraq's oil, along with potentially unlimited profit. In order for BP and its fellow companies to feel legally secure, they needed an oil law to confirm their rights to the oil. The first draft for this law was written in July 2006, and was seen by BP and other oil companies within two weeks, while members of the Iraqi parliament would not see it until eight months later; while Iraqi civil society was excluded altogether. The interest groups involved in the drafting were reflected in the content: the law says that multinational companies will play the primary role in developing Iraq's oil, for the first time since the 1970s. It offers them contracts of up to 30 years, with exclusive rights to develop the oil, an extensive legal powers.
BP was one of about two dozen large corporations named as defendants in a lawsuit filed in U.S. federal court in 2002 that accused the companies of aiding and abetting crimes against humanity committed by the government of South Africa during the apartheid era. After surviving various challenges that went all the way to the U.S. Supreme Court, the case continued and is pending.
Groups such as the Kurdish Human Rights Project have criticized BP’s Baku-Tbilisi-Ceyhan pipeline not only for environmental reasons but also for human rights abuses reportedly perpetrated on opponents of the pipeline project in Turkey.
In 2004 some 300 non-governmental organizations and individuals sent a protest to the chairman of BP complaining that the company had failed to meet its commitments regarding the protection of human rights in connection with the Tangguh natural gas project in Indonesia. Those deficiencies persisted, prompting advocacy groups to send another letter to top BP management in 2008.
In 2009 a group of Colombian farmers filed suit against BP in British court, alleging that the company’s pipeline in their country caused landslides and damage to soil and groundwater, thus harming their crops, livestock and fish ponds.
Environment and product safety
Starting about 2000, BP attempted the difficult feat of depicting itself as an environmentally friendly oil company. Some of its initiatives were merely symbolic—adopting a sunburst logo and claiming that its initials now stood for “Beyond Petroleum”—while others were concrete steps, such as (modest) investments in solar power. BP’s campaign was all the more difficult because of its involvement in controversial Alaskan oil and gas production, and because its environmental compliance record was far from unblemished.
Political influence (national and international)
Like other large corporations, BP lobbies aggressively for its interests in Washington, DC. According to the Open Secrets database, the company spent nearly $16 million on federal lobbying activities in 2009.
Although the Obama administration has strongly criticized BP in connection with the Gulf of Mexico disaster, the company has a strong tie to a senior member of that administration: Energy Secretary Steven Chu. Before he took that post Chu was head of the Lawrence Berkeley National Laboratory in California. In 2007 there was a controversy about corporate influence over research when BP pledged $500 million to create an institute to study biofuels to be run by the Laboratory, the University of California and the University of Illinois.