Beyond petroleum, or beyond the pale? BP left out in the cold

If, like BP, you are an old-fashioned oil industry behemoth trying to convince the world that you care about pollution, global warming and the treatment of your workforce and the environment around them, then people such as Don Shugak look like a public relations nightmare.

Mr Shugak, a native Alaskan oil worker, was on duty at BP's A-22 well in Prudhoe Bay in August last year when the well head exploded. The roar of the flames burned 15 per cent of the surface of his body, scorching his right ear and the inside of his mouth and leaving his right hand looking, in the words of his wife, "like a rubber glove had been pulled down off it".

The force of the blast threw Mr Shugak against the side of his pick-up truck, breaking both his legs and damaging two vertebrae. He spent three months recovering in hospital and is, in the words of a co-worker, maimed for life.

What has made the accident particularly embarrassing is the fact that BP operators had been complaining about the inadequacy of safety measures at Prudhoe Bay since the previous year. Those complaints, which have led to a formal investigation by US government regulators, specifically pointed to problems with high-pressure wells, including the inspection and certification of safety valves and also the adequacy of leak detection mechanisms.

Moreover, Mr Shugak's accident was far from an isolated incident. In December, a 55-year-old welder under contract to BP was killed after a metal plug on a water pipeline sprang loose under pressure. In all, BP registered at least 11 recordable injuries during 2002, and an average of more than six vehicle accidents a month.

And that is just in Alaska. In Norway, a fatal accident in November on the North Sea Gyda platform led the Norwegian Petroleum Directorate to issue a severe reprimand to BP citing "many and collective violations" of health, environment and safety standards. Such incidents would be an embarrassment to any oil company. But to BP, which has been touting its credentials as a progressive, environmentally conscious company interested in getting out of the oil business altogether – "beyond petroleum", as its 2001 rebranding had it – in favour of cleaner, renewable energy sources, it has damaged both its image and its pocket book.

In a further body blow, one of the UK's leading ethical investment funds, Henderson Global Investors, announced it was selling millions of pounds of BP shares because it could no longer assure its investors of the company's commitment to worker safety and the environment in Alaska. "We have been talking to BP about this for seven or eight months but we have come to the conclusion that we are unable to invest in the company for these ethical funds," said Rob Lake, head of corporate governance at Henderson, which manages assets of about £120bn.

Other major UK shareholders, including the Methodist Church and the Universities Superannuation Fund, which has around £570m invested in BP, have expressed similar concerns and are to seek reassurances from the oil giant about its practices. Even the Environment Agency, which holds £46m in shares in BP, is discussing with its pension fund manager next week on whether to keep the stock.

Yesterday Greenpeace and Friends of the Earth both called for ethical investors to drop shares in BP altogether.

BP is clearly feeling the heat from all sides. Earlier this week, Alaska's oil and gas industry watchdog announced that it was considering a change in its rules to allow greater oversight of BP's operations. It has also ordered BP to issue a well management plan by March, and indicated that it will impose a heavy fine for the explosion that injured Mr Shugak.

The US courts, meanwhile, have ordered BP to allow federal inspectors unrestricted access to its Alaskan operations to verify compliance with environmental, health and safety laws. This was a modification of a five-year probation imposed on BP three years ago after the company admitted it had illegally dumped hazardous waste from the Endicott Island oil field between 1993 and 1995.

The immediate impact of this torrent of bad news is unclear. BP's share price has been drifting downwards for the past few weeks, but that is probably due to uncertainty over Iraq as much as the company's internal problems. Over the longer term, though, BP is clearly aware that its credibility is at stake.

In a memo circulated to staff two weeks ago, the president of BP Alaska, Steve Marshall, said the company could not afford to have another year like last year and must focus on safety "as if our lives depend on it". In the immediate wake of the August explosion, BP closed down 140 wells in Prudhoe Bay for emergency maintenance checks. In the past few weeks, it has compiled a confidential internal report into the accident which, according to a copy leaked to the Financial Times, admits a lack of adequate safeguards.

But BP's critics wonder whether this rush to honest accountability is too late. Even after the August accident, the company took steps to resist greater US government oversight of its operations. The laudable desire to avoid future accidents also does not make up for the core structural problem, which is the profitability of the Prudhoe Bay oilfield, the largest in North America, at a time of falling production.

Daily output at Prudhoe Bay, where BP manages 1,600 wells on behalf of itself, ExxonMobil and ConocoPhillips, has slumped from more than two million barrels a day in the mid-1980s to less than one million. The resulting cost-cutting and job losses, the critics say, has compromised worker safety and made accidents almost inevitable.

Robert Brian, a former BP instrument technician, told the US Congress last year: "If you look at the direction BP and the state of Alaska are going, with exposed outdoor well-pad modules, breakdown maintenance and a skeleton workforce, there is no doubt that cost-cutting and profits have taken precedence over safety and the environment." The new furore is sure to stir up renewed debate about the sincerity of BP's "beyond petroleum" image makeover.

Part of the reason ethical investment funds became interested in the company is because of the willingness of Lord Browne of Madingley, the chief executive, to acknowledge the dangers of global warming, support the Kyoto Protocol on cutting greenhouse gas emissions and invest in cleaner, renewable fuel sources. On the other hand, BP has continued to pursue its oil and gas interests with vigour, throwing its weight behind the Bush administration's desire to open up the pristine Arctic National Wildlife Refuge in Alaska, to the fury of environmental groups. Lord Browne said in a speech at Stanford University in California last year: "I believe the American people expect a company like BP ... to offer answers and not excuses." He is now being made to stand by those words, and it's proving a painful process.