The Alyeska Pipeline Service Company, which operates the 800-mile Trans-Alaska Pipeline System (TAPS) was exposed twice in the 1990s for harassing internal whistleblowers. But it has now been recognized as one of the world’s most ethical companies. David W. Smith asks company president Thomas Barrett how the company transformed its working environment.
In the past two decades, Alyeska Pipeline Service Company has travelled a journey as extraordinary as the 800-mile one made by the Trans-Alaska Pipeline System (TAPS) across Alaska’s harsh, mountainous terrain. Once pilloried for questionable practices, Alyeska is now placed on a list of the world’s most ethical 150 companies. It was one of only two companies from the global oil industry to make the list compiled by the Ethisphere Institute. The management consultancy heaped praise on company president Thomas Barrett for fostering a transparent way of doing business.
Yet a couple of decades earlier, Alyeska was mired in controversy over its work practices. In 1993, a government-commissioned audit uncovered lax management, falsified reports and faulty leak detection. Alyeska sank into an ethical abyss, hiring a company to spy on chief whistleblower Chuck Hamel. It was cloak and dagger stuff as private detectives tapped Hamel’s phone and rifled through his mail to unearth his sources inside Alyeska.
Alyeska vowed to end the harassment of workers who pointed out problems in its pipeline operations and develop a more ethical environment. But the culture was slow to change and in 1999 troubles flared up again. Six anonymous whistle-blowers aired 57 new charges against the company, including concerns about safety and tardy responses by managers. Alyeska admitted to more internal problems including the harassment of whistle-blowers and the then company president, Bob Malone, ordered an investigation by Little Harbor Consultants. Their report found that while most allegations had been made known to Alyeska managers, “the collective significance of those concerns was lost during the daily focus on operation of the pipeline”. The report also found evidence of harassment and intimidation.
Malone, an important figure in the history of Alyeska, vowed to be more dynamic in changing the workplace culture and began implementing a new programme called the Open Work Environment that codified Alyeska’s commitment to letting workers raise problems without fear of reprisal.
The company has progressed enormously since Malone’s actions. There have been hiccoughs along the way, but there has been a line of progress culminating in the work done by Barrett since he took over as President in 2011.
One of Barrett’s strengths is his objectivity. He is the first company president hired from outside the consortium of oil companies who are the pipeline’s chief owners (BP Pipelines, ConocoPhillips Transportation, ExxonMobil). Previous company executives were all on loan from the oil companies, whereas Barrett has drawn inspiration from a rich and varied career. He is a retired US Coast Guard Vice Admiral, a former Deputy Secretary for the Department of Transportation under both Presidents Bush and Obama, and was the first administrator of the federal Pipeline and Hazardous Materials Safety Administration.
But Barrett has never been under so much scrutiny before. The focus on Alyeska is intense in a state where where oil production accounts for about 93% of unrestricted general fund revenues, which amounted to US$9 billion in 2012. The general fund pays for almost every state service, including education, transport infrastructure, public health and safety.
One of the major problems Barratt faces is falling revenue. The Alaska Department of Revenue estimated that the state took in US$6.3 billion in petroleum revenue in fiscal 2013. But this year, because of changes to tax codes, it will take in only US$4.3 billion from petroleum production, an amount that could fall to US$3.9 billion in fiscal 2015.
With the Trans-Alaska Pipeline System (TAPS) now running at two-thirds empty, Alaska’s share of domestic production has fallen to around 10% and the state has slipped to be the third largest producer in the US, behind Texas and North Dakota. Daily oil production in FY 2012 fell to 590,000 barrels per day (bpd) and is expected to fall to 548,000 bpd in FY 2014.
Interview with Thomas Barrett
What have you changed about Alyeska’s working environment?
Part of what I’ve been trying to do here is to reinforce the parts of Alyeska’s culture that are good, especially transparency. I have encouraged what we call a ‘Speak Up, Step Up’ culture. The expression was not mine. It came from the employees when we asked them what working culture they wanted. ‘Step up’ means anyone who has an issue with safety is encouraged to raise it. Everyone has the right to stop work if they are uncomfortable with a situation knowing there will be no retribution.
‘Step Up’ means that if you see a problem, you don’t get to ignore it. Your safety, but also the safety of co-workers, depends on you. The driver for me was to translate our policies into a phrase which means something to a technician out at one of our pump stations who is confronted with a situation. We spend a lot of time on developing our culture and it’s important to have that expressed in terms that resonate with employees, not in my language, or a lawyer’s language.
There are no risk-free activities in our business and so ‘Speak Up, Step Up’ is vital in minimizing those risks. We don’t want people to walk away from their responsibilities. Line managers play an important role in the process. We don’t want any of them saying ‘my gosh, I need to get this turbine repair done and don’t have the money in my budget’. We want them saying ‘we really need to manage this operational risk’. It then gets up the chain of command and we can find a way to solve the problem at some higher level in the organisation. Our culture is to be transparent and not bury issues.
One challenging aspect is getting our extended leadership team to speak back to me. I’ve told them, ‘it’s my job to challenge you and challenge your thinking’. I need to ask questions and understand risks. But I also want them to be comfortable enough to challenge me. I want that transparency and I want that ‘Speak Up’ attitude. But sometimes it’s not me challenging them that’s hard, it’s getting them to challenge me. I am working on those kinds of things.
What attitudes do you find among the workforce?
The employees are proud of doing such important work. Many people don’t realize that we are still a national-level asset. We produce 10% of the US oil supply and closer to 20% of West Coast oil. Mainly through taxes, we provide 90% of the revenue funding for the state of Alaska. Our employees get up in the morning and know they are doing something worthwhile.
I have a lot of respect for the skills and character of Alyeska’s workforce. I talk about our employees having Alaskan ‘true grit’. They do things in tough conditions that would stop people elsewhere. There’s a statue at the marine terminal in Valdez paying tribute to the workers who built the pipeline. The motto on the plaque says ‘they didn’t know it couldn’t be done’. I routinely see that never-say-die attitude in a challenging environment. We don’t get a lot of named storms up here, but they are every bit as severe as what other people would call a hurricane, or a blizzard. I’ve got people that can do field wells that pass tests the first time in 20 degrees below freezing.
The pride in what they do shows up in the employees’ philanthropic engagement with the local communities. I like the idea of our employees being supportive of some community activity, whether it’s a food bank, or a homeless shelter, or a school, or an arts and culture centre. If the employees believe in it and contribute, we back them up so it gets double the funds. We have very generous employees so we’re up at around US$600,000 per year in community contributions with a workforce of about 800.
The Alyeska employees try to spread our values around safety to the community. We’ve trained nearly 4,000 fishermen on 450 fishing vessels as part of our response capability in case of an oil spill in Prince William Sound. They have to adhere to our safety standards and always wear personal protection equipment. Several boat owners have thanked us for sharing our knowledge. They said ‘we would never have thought of making our own crew wear safety glasses if you hadn’t made us wear them when we were working for you’. Our people can see how the community benefits from our open working environment. Part of our ethic is sharing the good stuff we have and that resonates with our employees. What we do has value beyond the job itself.
How have your previous roles influenced your leadership approach?
My background as an administrator for the US Pipeline and Safety and Hazardous Materials Safety Administration (PHMSA) gave me a perspective on the entire energy industry. Whereas many CEOs grow up in one company’s culture, that job gave me a chance to look at a whole variety of companies, both liquid and gas. That open perspective is valuable at Alyeska. It’s always good to look outside the window and see who is being successful as an ethical company. We are always looking at the industry practices of other companies and asking who is doing what very well. What makes them successful? Are we doing that? Are we best of class? Are we communicating as well as we can? We don’t have a lock on what good looks like. I encourage all our folks to look outside the company as well to see what ‘good’ looks like.
My background as a regulator in the coastguard also informs my work. Our motto was ‘always ready’ and there was a focus on our response capabilities in case something should happen. We tried to do the job to a flawless standard and I’ve brought that ambition to Alyeska. People are human so you never attain perfection but that’s what we aim for. We incentivise performance. When they Step up and Speak Up and Shut Down work, we recognise that in a positive way. But it’s also my responsibility to hold people accountable if they step outside our code of conduct.
My previous experience has influenced me in so many ways, but at the end of the day I’ve always been convinced that you can’t make every decision and you can’t take every action. Whether you are successful on a mission, or in inspecting a boat or an air crew, you stand or fall on the performance of your people. You have to trust them and set them up to succeed. What I do believe – and this often gets lost – is that it’s not so much a leadership issue from a CEO’s point of view. The key thing is setting the conditions and expectations for other people to succeed at whatever level they are at in the company.
What have been some of the major challenges?
When I got here I wanted to emphasize to the employees that my inbox is always open. Initially, I got a lot of emails from people raising safety concerns. We put a lot of emphasis on solving the problems and I don’t get as many emails about it now, though I occasionally get them. We are a top-tier performer on safety and aiming for zeros.
Other workplace issues have run the full spectrum. For example, I had a complaint about some of the employees using computers to access porn at work. We stepped on that very hard. I don’t tell people what they do at home, but that kind of thing can create a hostile and intimidating work environment.
Another issue for Alyeska is that, like many companies, we have an ageing workforce with an average age of 48. So we’re addressing the issue of workforce renewal. We’ve formalised our technician training programme and, at a higher level, we’ve formed a partnership with Alaska Pacific University (APU) to create an MBA degree. Basically we’re sending about 20 students per year – supervisors, managers, or people who aspire to that level – to study for a Master’s. We’ve worked with the MBA faculty to create a curriculum which focuses on what our managers need. APU have also waived some of their usual admissions requirements as not all of our people would line up for that.
We bolt onto the solidly grounded academic MBA some Alyeska-specific modules you wouldn’t get on a typical MBA programme. For example, we bring in regulators to talk about how they feel about overseeing a company and we bring in other financial managers to give talks. We just had the CEO from the local municipality to speak about their financing and budgeting.
We also spend time on the MBA talking about the Alaskan Native Utilisation Agreement. The students learn the history behind that and how we should relate to the people who once owned our lands. That fits in with our company ethos as we’re very strong on native culture. We have a requirement in our operating lease to focus on Alaskan native hire, but it’s just as much of a cultural thing.
As part of promoting Alaskan culture, we offer support scholarships to Alaska natives on a programme called Best of Class, on the Science and Engineering course at the University of Alaska. The programme reaches down to middle school looking to attract Alaskan natives interested in science. It’s a good example of how we consciously support activities focused on the culture up here, but also the need we have for a skilled workforce.
What technical and financial challenges does the pipeline face?
The 36-year-old pipeline is a fantastic engineering feat. It goes across three mountain ranges and has 34 major river crossings. It has withstood a 7.8 richter earthquake without any breaches in the line. At 48 inches in diameter, it is very large and at one point we were moving 2.8 million barrels a day. Right now the number is low at about 550,000, which is only a third of design capacity. It’s counter-intuitive, but it’s actually more challenging to move less than more oil.
About half the pipeline is above ground, which makes them vulnerable to two things – permafrost and seismicity. When there is less oil in the pipe it moves more slowly, meaning you get more exposure to water and wax precipitation. It can turn to ice which increases our risk of corrosion and poses risks if we have a shut down.
Although it’s a fantastic piece of engineering, the pipeline is not designed for 550 million barrels a day. One way of thinking about it is to compare it with a car which likes to run at 50-60mph. If you drive it at 10mph all the time, you get carbon build-up and soot.
One solution is to boost supply, but that means drilling and more production and there are financial issues. Trying to incentivise more production is a major issue for the state. The resources are there, but we need to get the permits and economic incentives.
Another solution is to reduce the amount of water in the pipeline. Oil always has a certain amount of wax, water and sediment in it and we get water coming in from the northern slopes. We have to meet standards of .35% although it’s generally well below that. Now we are working with the University of Tulsa to see if we can use technology to reduce the amount of water. If we can succeed, we could operate safely at still lower flows. They are building a flow loop so we can run some tests over the feasibility of the programme.
It’s a large pipeline so it’s not really economic to replace it. We do a lot to combat the ageing process, which along with declining flow, is the biggest technical issue we face. We spend lots of time, energy and money upgrading, replacing and repairing segments.
We’ve also been spending millions of dollars a year on developing low flow and we’re also looking at ultra-low flow techniques. This entails adding heat for recirculation at a number of our pump stations, so it goes down there warmer. We are also looking at changing our pumps to be variable speed so we manage flow rates better. We’re also adjusting our ‘pigging schedules’ to keep the line clean. We’re confident we can still run the pipeline with a lot of these changes down to the 300,000 barrel a day range. I hope it doesn’t come to that, but we have to be ready if it does.
Please share your experiences and views in the comment section