LONDON (Reuters) - A week after one of his wells in the Gulf of Mexico began spewing crude into the sea, BP Chief Executive Tony Hayward visited the Reuters office in London.

BP CEO Tony Hayward delivers his opening statement about the BP oil spill in the Gulf of Mexico at the House Energy and Commerce Committee on Capitol Hill in Washington, June 17, 2010. REUTERS/Larry Downing/Files

Initially anxious, the CEO relaxed and grew in confidence as he outlined his plans to halt the leak, peppering his conversation with industry slang like “mods”, short for “modifications”.

His message over the lunch with senior journalists was clear: BP had one of the biggest engineering, logistical and financial problems the oil industry had ever faced, but the company was up to the challenge.

What the CEO failed to mention was that BP also faced a massive political problem, perhaps the biggest such crisis for an oil company operating in the United States since Teddy Roosevelt broke up John D. Rockefeller’s Standard Oil.

It was a telling omission. BP’s failure to grasp the fact that its biggest challenge was in Washington, not the Gulf, has led to a series of gaffes and strategic communications errors that have inflamed public opinion, fanned the political firestorm and dragged the company’s share price ever lower.

Most analysts expect the spill cleanup to cost under $30 billion, but BP’s market capitalisation is down $100 billion, on expectations it will face fines of up to $30 billion as well as curbs on its business in the United States, its most important market.

It didn’t have to be this way.

“BP’s handling of the spill from a crisis management perspective will go down in history as one of the great examples of how to make a situation worse by bad communications,” said Michael Gordon, of New York-based crisis PR firm Group Gordon Strategic Communications.

“It was a combination of a lack of transparency, a lack of straight talking and a lack of sensitivity to the victims. When you’re managing an environmental disaster of this magnitude you not only have to manage the problem but also manage all the stakeholders”.

SERIAL OFFENDER

From the start, BP adopted positions that fuelled suspicion.

Hayward repeatedly told reporters in the first days after the rig drilling the doomed well exploded that “it wasn’t our accident.” Instead, the CEO blamed Transocean, the company that operated the drilling rig.

“In such an awful and public situation, to immediately blame someone else, even if you’re right, is bad from a public relations standpoint,” said Henry Sneath, First Vice-President with DRI, an association of U.S. corporate defence lawyers.

“You immediately blacken your reputation and poison potential jurors that might ultimately rule on your faith.”

The company also failed to tackle its image as a serial safety and environmental offender. That was especially true in the United States where regulators had blamed both a 2005 refinery blast that killed 15 workers and pipeline leaks in Alaska in 2006 on cost-cutting.

When a Congressional Committee in mid-May highlighted this record, BP insisted it had changed. But it couldn’t say how.

“BP’s inability to precisely describe the improvements it has made in its safety and operational culture took us by surprise,” UBS said in a research note after the hearing.

ESTIMATING THE DAMAGE

BP further weakened its credibility by underestimating the amount of oil leaking from its well. Even when scientists challenged the Coast Guard’s 5,000 barrel-per-day estimate of the flow rate, BP defended it robustly.

On May 14, Bob Dudley, BP’s director for the Americas, told MSNBC the 5,000 bpd figure was “a good estimate” and that calculations of up to 70,000 bpd were “scaremongering”.

On June 15, a government panel said the flow rate was actually up to 60,000 bpd and internal BP documents released by a U.S. Congressman last week showed BP had itself calculated the well could flow at up to 100,000 bpd.

“Once you’ve lost trust and credibility, your ability to get your message across is critically hampered,” said Jonathan Hemus, director of Insignia Communications.

Then there were Hayward’s mistakes. Telling interviewers the spill was “relatively tiny” and that the environmental impact was likely to be “very, very modest” was interpreted as a crude attempt to downplay the spill’s impact.

Even worse was Hayward’s comment on TV that he wanted his life back. Predictably, wives of some of the 11 men who died in the rig blast responded that they’d like their husbands back.

On June 25, Hayward’s boss, the BP Chairman, Carl-Henric Svanberg said Hayward was returning to the UK, admitting the CEO’s remarks had “upset people”.

A day later, Hayward showed he could upset the U.S. public just as capably from the other of the Atlantic, when he was photographed aboard his yacht off the Isle of Wight as the oil spill confined fishermen in Louisiana to port.

“I think we can all conclude that Tony Hayward is not going to have a second career in PR consulting,” White House Chief of Staff Rahm Emanuel told ABC news after the yachting incident.

LITTLE U.S. EXPERIENCE

What makes the mistakes even worse, is that BP should have been well placed to mount a world-class crisis PR effort.

The firm had almost unlimited resources. Its chairman was a media-savvy former telecoms CEO. And its head of public relations, Andrew Gowers, was a former editor of the Financial Times, and one-time Reuters reporter, with recent experience of crisis management: Gowers headed Lehman Brothers PR team during its collapse, although the rapidity and breadth of the banking meltdown was such that no amount of PR could have saved the bank.

Yet the oil giant had a key shortcoming.

BP’s British CEO had never held a position in the United States, its Swedish chairman had limited U.S. experience, and Gowers’ only stint working in the United States was his few months with Lehman.

Hayward exacerbated his lack of U.S. savvy by choosing another Briton, Alan Parker, head of the UK’s largest financial PR agency, Brunswick, as his external PR adviser. It wasn’t until late May before the company appointed a heavy-hitting U.S. PR representative -- Dick Cheney’s former spokeswoman, Anne Kolton.

The lack of local knowledge hurt BP in those first few weeks. U.S. executives say that it is difficult for European executives, especially those who haven’t spent a long time working in the United States, to understand the combatative political landscape there.

“In Europe, the attitude would be much more, ‘the company is the only one who can solve the problem, so what do we need to do to help the company to get it sorted?’” said Patrick Dunleavy, a professor of political science at the London School of Economics.

“The company didn’t adequately gauge how much backlash there would be and how quickly it would be ... that was a really bad piece of risk management,” he added.

BP’s managers were not alone in underestimating the political risks. European investors continually shrugged off strongly worded comments from the White House, made after U.S. markets closed, only for American investors, who were more attuned to the significance of what was coming out of Washington, to hammer BP’s New York-listed American Depositary Receipts when U.S. markets reopened.

For a graphic showing the performance in the London listing vs. ADR please click on r.reuters.com/tug39k

TOUGHER MEDIA

BP has also been caught out by a more hostile media than it is used to.

For long the UK’s largest and most international business, BP’s success is a source of pride for a former imperial power which agonises over its position in the world.

To many in Britain, the CEO of BP is the patron saint of British business -- someone whose pronouncements on matters even outside the energy space can make the front pages. Even now, BP enjoys a reasonably positive press in Britain.

But the role of U.S. television in reporting the disaster in has been a challenge for a media team more geared toward dealing with financial reporters whose professional readers care less about snappy sound-bites.

BP would have faced public anger and political pressure no matter how slick its PR, of course. The question is: could it have handled the situation better?

Some analysts are doubtful.

“PR is not the antidote to what’s happening here. Whenever something like this happens it is a 100 percent certainty that the public relations will be deemed to be botched,” said Eric Dezenhall, a crisis PR specialist for almost 30 years,

Washington-based Dezenhall said BP’s communications efforts must be judged over the longer term.

“All of these PR chestnuts that sound wonderful in a college class, about apologising and contrition, there is very, very weak data to show these cliches bear out in reality”.