BP Deepwater Horizon Case Study PDF

Preview

Summary

Mid-term assignment about the Deepwater Horizon oil spill...

Description

BP and Deepwater Horizon Case Study ‘The Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume.” – Tony Hayward, former BP CEO (BBC News, 2010). BP plc (originally British Petroleum) is one of the world’s oldest and largest providers of petroleum products. On 20th April 2010 a catastrophic explosion occurred on the company’s Deepwater Horizon oil rig, which led to the world’s largest (non-intentional) oil spill. The oil rig was owned and operated for BP by Transocean, the world’s largest offshore drilling contractor. The explosion was caused by methane gas, and the resulting eruption of mud, hydrocarbons, and seawater ignited into a fire that took 36 hours to extinguish. There were 126 workers on the rig at the time working for BP, Transocean, and a number of contracting firms including Halliburton. 11 workers were killed in the explosion and subsequent fire. The remainder, including some seriously injured, were evacuated. The rig sank two days after the explosion and the uncapped well resulted in a catastrophic oil spill of up to 350 million litres of toxic oil into the Gulf of Mexico. Initially BP reported that no oil was leaking, but by April 24, the US “Coast Guard said that 42,000 gallons of oil a day was leaking from the rig at 5,000 feet below the surface” (Amadeo, 2020). Attempts by BP to cap the well and stem the oil leak commenced, but the leakage was not able to be stopped until Figure 1: New York Times, 16 August 2010.

three months later (NAE & NRC, 2011). The company had to undertake a massive clean-up

to try to overcome the damage to beaches, wetlands and other fragile ecosystems -- including the ocean ecosystem within the Gulf and beyond.

1

The incident had a substantial and protracted impact on the environment and on the livelihood of local communities. The damage to the environment continued for several years afterwards and resulted in loss of marine and wildlife habitats. The economic impact on the local fishing and tourism industries was significant and long-lasting, with $700 million lost in fishing and tourism revenues (Amadeo, 2020). Oily material continued to be removed from the shoreline five years later (2,200 tonnes from Louisiana alone in 2013) (Amedeo, 2020). The total damage was still not completely known ten years afterwards (Borunda, 2020). The ultimate cost to the firm of the clean-up and associated fines and criminal and civil liabilities was $144.9 Bn (Gyo Lee, Garza-Gomez and Lee 2018), over thirty percent of the company’s net worth at the time of the incident. BP CEO, Tony Hayward (who had been called “the most hated – and most clueless – man in America” (Kennedy, 2010)), was eventually obliged to resign, as was the head of Exploration and Production, Andy Inglis (BP plc, 2011). In addition, there have been numerous cases of civil litigation that have taken many years to settle. In 2014, the US District court found BP to be guilty of “gross negligence and wilful misconduct”, labelling BP's actions as “reckless” (and also finding contractors Transocean and Halliburton to be negligent. 67% of the blame for the oil spill was assigned to BP, the remainder to Transocean and Halliburton (Cronin Fisk et al., 2014). Like most other workplace disasters, the Deepwater Horizon incident involved multiple causes (NAE & NRC, 2011; Hopkins, 2012). There was evidence of serious problems with BP’s approach to safety management and its capacity to heed warning signals well before the Deepwater Horizon catastrophe. Moreover, there had been three major disasters in the UK and in the USA in the ten years prior to the Deepwater Horizon incident, resulting in 110 workplace deaths (excluding transport-related deaths) (BP plc, 2010).

2

The investigations into these explosions, fires and oil spills revealed substantial flaws in BP’s approach to managing major hazards (Health and Safety Executive, 2003). The UK regulator urged the company to increase its focus on “major accident prevention… to ensure serious business risk is controlled and to ensure effective corporate governance” (Health and Safety Executive, 2003). BP’s own Internal Audit Group in London found serious safety deficiencies throughout the corporation, including widespread tolerance of non-compliance with basic health, safety and environment (HSE) rules, lack of leadership and accountability, insufficient monitoring and analysis of key HSE processes, and poor processes for learning from incidents (US Chemical Safety Board, 2007a). The audit found the company’s problems were systemic (ingrained in its culture, systems and processes) rather than specific to a particular site or workplace. The issues continued despite the earlier catastrophic events. One major explosion at the Texas City oil refinery was found to be due to ageing, poorly maintained equipment -- which had not been upgraded in a climate of budget cuts and resulting pressures for cost reduction (Cable, 2007). Investigators into to the multiple catastrophic events preceding the Deepwater Horizon disaster found a short-term focus on costs and output had compromised safety and encouraged deviations from safe operating procedures. Notably, BP had undergone a massive expansion involving the acquisition of substantial debt, which was used to justify an extended cost-cutting program (Steinzor & Havemann, 2011). The associated financial ‘crisis mode’ was found to be a major contributor to the earlier disasters (Lustgarten & Knutson, 2010). The methane surge and explosion on the Deepwater Horizon oil rig demonstrated that the basic problems at the heart of the earlier disasters had not been addressed by BP. The cost and schedule pressures that had played a part in the disasters of the preceding decade were also identified by the National Commission on the BP Deepwater Horizon Oil Spill, with many decisions made by BP (and the two other firms involved, Halliburton and Transocean) being driven by time or cost considerations (National Commission, 2011, p. 125). For example, the ten-hour installation period for the equipment needed to “secure the well against explosive gases” was used as an excuse not to proceed with this important task (Steinzor & Havemann, 2011, p. 103). The National Commission also found a critical backup measure, also intended to seal the wellhead in an emergency, failed to trigger due to inadequate maintenance (pp. 35-36). The two Deepwater Horizon investigations (NAE & NRC, 2011; National Commission, 2011) identified serious failings in BP’s management systems, including a failure to ensure onshore management examined real-time data from the rig, and poor operator-worker communication mechanisms. Only a fraction of the crew’s concerns over safety procedures and equipment had been transmitted to management. The National Commission (2011, p. 116-124) identified inadequate communication between BP and its contractors and its employees. Essential information was not passed on to BP personnel on the rig, leading to situations whereby “critical pieces of knowledge [were] disregarded” (Kyrtsis, 2011, p. 48). Another set of flaws concerned inadequate procedures and training, for example with regard to hazard event awareness.

BP’s systems had also placed a strong emphasis on personal safety – making it all about the individual workers and their actions (unsafe acts). They did not pay sufficient attention to process safety – which would have meant looking at equipment, processes and systems (unsafe conditions) (Cable, 2007, p. 34). In the Gulf of Mexico, this emphasis on personal safety coupled with poor communication undermined the safety and risk systems on the Deepwater Horizon (Hopkins, 2012). Before the Deepwater Horizon incident, BP had been considered a “darling of the corporate responsibility movement” and was an early adopter of Triple Bottom Line reporting (Balch, 2010). Yet, as we have seen, the cost- and production-focused management culture, the over-riding of safety concerns, and the absence of robust systems for safe subcontracting work had been a problem for many years prior to the Deepwater Horizon explosion. BP’s problem of ‘failing to learn’ was also endemic.

Figure 2: National Geographic

References Amadeo, K. (2020) BP Oil Spill Economic Impact, The Balance, July 6 2020, https://www.thebalance.com/bp-gulf-oil-spill-facts-economic-impact-3306212 Balch, O. (2010). Should responsibility get radical? Ethical Corporation. September 2, 1-3. BBC News (2010) BP boss Tony Hayward's gaffes, 20 June 2010. https://www.bbc.com/news/10360084 BP plc Health & Safety Policy (2013) PO-_D-019- Health & Safety Policy BP plc. (2010). BP Sustainability Review 2009. London, United Kingdom BP plc. (2011). BP Summary Review 2010. London, United Kingdom Borunda, A. (2020). We still don’t know the full impacts of the BP oil spill, 10 years later. National Geographic https://www.nationalgeographic.com/science/2020/04/bp-oil-spill-still-dont-know-effectsdecade-later/ Cable, J. (2007). Anatomy of a Tragedy. Occupational Hazards, 69(5), 31-37. Cronin Fisk, M., Brubaker Calkins, L., & Feeley, J. (2014, September 5 2014). 'Worst Case' BP ruling on Gulf spill means billions more in penalties, Bloomberg. Retrieved from http://www.bloomberg.com/news/2014-09-04/bp-found-grossly-negligent-in-2010-gulf-of-mexicospill.html Gyo Lee, Y., Garza‐Gomez, X., & Lee, R. M. (2018). Ultimate costs of the disaster: Seven years after the Deepwater Horizon oil spill. Journal of Corporate Accounting & Finance, 29(1), 69-79. Health & Safety Executive (HSE) (2003). Major Incident Investigation Report: BP Grangemouth Scotland 29 May to 10 June 2000, prepared with the Scottish Environmental Protection Agency, Norwich: Her Majesty’s Stationery Office. Hopkins, A. (2012). Disastrous Decisions: The Human and Organisation Causes of the Gulf of Mexico Blowout. Sydney: CCH Australia. Kennedy, H. (2010). BP's CEO Tony Hayward: The most hated  and most clueless  man in America, New York Daily News. June 2, 2010 Retrieved from http://www.nydailynews.com/news/national/bp- ceotony-hayward-hated-clueless-man-america-article-1.178007 Kyrtsis, A.-A. (2011). Insurance of techno-organizational ventures and procedural ethics: Lessons from the Deepwater Horizon explosion. Journal of Business Ethics, 103(1), 45-61. Lustgarten, A., & Knutson, R. (2010). Years of internal BP probes warned that neglect could lead to accidents. ProPublica, June, 7(10), 100 NAE & NRC (National Academy of Engineering & National Research Council) (2011). Macondo WellDeepwater Horizon Blowout: Lessons for Offshore Drilling Safety. Washington, DC: Committee on the Analysis of Causes of the Deepwater Horizon Explosion, Fire, and Oil Spill to Identify Measures to Prevent Similar Accidents to the Future. National Commission on the BP Deepwater Horizon Oil Spill, & Offshore Drilling (National Commission) (2011). Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling. Perseus Books Group, United States.

Steinzor, R., & Havemann, A. (2011). Too Big to Obey: Why BP Should Be Debarred. William & Mary Environmental Law & Policy Review. 36, 81. United States Chemical Safety and Hazard Investigation Board. (2007a). Investigation Report: Refinery Explosion and Fire (15 Killed, 180 Injured) BP Texas City, Report No. 2005-04-I-TX United States Department of Justice, (2013). Justice News 13 October, www.justice.gov/opa/pr/2013/October/13-enrd-1145.html (accessed 30 July 2014) United States Department of Labor. (2009a). Fact Sheet on BP 2009 Monitoring Inspection. Washington, DC: Retrieved from www.osha.gov/dep/bp/Fact_Sheet-BP_2009_Monitoring_Inspection.html....