Professionalism/BP's Response to the Deepwater Horizon Spill

Americans consume over 18.7 million barrels of petroleum a day. Private industries needed to seek new methods of obtaining oil to keep up with consumption as resources in Alaska and onshore are dwindling. The industry began to drill offshore; however, investments in safety and response equipment failed to keep up with the rapid move into deepwater drilling.

Background

Deepwater Horizon oil rig on fire

The Deepwater Horizon was a semi-submersible offshore drilling rig owned by Transocean and under lease to BP from March 2008 to September 2013. In 2009, the Deepwater Horizon drilled the world's deepest oil well at a total depth of approximately 35,055 feet in the Gulf of Mexico. In 2010, things took a turn for the worse. On April 20, 2010, while drilling in the Macondo Prospect, the Deepwater Horizon oil rig exploded in the Gulf of Mexico. At the time of the explosion, the oil rig was drilling an exploratory well 5,000 feet below sea level. High pressure methane gas from the well was released onto the rig, where it ignited and exploded. After burning for 36 hours, the Deepwater Horizon sank into the Gulf of Mexico on April 22, 2010. The explosion killed 11 people and the oil rig leaked 4.9 million barrels of crude oil into the gulf. The oil spread quickly and mainly affected Louisiana, Mississippi, Alabama, and Florida. After three months of unsuccessful attempts, BP finally capped the wellhead.

Extent of the oil spill

Debris and oil from the Deepwater Horizon accident float in the Gulf of Mexico

Events Leading to Disaster

There were four key players in the Deepwater Horizon disaster. Transocean owned the rig and leased it to BP. Halliburton handled the cementing of the well and Cameron manufactured the blowout preventer. Overall, all mistakes can be traced back to BP's overarching failure of safety management and communication between parties .

Remarkable financial returns gave the business a false sense of security. BP made several decisions that cut costs without conducting any kind of risk assessment to ensure their decisions were safe. Employers were encouraged to make time- and money-saving decisions as BP was already nearly $58 million over budget.

Deepwater Drilling

Those drilling in deepwater use drill pipe, casing, mud, and cement in a series of calibrated steps to control pressure while drilling thousands of feet below the seafloor to reach what they call the "pay zone," where the oil is. Cementing of an oil well is a relatively new and uncertain process. Engineers must seal the bottom of a well in order to establish isolation across a hydrocarbon zone. They must send a slug of cement down the well and pump mud in after it to push it into the annular space. If done well, the cement would properly seal a well; however, even following the best practices, a cement crew can never be certain how a cement job is preceding because there is no direct way to see it. Thus, it is very important for engineers to proceed with extreme caution.

Critical Decisions

To save time, BP chose to use less centralizers than recommended for their cement design and skipped a planned cement evaluation. BP viewed losing returns as the project's number one risk. Their work culture is best summed up in an email sent by BP engineer Brett Coals: "But, who cares, its done, end of story, [we] will probably be fine and will get a good cement job. I would rather have to squeeze [remediate the cement job] than get stuck." BP was aware that their design was not optimal, yet they decided to move forward with their design without performing the necessary safety checks.

Although Halliburton felt constrained by BP's cement design, they never brought their concerns to BP's attention. Three out of the four cement slurry tests conducted by Halliburton failed; however, they decided the fourth test confirmed their assumptions and did not conduct further testing. This is a clear example of confirmation bias.

BP and Transocean also failed to adequately train their rig workers to conduct negative pressure tests or to respond to an emergency. As a result, the rig workers found themselves making decisions outside of their competency area without even realizing their decisions were critical. When directed to run a negative pressure test, rig workers believed the test "went good" and were not aware of any problems. Minutes later, the well blew out and the rig exploded.

The immediate cause of the Macondo blowout was a failure to contain hydrocarbon pressures in the well. Three things could have prevented the blowout: a proper cement job to seal the well, mud in the well and riser, and a well-engineered blowout preventer

Future Safety Measures

It is clear that companies should implement a persuasive, top-down safety culture that rewards employees and contractors who take action when there is a safety concern even though such actions cost the company time and money.

Aftermath

Failed Solutions

BP went through several failed solutions to stop the well leakage, including the use of submersible robots, containment domes, relief wells, and force feeding heavy mud into the well. Finally, on July 15, the leak was stopped by cutting the pipe and putting a cap on it. In order to deal with the oil that had already leaked, BP used chemical dispersants and water surface burning. The three months it took BP to stop the spill and the number of failed methods indicates that BP risked environmental safety without really knowing the consequences or how to contain them. While oil spills had happened before previous solutions, other than dispersants and surface burning, were not applicable to deepwater well spills and BP lacked reasonable foresight in handling it.

Congressional Hearings and Government Response

Investigations by Congressional hearings and the National Commission on the Deepwater Horizon Oil Spill found that BP, Halliburton, and Transocean were liable for the spill by neglecting safety to cut costs. The US government ultimately sued BP, and eight other companies involved, to pay for the immense cleanup and environmental recovery costs. The government, particularly the Minerals Management Service, was also criticized for its lenient standards on potentially dangerous deepwater drills.

Major Players' Responses

Following the Congressional hearings, BP, Transocean, Cameron, and Halliburton all engaged in finger-pointing and scapegoating to clear their names. This project involves multiple parties but no clear lines of responsibility were drawn, leaving each company to assume the others were liable for failures. BP eventually sued these other three companies, trying to absolve itself of liability. .

BP’s attempt at damage control included downplaying the risks involved. At the beginning of the disaster, BP estimated leaks of 1,000 barrels of oil per day. Ultimately, this number turned out to be about 60,000 barrels. The CEO at the time, Tony Hayward, claimed that the oil spill was relatively tiny compared to the ocean.

BP's Corporate Image

A stock market board indicating the status of various stocks

The Deepwater Horizon oil spill tarnished BP's corporate image.

Brand

For the first time in 11 years, BP was removed from the index of the world's 100 most valuable brands. This index, compiled by Interbrand, a major marketing consultancy, is based on three factors: financial performance, role of the brand in purchase decisions, and its strength in securing earnings for the company. According to Interbrand, a majority of the company's brand value has been destroyed by the Gulf of Mexico disaster. Julian Dailly, director of valuation at Interbrand London, said: "BP failed to execute on the level of standards they talked so proudly about in the press and the majority of the company's brand value has been destroyed as a result. The overall impact can last a long time with the company finding it harder to enter new markets and bid for new contracts. The incident may not change the behaviour of people turning left and right at the petrol pump but it will have a huge impact on the company's bottom line and for a mineral giant that is critical."

Environmentalists protesting against BP in Houston, TX

Credit Rating

International ratings agency Fitch slashed BP's credit rating six notches from "AA" to "BBB." The "BBB" rating is just two notches above junk status. A lower credit rating pushes up the cost of borrowing as it shows that a company or country is a riskier investment and more likely to default. According to Fitch, "BP should not have trouble refinancing its debts if it needs to free up more cash to pay for the clean-up operation in the Gulf of Mexico."

Credibility

Before 2010, BP had the best image of any oil or gas company. After the Deepwater Horizon oil spill, BP lost its credibility for being environmentally friendly. Carol Browner, the White House Energy Advisor, labeled the oil spill the "worst environmental disaster the US has faced." As a result of the oil spill, eight national parks are threatened, more than 400 species are at risk, and about 7,000 animals, including endangered species, have died. Environmental groups quickly condemned the companies involved in the oil spill, especially BP. Demonstrations attacked BP’s disregard for environmental safety and environmentalists used the media to spread emotional post-disaster images.

Additional Scandals in the Aftermath

Misuse of Photoshop

BP's image plummets amongst growing concerns of the oil spill

In the aftermath of the oil spill, BP was heavily criticized for using Photoshop to exaggerate their productivity at their command center in Houston, Texas. In the original picture, workers were shown to be monitoring video screens displaying underwater images. Three of the ten video screens were blank. In the Photoshopped image posted on their website, a staff photographer added underwater images to the three blank screens. BP Spokesman Scott Dean stated "The photographer was showing off his Photoshop skills and there was no ill intent." He said BP has ordered workers to use Photoshop only for things like color correction, cropping and removing glare.

Lost Laptop

BP was further criticized after a BP employee, during a routine business trip, lost a laptop containing personal data on about 13,000 Louisiana residents who filed claims for compensation after the gulf oil spill. Even though the laptop was password-protected, the information was not encrypted. The data included their names, social security numbers, phone numbers, and addresses. In response to this incident, BP said no one would have to resubmit a claim because of the lost data and they offered to pay these residents to have their credit monitored.

Conclusion

To better understand the failures in Deepwater Horizon and protect against the risks of a new technology, it is helpful to look at a similar situation. The explosion of the Chernobyl nuclear reactor has many parallels to the Deepwater Horizon incident. The disaster also arose from a culture of cost cutting and pressures to get results quickly, including the use of engineers untrained in reactor physics. Instead of this being a corporate culture, it was the Soviet government. Nuclear power generation was in its early adolescence as deepwater drilling is now. In both cases, these techniques seemed to be considered safe until proven dangerous. This disregard for safety led to unprecedented negative externalities in the form of widespread environmental damage. Deepwater Horizon’s oil damage impacted the Gulf coast while the Chernobyl incident’s radioactive fallout was spread to Ukraine, Belarus, and Russia. While the exact extent of this damage may not have been predictable, it is essential for professionals to acknowledge the uncertainty of danger in new technologies with preventative safety measures as the number one priority.

Further Reading

• Dudley, R. (2012). A Safer, Stronger BP. 93-97.
• Thomas, E., Stone, D., Hosenball, M., Isikoff, M., Conant, E., Clift, E., Hirsh, M., Campo-Flores, A., and Yarett, I. (2010). Black Water Rising. Newsweek, 155, 23, 26-33.
• BP. (2010). Deepwater Horizon Accident Investigation Report. 1-192.
• Deepwater Horizon Study Group. (2011). Final Report on the Investigation of the Macondo Well Blowout. 1-126.