Strategy and Corporate Governance Essay

BP Oil Spill

Strategy and Corporate Governance

The bp oil spill of 2010

British Petroleum (BP) is one of the largest oil exploring companies in the world. It is recognized for its efficient practices. In recent years it has positioned itself as an environmentally responsible company by stressing its commitment to undertaking exploration activities by causing minimum harm to the natural environment. It has also invested in technologies to make drilling under the seabed more secure so that oil spills do not occur. However, these claims were brought into question on April 20, 2012 when a massive explosion and oil spill took place on the Deepwater Horizon oil rig over the Macondo oil well in the U.S. Gulf. There was huge damage to the marine environment and to the livelihood of people living in the coastal communities in Louisiana and other coastal states. The poor response of the company was shocking to many and suggests a need for reform in its management culture.

Main Events Leading to the 2010 Oil Spill

The Deepwater Horizon rig off the U.S. Gulf Coast had been drilling oil from the seabed since 2001. In 2010 Transocean was operating the rig under license from British Petroleum. On April 20, 2010 an explosion due to a gas leak occurred on the oil rig on which 126 crew members were operating (BP, 2012). Fire erupted as a result of the explosion and 11 crew members went missing after the incident. The number of injured members was estimated at 17 (Guardian, 2010).

Blowout Preventer

The response mechanism consisting of a blowout preventer failed to activate following the explosion. The next day, a search team comprising of members from Transocean, BP and the U.S. Coast Guard began a search for the missing crew members while the rig continued to burn. The next day, the oil rig sank after burning for two days. The big threat now was a massive oil spill from the well. Efforts were needed to seal the exposed well so that oil spills could be prevented. On the following day, the search for the missing crew members came to an end without any rescues being made. On April 25, a blowout preventer was used to try and seal the well. However, the effort was unsuccessful and the oil spill continued.

Magnitude of Leakage

On the same day, underwater cameras deployed by the U.S. Coast Guard revealed that the well was leaking an average of 1,000 barrels of crude oil per day. This estimate was revised the next day when the Coast Guard reported that 5,000 barrels per day were being leaked into the ocean (Guardian, 2010).

There were three leaks in all reported by the coast Guard (Guardian, 2010). On April 28, BP began a series of controlled burns to consume the oil before it could cause further pollution in the sea. The state of Louisiana declared an emergency as the oil spill began approaching the coast on 29 April. To plug the well that was still leaking, a relief well was set up on May 2 to seal the well ad control the damage. A week later, efforts were made to place a containment dome over the leak to stop the continued spill. This attempt also proved to be abortive. On May 5, one of the three valves was successfully shut off but this did not reduce the volume of oil leaking out.

Efforts by BP

On May 8, the plan to place a containment dome over the larger leaks and pump out the oil was also abandoned. On the same day, BP released a report in which the cause of the explosion was identified as a methane bubble. Another similar plan to use a capping dome failed on may 12. On May 13, the amount of crude oil leaking from the well was estimated to be 70,000 barrels per day (Guardian, 2010). Construction on a second relief well began on May 16. On May 20, BP's efforts at drawing up oil from the well through a through an insertion tube were marginally successful at bringing up 5,000 barrels per day.

Negligence with Regard to the Alarm Systems

During the early part of July some of BP's efforts at containing the oil spill and drawing it out were showing signs of success. On July 15, the oil spill was stopped for the first time since it began. On July 23, it came to light that the alarm system on the rig had been switched off on the day of the explosion (Guardian, 2010).On September 23, a report was released estimating that a total of 4.4 million barrels of oil had leaked into the Gulf during the first three months of the oil spill (Guardian, 2010).

Identification of Wrong Moves made by BP

Investigations that followed the oil spill found BP responsible for negligence in several aspects of work on the rig. Along with BP, other partners such as Transocean and Halliburton were also found guilty of not taking the necessary amount of care in constructing and using the Deepwater Horizon oil rig.

A presidential panel that had been assigned the responsibility to investigate the matter revealed in a report that BP along with other partners took "a series of hazardous and time-saving moves without adequate consideration of the risks involved" (Broder, 2011). The panel also reported in its findings that the well had been showing signs of trouble but that senior management had not paid attention to these reports and had not taken preventive measures in time to avoid the explosion that eventually took place. The panel also reported flaws in the cooperation among senior management and noted that senior managers did not consult with one another on serious issues as often as they should have (Broder, 2011).

Systemic Failures

The report squarely placed blame on "systemic" failures within the company and concluded that unless the company undertook major reforms in its management practices, it could not be said with certainty that such incidents would not be repeated.

Cost-Cutting Measures

Along with other companies involved in the incident, the report of the presidential panel also placed blame on BP for cutting corners around the construction and running of the well. Among these was the failure to put in place the required number of devices for maintaining the stability of the well. When the well had been sealed, the company had failed to wait for test results before proceeding further. The company was also guilty of using a riser to take out drilling fluid from the well whereas the proper procedure would have been to install a cement plug first and wait for it to be completely set before the drilling fluid could be extracted. The report also stated that the companies had failed to take necessary action when the initial tests had failed a pressure test when the well was being set up.

Poor Decision Making and Communication

The report declared the basic cause of the incident to be poor information sharing and coordination among employees and managers at the company. The managers were found to be ineffective decision makers and taking risky measures when less risky measures could have been taken. They also failed to seek and share crucial information with other managers and employees within the company and with their contractors. For instance, there was little coordination and sharing of information between employees on the shore and those on the rig. Information about problems such as the cement plug were known to the onshore officials but had not been communicated to the crew members on the rig.

The report did not place the blame squarely on any one company and held all three equally responsible for the negligence. However, Halliburton placed the greater responsibility of BP saying in its defense that it was acting after major decisions had already been made by BP. As a result, it was not equally guilty of negligence as BP. The failure of the company to keep the pipe in the centre indicates the lack of coordination and poor decision making by BP and its partners (Mufson, 2011). On the basis of these reports it can be said that BP was guilty of negligence and had taken a casual attitude by ignoring the warning signs for a large-scale incident. The absence of responsible management practices can be said to be the source of the poor preparation and readiness of the company.

Identification and discussion of Stakeholder Groups

The BP Gulf oil spill released almost 5 million barrels of oil into the sea and had far-reaching effects on the community. The following discussion aims to identify some of the important stakeholder groups that were affected by the oil spill as well as those who played a role in bringing about the damage.

Marine Life, Birds and Mammals

The most serious threat from the oil spill was to the wildlife in and around the waters that were affected. There.....