Beyond BP: The Gulf of Mexico Deepwater Horizon Disaster 2010

Abstract

This case explores a company’s responsibility for its social, environmental and economic impacts; and in particular, the risks associated with failing to manage negative social, environmental and economic impacts. These can be especially complex in joint ventures with multiple, external contractors; and industries operating at the forefront of proven technologies. The case examines the Deepwater Horizon disaster in the Gulf of Mexico and the consequences for BP. The case can also be used to examine crisis-management strategies and techniques.

Appendices

Appendices

Appendix 1: Tony Hayward Speaking at Stanford Graduate School of Management May 12th 2009

Speaking to an audience of graduate students, Hayward began by describing the huge change that BP went through from 1999 onwards. ‘Until the later 1990s BP was a relatively small oil and gas company. In an extraordinary period between 1999 and 2003, under the leadership of John Browne, we put together a whole series of mergers and acquisitions – such that by 2003 we had created one of the largest integrated oil and gas, energy companies in the world – equal second with Shell – with operations everywhere.

Then catastrophe struck. In the space of several years we had a whole series of real disasters actually.

• We blew up a refinery in Texas City and killed 15 people.

• Our flagship project, called Thunderhorse, almost ended upon the sea bed in 6000 ft of water in the Gulf of Mexico

• We had a major, major oil spill in Alaska

• We were found guilty by the Department of Justice for a trading manipulation in the natural gas market of the US

• And our financial performance in that period was appalling. We under-performed our major competitors by 30–50%

And so it was with that that I was given the job of being the CEO of BP.

The only thing you can do is to confront it head on – we assembled a new team, mainly internal but with some external people. We went through a critical self-assessment with the following diagnosis:

• 1. BP was a company which was top down, too directive and not good at listening – good stories travelled fast, bad ones travelled nowhere.

• 2. We had failed to recognise that we were an operating company – too many generalists, not enough skilled specialists.

• 3. We had created an extraordinary amount of complexity when we put all those companies together – consultants mapped 10,000 organisational interfaces- for a company of 100,000 employees that’s impressive! – too much analysis and not enough decision-making.

• 4. Then we sat down as a team to decide what to do about it.

Firstly, we created something called ‘The Way Forward’

• Safer, reliable operations

• Having the right people in the right place

• Performance: restoring revenues and reducing complexity

Secondly, we reinstated competitor benchmarking – looking at the performance of our principal competitor, Shell – an $8billion gap in Q2 2007.

Thirdly, we addressed issues of leadership and culture change.

At that time it turned out we had 36 live and operating leadership models at various parts of BP – not surprising; we had assembled all these companies from all over the place and they all had their different bits of heritage.

So my team spent 3 or 4 months, without consultants, without any external help, talking about the company that we wanted, the culture that we wanted and the leadership framework which would begin to enable that sort of culture.

The new leadership framework would need to:

• 1. Recognise skills and professional capability and competence

• 2. Recognise how important it is to energise and motivate people

• 3. Focus on decision-making – there had been too much introspection and not enough taking of decisions and getting on with it

• 4. Deliver results.

• 5. The culture of an organisation is shaped by what the leaders do….

We are early in that journey. It’s probably a 3–5 year journey for those who work in the offices and probably a 5 plus year journey for the people who work out in the facilities…..

Is it working (2 years into the process)? Well, I would say we are making progress, we are not there yet. We’ve closed the performance gap, so $8billion in Q2 2007 has become no gap at all in Q2 2009. We beat the market in three out of the last four quarters, and there is a lot of momentum in the company in terms of rising revenues and falling costs. So, there’s a lot of momentum but it’s clear that to create the sort of company that we want to create, which will be sustainable, we have more work still to do.

Appendix 2: Bly Report Summary

On 8th September 2008, BP released its internal Accident Investigation Report on Deepwater Horizon, compiled by Mark Bly, BP’s Head of Operations and Safety. The report concluded that ‘the team did not identify any single action or inaction that caused this accident. Rather, a complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces came together to allow the initiation and escalation of the accident. Multiple companies, work teams and circumstances were involved over time.’ The main failures were a combination of engineering design and human judgment.

The main engineering design failure identified in the Bly Report concerns cement for which Halliburton is accountable. Two quotes from the report highlight this:

‘The investigation team concluded that there were weaknesses in cement design and testing, quality assurance and risk assessment.’ ‘The investigation team has identified potential failure modes that could explain how the shoe track cement and the float collar allowed hydrocarbon ingress into the production casing.’

The cause of the critical failure of the blowout preventer (BOP), which should have provided a last resort failsafe, is still being investigated.

A series of human judgment failures take most of the blame, for which the Bly Report suggests that BP and Transocean are accountable, see quotes below:

The Transocean rig crew and BP well site leaders reached the incorrect view that the test was successful and that well integrity had been established.

The rig crew did not recognize the influx and did not act to control the well until hydrocarbons had passed through the BOP and into the riser.

Through a review of rig audit findings and maintenance records, the investigation team found indications of potential weaknesses in the testing regime and maintenance management system for the BOP (blowout prevention).

It has been suggested that at each point where a test result or reading showed there might be a problem, the decision to ignore it was made because of reliance on assumed built-in compensating fail-safe processes elsewhere, including the BOP.

The main recommendations of the report, which highlight the main failings found by the inquiry are:

• 1. Improved technical practices, requirements and operational guidance regarding cementing, pressure testing and subsea blowout prevention (including strengthening BP’s minimum requirements for drilling contractor’s BOP maintenance management systems).

• 2. Increased capability and competency at all levels, including advanced training, competency assessment, embedding lessons learnt and shared learning throughout oil industry.

• 3. Strengthen BP’s rig audit process to improve the closure and verification of audit findings and actions across BP-owned and BP-contracted drilling rigs.

• 4. Require drilling contractors to implement an auditable integrity monitoring system to continually assess and improve the integrity performance of well control equipment against a set of established leading and lagging indicators.

Appendix 3: New York Times

January 5, 2011

Blunders Abounded Before Gulf Spill, Panel Says

A version of this article appeared in print on January 6, 2011, on page A14 of the New York edition.

http://www.nytimes.com/2011/01/06/science/earth/06spill.html?_r=0

Appendix 4: BP Share Price Movement

Appendix 5

BP Spills Coffee: a PARODY by UCB Comedy

www.youtube.com/watch?v=2AAa0gd7ClM

For Additional Background Information on the Case

Timeline of disaster from April 20th to July 30th prepared by Thompson Reuters:

www.cnbc.com/id/37448876/Timeline_of_the_Gulf_of_Mexico_Oil_Spill

The Financial Times, BBC, and CNN websites all contain detailed analysis and contemporaneous reports:

www.ft.com

http://www.bbc.co.uk/search/bp_oil_spill

http://news.bbc.co.uk/1/hi/world/us_and_canada/

http://edition.cnn.com/2010/US/04/29/interactive.spill.tracker/index.html?hpt=T1 – for an animation day by day of the surface area of the spill

For visuals and graphics:

http://google-latlong.blogspot.co.uk/2010/05/keeping-up-to-date-on-gulf-of-mexico.html

For documentaries:

The Great Invisible (2014) directed by Margaret Brown

www.youtube.com/watch?v=LDw1budbZpQ

One particularly valuable resource is a US PBS-Frontline ProPublica documentary. www.pbs.org/wgbh/pages/frontline/the-spill/. This was a meticulously researched programme, also made available in “chapters” – segments covering the evolution of BP through a series of mergers and acquisitions in the 1990s, previous safety lapses, the accident and aftermath. PBS backed this up with substantial, additional supporting evidence and materials posted on-line.

This case was initially developed as a “live-case” taught as the crisis continued from May to July 2010, written by David Grayson from contributions from members of the Global Network for Corporate Citizenship: Michael Buersch, Derick de Jongh, Bradley Googins, Susanne Lang, Phil Mirvis, Mario Molteni, Christopher Pinney, Bill Valentino.

A subsequent version of the case was developed with fellow Cranfield School of Management faculty: Dr Steve Carver, Prof David Denyer and Chris Marsden OBE for the Pears Business School Partnership.

The author wishes to thank these contributors and the industry and sustainability specialists who commented on earlier texts.

The case relies on published sources.