The BP Oil Spill in the Gulf of Mexico essay

1. Executive Summary

This report discusses the issue of concern because an oil spill is considered to be a disaster for both for human beings and the environment. The BP oil spill in the Gulf of Mexico is no exception. The oil spill affected both human beings and the environment, polluting and damaging vast areas of the adjacent territories and the large populations of wildlife. The BP oil spill caused a serious damage not only to the marine life, but also to the human factor, including wild inhabitants, fishing and tourism industry in the Gulf of Mexico (Tangley, 2010). A large number of factors, including Petroleum toxicity, Corexit dispersant usage and oxygen depletion can be viewed as the major causes of the disaster which led to the negative impact on ecological system (Smithsona & Venette, 2013).

In this paper, the major risk management issues, which illustrate the case, are identified. Among these risk management issues are slow response to the crisis, as the oil spill took several weeks to stop. The results of risk management assessment demonstrate that loss prevention measures in the case of the BP oil spill in the Gulf of Mexico in 2010 were in place to prevent the oil spillage starting and the proper cost containment steps were taken to manage the cost of the required clean-up operations, recovery procedures to promote business continuation, many days had been lost. Second, the BP oil spill in the Gulf of Mexico demonstrated poor governance of organization as the company lacked the effective crisis plan.

Thus, the BP oil spill in the Gulf of Mexico case can be used to teach people lesson how to effectively use risk management and crisis management practices in addressing unexpected disasters.  To manage the crisis, a special plan should be developed and tested. Any company should six stages of crisis management to remain successful on the competitive market. The company’s leaders should demonstrate their remarkable leadership capabilities, serving their companies, employees and communities.

1. Introduction and Aims

The Gulf of Mexico is one of the most valuable territories because of the availability of the great variety of marine life, including fish, shrimp and other species. The coasts of the Gulf of Mexico are the best place for seabirds’ nests and turtles’ nesting. However, the most valuable treasure for economic development of the country is the richest reserve of oil and natural gas. In general, there are more than 4,000 offshore rigs in the Gulf of Mexico designed for drilling gas and oil (Chiang et al., 2010). According to researchers, “many people who live in the five U.S. states that border the Gulf of Mexico (Texas, Louisiana, Mississippi, Alabama and Florida) depend on the Gulf for jobs and survival”(Chiang et al., 2010, p. 5). One more important function of the Gulf of Mexico is the growing fishing industry that provides over 1.3 pounds of fish and shellfish each year. This information helps to better understand the negative consequences of the BP oil spill in the Gulf of Mexico that occurred on April 20, 2010.  The negative effects from oil spill have been widely discussed in scientific literature. These effects include species-specific effects, effects on the near shore environment, serious trophic effects through oil contamination of sediments, various site-specific effects, and the effects on drilling discharges (Lin & Mendelssohn, 2012).  Based on recent research findings, “the BP oil spill in the Gulf of Mexico that followed the explosion of the exploration platform Deepwater Horizon on 20 April 2010 was the largest accidental oil spill” in America that requires finding the proper solutions to develop effective risk management practices. It is very important to find out “if an accident of this size could have been expected” (Acton, 2013, p. 501).

The general aims of the analysis presented in this paper include:

• providing an overview of the key facts surrounding the case
• identification of the major risk management issues identified in the case
• Comparing and contrast the way in which these three risk management issues were dealt with by the firm(s) involved with material presented in the course or other reference material dealing with the concepts or issues that the case illustrates
• Assessment of the effectiveness with which the crisis, created as a result of the failures in risk management evident in the case, were managed
• Identification of the lessons that can be learned from the case, providing conclusions and the nature of any control procedures and/or risk treatment systems that should have been implemented or where failures occurred.

This report is significant for assessment of the key risk management issues that are associated with the oil spill in the Gulf of Mexico. The BP’s handling of the Deepwater Horizon oil spill that occurred in 2010 teaches people some important crisis management lessons. Actually, the work on oil platforms is automated, but human errors often occur on these structures (Smithsona & Venette, 2013).  According to researchers, these oil drilling rigs are considered to be the largest movable human-made structures in the world, as such “they have become virtual cities afloat that will always have minor equipment failure and human error, not to mention working in hurricane-prone environments” (Ostrom & Wilhelmsen, 2012, p. 23). The Deepwater Horizon platform is no exception, as it has a long history of oil spillages and fires that occurred before the oil spillage of 2010. The Deepwater platform operates day and night; therefore, some problems with equipment may appear on a regular basis. This report is aimed at giving explanation of some important risk management practices that should be taken into consideration by other companies to avoid negative consequences, similar to the Deepwater Horizon platform’s disaster.

• Case Study

1. Description of the key facts surrounding the case

The BP oil spill in the Gulf of Mexico is considered to be the “largest accidental marine oil spill in the history of petroleum industry, being 8%-31% larger in volume that the previous largest oil spill, the Ixtos I oil spill” (Holland & Schemwell, 2014, p. 23). The BP oil disaster is often called the Deepwater Horizon oil spill. It occurred on 20 April 2010 in the Gulf of Mexico on the BP-operated Macondo Prospect. Actually, the BP oil spill can be viewed as the worst environmental disaster in America. The BP oil spill occurred near Mississippi River Delta, as a result of a deep-sea floor oil gusher, which was made by the massive explosion of the Deepwater Horizon platform, one of the most efficient and effective semi-submersible drilling rigs in the Gulf of Mexico. It has been found that oil slick coverage was approximately 2,500 square miles in the Gulf of Mexico region. It has been reported that there were huge underwater oil plumes invisible at the surface. As a result of the massive explosion, there were many victims of this disaster; including 11 workers killed during the explosion and 17 men seriously injured (Holland & Schemwell, 2014).

 On the 15th of July, 2010, the gushing wellhead was capped, but the Deepwater Horizon platform released over 4.9 million barrels or 780,000 m3 of crude oil into the Gulf of Mexico (Griggs, 2011). This fact means that as a result of the explosion, over 53,000 barrels of oil were spilled each day of the accident (from July 10 till July 15) before the workers could cap the well. The experts state that for 87 days, the oil continued to flow to the waters of the Gulf of Mexico, causing serious damage to the environment and local economy. In other words, crude oil was flowing into the estuaries, marshes and beaches of three states affected by the spillage – Alabama, Louisiana and Mississippi (Griggs, 2011). The U.S. government declared that the BP oil spill in the Gulf of Mexico can be regarded as a national disaster.

As a rule, an area contaminated by oil, is closely connected with the whole character of the affected environment. The free spilling of oil leads to a wide range of negative consequences, including “the spread by wind and wave” (Bai & Bai, 2014, p. 363). The oil spillage from the Deepwater Horizon platform floating on the surface could evaporate through air and sun, spreading over the water surface. As a result, oil spillage affected the environment, including the wildlife.

2. Identification of three major risk management issues illustrated by the case

The BP oil spill in the Gulf of Mexico that occurred in 2010 gives an opportunity to identify three major risk management issues, which can be assessed by experts as significant risk management lessons. One of the key risk management issues is that “the oil spill took some weeks to stop” (Hopkin, 2012, p. 175). Although the results of risk management assessment show that loss prevention measures in the case of the BP oil spill were in place to prevent the oil spillage starting and the proper cost containment steps were taken to manage the cost of the required clean-up operations, recovery procedures to promote business continuation, much time had been lost. According to Paul Hopkin (2012), “it is, perhaps, the case that the damage limitation measures were not as robust as may have been required”(p. 175).

Besides, the BP oil spill in the Gulf of Mexico has raised serious risk management issues regarding the governance of organization involved in the case. Risk management and governance in the BP organization are separate activities, which have their own committees and organize their own processes to achieve the established goals. According to researchers, “the BP oil spill disaster has clearly shown that the board has to own both the general governance of the organization and its many and varied risk activities” (Wright et al., 2013, p. 16). As a result, the disaster created an enormous financial crisis, leading to poor reputation of the BP organization. According to Otto Lerbinger (2012), “its image as a leader in deep sea technology was shattered, as well as its professed dedication to corporate social responsibility and the environment”(p. 24).  Now the organization needs to use the proper strategies aimed at restoring its reputation in order to successfully operate in the Gulf of Mexico.

Based on the US federal government report that was issued in 2011 after investigation of the key causes of the disaster, the following failures were identified:

• Poor risk management practices
• Last-minute changes in decision making (Anastas et al., 2010)
• Failure to adequately observe and effectively respond to critical indicators that were identified on the platform
• Inadequate and insufficient well control response
• “Insufficient emergency bridge response training by employees responsible” (Guinness & Walpole, 2012, p. 227).

3. Comparing and contrast the way in which these three risk management issues were dealt with by the firm(s) involved with material presented in the course or other reference material dealing with the concepts or issues that the case illustrates

In the case discussed in this paper, the BP failed to avoid certain management errors that led to massive damage to the environment and caused considerable harm to people. The explosion of the Deepwater Horizon platform rig can be viewed as an example of “a designation that is a prevailing contention of government and other reports on the disaster” (Lerbinger, 2012, p. 24). The disaster in the Gulf of Mexico that occurred in 2010 was caused by certain management failures both by the organization (the BP Company) and its contractors (Transocean and Halliburton). Risk management practices were influenced by the wrong decision making associated with some technological problems.

According to the material presented in the course lectures, the risk management cycle involves several stages, which help an organization to manage risks: Identification, Quantification, Risk assessment, Risk treatment, Monitoring, Risk context. These stages are interrelated (Business Risk Management Week 2, 2014, p. 2). Based on the established components of risk management process, it is possible to avoid negative consequences of disasters in all spheres of human activity, including oil and gas industry. In the Deepwater Horizon platform, many events led to the disaster because inadequate risk management practices were ineffective in that situation.

In the case of the Deepwater Horizon oil spill, “the behaviors and attitudes of leaders have been disappointing at best and irresponsible at worst” (Corkindale, 2010, p.1).  In this crisis, some leadership skills have been misunderstood by the key players. The BP are responsible for the environmental disaster, but the BP CEO Tony Hayward demonstrated some failures in leadership practices, providing control over the “organizational culture that sanctioned extreme risk-taking, ignored expert advice, overlooked warnings about safety issues and hid facts” (Corkindale, 2010, p.1). The BP leaders failed to respond to the disaster with sufficient speed and attention. Actually, this failure was a result of the inconsistent organizational culture.

4. Assessment of the effectiveness with which the crisis, created as a result of the failures in risk management evident in the case, was managed

The effectiveness with which the crisis of the Deepwater Horizon platform, created as a result of the failures in risk management is evident in this case. There are six stages of crisis management, including “avoiding the crisis, preparing to manage the crisis, recognizing the crisis, containing the crisis, resolving the crisis and profiting from the crisis” (Business Risk Management Week 3, 2014, p. 1). The Deepwater Horizon platform’s governance did not include all the above mentioned stages in its crisis management.

In the Deepwater Horizon platform, there were serious problems with governance as the Company failed to examine all possible scenarios, assess all possible consequences and identify the cost of prevention of these negative consequences. The response to the crisis was not planned in a proper way. This fact means the BP Company failed to use the appropriate strategies to avoid the crisis. Because of the explosion on the Deepwater Horizon offshore drilling platform, over 5 million barrels of oil were sent into the waters of the Gulf of Mexico.  This fact proves that the company failed to avoid the crisis. According to researchers, the BP oil spill in the Gulf of Mexico is an example of a “company without crisis planning” (Cox, 2012, p. 87). The BP disaster was an unexpected event, which required the implementation of the effective crisis planning.  According to Charles E. Cox (2012), “BP’s advantage was that, even without a crisis plan, the company had billions of dollars in the bank and enough cash reserves to manage its way through the crisis and take steps to rebuild its reputation” (p. 88). Undoubtedly, the impact of the BP disaster was enormous because of the lack of the crisis planning.

Nevertheless, the BP governance managed to take some reasonably decisive action, using the media and public relations to address the issue of concern and demonstrate the company’s response to the disaster. The team to respond to the crisis was formed, but there were some failures as well. Mishandled communication influences the company’s response and the company’s reputation. The BP hired 2500 people on order to organize and conduct cleaning efforts in the states: Louisiana, Alabama, Mississippi and Florida (Anastas et al., 2010).  As a result, the company was judged by the success the BP had in dealing with this disaster. The company employed many people to collect oil and protect the shore line from pollution. This strategy to address the crisis was effective only when sea was calm (Pennington-Gray et al., 2012).

1. Conclusion

Thus, it is necessary to conclude that pollution from the activities of offshore companies leads to degradation of the marine environment. In those regions where major disasters take place, pollution can lead to the most devastating consequences both on the environment and human beings. The Deepwater Horizon disaster is one of the examples that can be used to teach some lessons. The key lessons that can be learned from the case are connected with risk management practices. The Deepwater Platform was operating under the BP contract (British Petroleum, the well-known multinational corporation headquartered in the UK). The discharge of oil had negative impact on the region, caused serious damage to fisheries and marine habitants, bringing to light the risks of deep water oil and gas drilling.

The lessons that can be learned from the case give an opportunity to other companies to avoid negative consequences of the crisis and develop, maintain and implement effective crisis management practices. One of the most important strategies to manage crisis is to implement a well-developed crisis plan, provide effective control procedures and risk treatment systems that must be developed and implemented in the areas, where failures occur frequently. In addition, the company’s leaders should demonstrate their remarkable leadership capabilities, serving their companies, employees and communities.

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