bp and the gulf of mexico oil spill case study

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BP and the Gulf of Mexico Oil Spill

By: Michael A. Roberto

On the night of April 20, 2010, a series of explosions rocked the Deepwater Horizon oil rig in the Gulf of Mexico. Gas in the Macondo well had surged upward unexpectedly, causing a mix of drilling…

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• Publication Date: Oct 18, 2011
• Discipline: Organizational Behavior
• Product #: W11366-PDF-ENG

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On the night of April 20, 2010, a series of explosions rocked the Deepwater Horizon oil rig in the Gulf of Mexico. Gas in the Macondo well had surged upward unexpectedly, causing a mix of drilling mud and seawater to spew uncontrollably into the air much like a volcanic eruption. Eleven crew members died during the explosion. The nation mourned their loss, and people watched as BP struggled to contain the environmental damage. Millions of barrels of oil spilled into the Gulf of Mexico in the weeks that followed. The federal government relied on BP to manage the accident's aftermath, in part because government officials lacked the expertise required to stop the spill. Meanwhile, BP downplayed their responsibility for the failure. As the firm failed repeatedly to stop the spill, the public became angry. This industrial disaster became the largest offshore oil spill in U.S. history. Drawing on the Presidential Commission's investigation, as well as numerous journalistic accounts, the case provides a detailed description of the events leading up to this catastrophic accident. Readers examine the key decisions that BP and its partners made as they drilled this well. They discover the alternative choices that could have been made and learn about the disagreements that took place (as well as those that failed to surface). Moreover, the case provides an opportunity to examine how BP's history and organizational culture shaped the way those decisions were made. The case describes how Tony Hayward and his predecessor, John Browne, led the firm and shaped the culture during the past two decades. In addition, the case explains how the regulatory environment and political forces shaped decision-making in the oil industry. The case concludes by examining the aftermath of the accident, particularly the public relations miscues that BP experienced as it tried to manage the crisis.

Learning Objectives

This case has three primary learning objectives. First, it provides students an opportunity to examine how and why catastrophic failures occur. Second, the case highlights several factors that drive enhanced risk-taking in organizational decision-making. Finally, the case enables students to learn about the characteristics of an effective versus ineffective safety culture. The case can be used in courses in organizational behavior, decision-making, ethics and leadership. Instructors will find it appropriate at all levels, ranging from undergraduate courses to executive education. The case typically works best if students already have developed a familiarity with basic concepts regarding organizational culture and decision-making. Students do not need prior technical knowledge about the offshore oil drilling process to understand and analyze the case.

Oct 18, 2011

Discipline:

Organizational Behavior

Geographies:

Gulf of Mexico, Mexico, United States

Industries:

Fossil fuel industry

Ivey Publishing

W11366-PDF-ENG

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U.S. and Five Gulf States Reach Historic Settlement with BP to Resolve Civil Lawsuit Over Deepwater Horizon Oil Spill

The United States today joins the five Gulf states in announcing a settlement to resolve civil claims against BP arising from the April 20, 2010 Macondo well blowout and the massive oil spill that followed in the Gulf of Mexico.

This global settlement resolves the governments’ civil claims under the Clean Water Act and natural resources damage claims under the Oil Pollution Act, as well as economic damage claims of the five Gulf states and local governments.  Taken together this global resolution of civil claims is worth $20.8 billion, and is the largest settlement with a single entity in the department’s history.

Also today, consistent with the settlement, the Deepwater Horizon Trustees Council, made up of representatives of the five Gulf states and four federal agencies, has published a draft damage assessment and restoration plan and a draft environmental impact statement.  The plan includes a comprehensive assessment of natural resource injuries resulting from the oil spill and provides a detailed framework for how the trustees will use the natural resource damage recoveries from BP to restore the Gulf environment.

“Building on prior actions against BP and its subsidiaries by the Department of Justice, this historic resolution is a strong and fitting response to the worst environmental disaster in American history,” said Attorney General Loretta Lynch.  “BP is receiving the punishment it deserves, while also providing critical compensation for the injuries it caused to the environment and the economy of the Gulf region.  I am proud that the Department of Justice has helped lead the way from tragedy to opportunity, and I am confident that our actions today will help to ensure that Gulf communities emerge from this disaster stronger and more resilient than ever before.”

“Five years after one of the worst environmental disasters in our nation's history, which claimed 11 lives and caused untold damage, we have reached a historic milestone with today's settlement,” said Secretary of Commerce Penny Pritzker.  “With this settlement, federal, state and local governments and the Gulf coast communities will have the resources to make significant progress toward restoring ecosystems, economies, and businesses of the region.  We are committed to ensuring the Gulf Coast comes back stronger and more vibrant than before the disaster.  If made final, the settlement will provide the U.S. and Gulf states with the resources and certainty needed for effective restoration planning and improvements.”

“This agreement brings renewed hope for a fully restored Gulf of Mexico to millions of Americans who value the Gulf for its contributions to our economy, our environment and plentiful recreational opportunities,” said Interior Secretary Sally Jewell.  “Today’s settlement is a significant step in restoring the natural resources that were impacted by the Deepwater Horizon oil spill and a breakthrough for building back the resilience of this region. The Trustees will continue to work with people along the coast to ensure they have every opportunity to be engaged in these meaningful recovery and restoration efforts that will generate jobs, improve water quality, support our tribal responsibilities and result in an improved wildlife habitat for migratory birds and hundreds of vulnerable species.”

“Through this historic settlement, USDA will continue working with rural communities, landowners and other partners to conserve watersheds and working lands,” said Agriculture Secretary Tom Vilsack.  “This work will benefit the Gulf of Mexico and its associated natural resources as well as help local economies that were damaged by the Deepwater Horizon Oil Spill.”

“Today is a day of justice for every family and every Gulf community whose health, land, water, and livelihoods were threatened by the Deepwater Horizon disaster,” said Administrator Gina McCarthy of EPA.  “This settlement puts billions of dollars to work to help restore the Gulf, and holds BP publically accountable for changes to its practices, to prevent this kind of disaster from happening again.”

“Today’s settlement ensures that BP repays the Government for its costs in responding to the Deepwater Horizon tragedy,” said Admiral Paul Zukunft of the U.S. Coast Guard Commandant. “The historic civil penalty also sends a clear message of accountability for those who pollute the U.S. environment.  In addition, this settlement is a positive step toward restoring our Gulf Coast to health and to ensure that it remains a national centerpiece for economic prosperity, a place of recreation and, most importantly, a pristine home to the generations of Americans who work and reside along its bays, rivers and estuaries.”

On April 10, 2010, less than 50 miles off the coast of Louisiana, the Macondo well suffered a catastrophic blowout.  The ensuing explosion and fire destroyed the Deepwater Horizon drilling rig, killing 11 men aboard and sending more than three million barrels of oil into the Gulf of Mexico over a period of nearly three months.  Oil flowed within deep ocean water currents hundreds of miles away from the blown-out well, resulting in oil slicks that extended across more than 43,000 square miles, affecting water quality and exposing aquatic plants and wildlife to harmful chemicals.  Oil was deposited onto at least 400 square miles of the sea floor and washed up onto more than 1,300 miles of shoreline from Texas to Florida.

The spill damaged and temporarily closed fisheries vital to the Gulf economy, oiled hundreds of miles of beaches, coastal wetlands and marshes and killed thousands of birds and other marine wildlife, among other economic and natural resource injuries. 

On Dec. 15, 2010, Attorney General Eric Holder announced a civil lawsuit against BP and several co-defendants, seeking to hold them accountable for the Deepwater Horizon disaster.  The federal lawsuit culminated in a three-phase civil trial in which the United States proved, among other things, that the spill was caused by BP’s gross negligence.  

Each of the Gulf States – Alabama, Florida, Louisiana, Mississippi and Texas – also filed civil claims against BP relating to the spill, including claims for economic losses and natural resource damages.

Under the terms of a consent decree lodged in federal court in New Orleans this morning, BP must pay the following:

$5.5 billion federal Clean Water Act penalty, plus interest, 80 percent of which will go to restoration efforts in the Gulf region pursuant to a Deepwater-specific statute, the RESTORE Act. This is the largest civil penalty in the history of environmental law.

$8.1 billion in natural resource damages, this includes $1 billion BP already committed to pay for early restoration, for joint use by the federal and state trustees in restoring injured resources. BP will also pay up to an additional $700 million, some of which is in the form of accrued interest, specifically to address any later-discovered natural resource conditions that were unknown at the time of the agreement and to assist in adaptive management needs.  The natural resource damages money will fund Gulf restoration projects that will be selected by the federal and state trustees to meet five different restoration goals and 13 restoration project categories.  These include restoration focusing on supporting habitats such as coastal wetlands, but also provide for specific resource types, such as marine mammals, fish and water column invertebrates, sturgeon, submerged aquatic vegetation, oysters, sea turtles, birds and lost recreational use, among others.

$600 million for other claims, including claims for reimbursement of federal and state natural resource damage assessment costs and other unreimbursed federal expenses and to resolve a False Claims Act investigation due to this incident.

The payments will be made over time and are backed by parent company guarantees from BP Corporation North America Inc. and BP P.L.C.

Additionally, BP has entered into separate agreements to pay $4.9 billion to the five Gulf states and up to a total of $1 billion to several hundred local governmental bodies to settle claims for economic damages they have suffered as a result of the spill.

Notice of both the consent decree and the draft damage assessment and restoration plan are published in the federal register.  Both will be available for public comment for 60 days.  The materials and instructions for commenting on the consent decree can be found at http://www.justice.gov/enrd/deepwater-horizon .  The materials and instructions for commenting on the draft damage assessment and restoration plan and draft environmental impact statement can be found at www.gulfspillrestoration.noaa.gov .  A series of public meetings will be held in the Gulf region and Washington, D.C. to solicit comments on the proposed consent decree and the draft restoration plan.

Earlier settlements:

The settlements announced today are in addition to several earlier criminal and civil settlements of federal government claims concerning the Deepwater Horizon disaster. 

First, on Feb. 17, 2012, MOEX Offshore 2007 LLC, which had a 10 percent stake in the well, agreed to settle its liability for the Deepwater Horizon oil spill in a settlement with the United States valued at $90 million.  Approximately $45 million of the $90 million settlement was dedicated to directly benefit the Gulf  in the form of penalties, as well as coastal and habitat protection projects.

 On Jan. 29, 2013, BP Exploration and Production Inc. pleaded guilty to illegal conduct leading to and after the 2010 Deepwater Horizon disaster, and was sentenced to pay $4 billion in criminal fines, penalties and restitution, including $2.4 billion for natural resource restoration.

On Feb. 14, 2013, Transocean Deepwater Inc., the Deepwater Horizon’s owner and operator, pleaded guilty to violating the Clean Water Act and was sentenced to pay $400 million in criminal fines and penalties, for its conduct in relation to the disaster.  A separate civil settlement imposed a record $1 billion Clean Water Act penalty on Transocean and required the company to take significant measures to improve its performance and prevent recurrence of this conduct.

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‘We’ve been abandoned’: a decade later, Deepwater Horizon still haunts Mexico

BP denied the oil reached Mexico, but fisherman and scientists knew it wasn’t true. Ten years on, Mexican communities haven’t received a cent in compensation

• ‘I pray to God it never happens again’: US gulf coast bears scars of historic oil spill 10 years on

Erica Ríos Martínez grew-up in a riverside community filled with food and fiestas thanks to a booming fishing industry which supported tens of thousands of families across the Gulf of Mexico .

After high school, Ríos Martínez moved to a nearby town for college which she financed by selling blue crabs, shrimp and tilapia fished by her father in the Tamiahua lagoon – an elongated coastal inlet famed for its abundant shellfish.

But fish stocks began to decline in 2011 across the Gulf – the year after BP’s Deepwater Horizon drilling rig exploded 200 miles north of Mexican territory. The offshore rig sank and released almost 5m barrels of crude oil into the Gulf of Mexico over 87 days. Oil plumes coated hundreds of miles of shoreline, causing catastrophic damage to marine life, coral reefs and birds.

Amid public and political outrage in the US, BP took full responsibility for the worst oil spill of the 20th century, which killed 11 crew members and injured 17 others. The company has paid out $69bn, including more than $10bn to affected fishermen and businesses.

But BP denied the oil reached Mexico, claiming the ocean current propelled the huge spill in the opposite direction. However, fishermen and Mexican scientists knew this wasn’t true.

“Before the spill we had freezers full of fish. Afterwards, my father couldn’t catch enough to support me, no matter how many hours he spent fishing. It was the same for the whole community, and it has just got worse and worse,” said Ríos Martínez, 31, who was forced to drop out of university and move away.

Ten years later, Mexican communities have not received a single cent in compensation.

“To claim the Gulf of Mexico ecosystem has borders is absurd, discriminatory and defies scientific knowledge,” said Eduardo Rubio, an expert in soil and water pollution at the College of Biologists.

Saladero is a picturesque sleepy village situated on the bank of the Tancochin River which snakes into the south-westerly edge of the lagoon.

Before the BP disaster, 95% of the village made a living – directly or indirectly – from fishing in the lagoon which stretches 65 miles from Tampico, Tamaulipas to Tuxpan, Veracruz.

The lagoon was famous for prawns and oysters fishermen recall giving away because stocks were so abundant.

Now, youngsters are forced to migrate to find factory work in maquil as in faraway cities.

“The village is full of us old people, there’s nothing for the young here any more,” said Juan Mar Aran, 78, a fisherman for 60 years. “Before, we worked hard and had money in our pockets, now we depend on our children, even the dogs are skinny. It’s very unjust, we’ve been completely abandoned.”

In 2010, the Saladero fishing cooperative registered 11,663kg of shrimp, 36kg of bass and 281,125kg of oysters. The decline has not been linear and publicly available official data is inconclusive, but in 2019, the co-op registered only 1,000kg of shrimp, 20kg of bass, and no oysters.

“The American fishermen supported by President Obama were properly compensated whereas we’ve been mocked, humiliated and discriminated against by British [Petroleum] … and let down by our own government. Ten years of struggle and nothing,” said Enrique Aran, 62, president of the cooperative.

In Tamiahua, a small town across the lagoon, Eduviges Mendoza lit a cigarette on his small fishing boat, parked beside a row of wooden poles waiting for shrimp to fill his small net.

It’s dusk, and chilly as Mendoza, 53, settled in for a second consecutive night on the lagoon with only a ratty blanket and a waterproof onesie for warmth. “There’s less fish, nobody can deny that. I’m lucky if I make enough to cover the petrol.”

Despite such sentiments BP has claimed that aerial images prove the oil spill’s impact was contained in US waters.

Yet back in 2011, Sergio Jiménez, a leading government oceanographer in Tamaulipas state, discovered the BP oil fingerprint more than 200 metres below sea level. Hydrocarbon fingerprints, like human ones, are unique.

The oil from Deepwater Horizon was propelled south by the deep underwater current – distinct from the surface current, according to Jiménez, who in 2013 testified in a Louisiana court tasked with managing hundreds of claims against BP.

But the case was dismissed after the court ruled that Mexico’s lawsuit, filed by the then president, Enrique Peña Nieto, just days before the deadline, superseded individual state claims.

The case trundled along until in 2018, the Mexican government withdrew the lawsuit and settled the case for $25.5m – absolving BP from responsibility for polluting Mexican waters. The secret deal, exposed in a joint investigation by BuzzFeed and the transparency group Poder, means the company no longer faces claims by any Mexican government entity.

Around the same time, the outgoing President Peña Nieto made several multimillion-dollar deals with BP. Hundreds of the company’s petrol stations have opened across the country.

Jiménez stands by his findings and a recent study by the University of Miami backed his research, concluding that the spread of oil was far greater and more catastrophic than previously thought, as satellites and aerial images failed to detect oil at lower concentrations below the surface.

This “invisible oil” was substantial enough and toxic enough to destroy 50% of the marine life it encountered, according to Science .

In part, this is probably due to the unprecedented quantities of toxic chemicals (dispersants) BP applied in order to stop visible oil plumes making landfall.

As a result, up to 40% of the leaked oil could still remain on the seabed. These “invisible oil” blocks will eventually break down and spread gradually over years – possibly decades – to come.

“It could take at least 20 to 25 years for the ecosystem to recover because of the deepwater contamination,” said the investigative oceanographer Luis Soto.

But scientific study, like compensation, has been massively skewed.

In Mexico no long-term studies monitoring the impact of the spill and the dispersants have been conducted.

By contrast in the US, a research working group created by BP conducted more than 240 studies, which cost $1.3bn in less than five years after the spill. BP also set up a $500m, 10-year program to monitor US waters just over a month after the spill and aid to restore the ecosystem.

BP has not directly funded any studies or working groups in Mexico, but the battle for justice goes on.

In Mexico, a class-action lawsuit was launched against four BP subsidiaries – two headquartered in Texas, two in Mexico – in December 2015, by an NGO working with pro bono lawyers specialising in environmental disasters.

It took two years and several court orders to track down the correct addresses of the Mexican subsidiaries in order to kickstart proceedings. Finally, in September 2019, the lawsuit was authorised to proceed despite BP’s efforts to have it dismissed, but is currently on hold since BP appealed.

“BP’s pattern has been to deny everything, and claim the class action no merit, meanwhile settling many cases worth billions of dollars in the US. The position of BP is sad, but so is the position of the Mexican government which has ignored the plight of its own people,” said lawyer Karla Borja.

In 2019, Mexico’s new president, Andrés Manuel López Obrador (Amlo), promised the fishermen a fair deal. “Amlo promised to make the company pay. But so far we’ve seen nothing but nice words and meetings,” said Aran, the co-op president.

In Louisiana, more than 110 cases involving thousands of Mexicans remain open, but have yet to be heard. Scores more have been dismissed.

In March, the fishermen leading 41 of those cases wrote to the new CEO of BP, Bernard Looney, requesting he do the right thing and compensate the Mexicans affected by the oil spill.

In a statement BP said: “All available evidence confirms that oil from the Deepwater Horizon incident did not reach Mexican waters or shorelines … We value the opportunity to do business in Mexico, and we are committed to the highest standards of conduct and full compliance with the laws.”

In Saladero, shortly before the 10th anniversary of the disaster, about 150 people turned out for the town hall-style meeting, to share stories of hardship resulting from the demise of the lagoon which has divided families and crushed educational and career ambitions.

The primary school has fewer than 30 enrolled pupils, compared with more than a hundred before the spill. The only gas station shut down and abandoned boats dot the riverbank.

Numerous parents said they were forced to pull their children out of college so they could start work and send home remittances to support the family.

“There’s no money because there’s no fish, that’s why all our young people leave,” said Juana Constantino, 59, who cares for her grandson while her daughter works in a maquil a in Reynosa, one of Mexico’s most dangerous border towns. “We need compensation, we want justice.”

• Deepwater Horizon
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The BP Oil Disaster, 10 Years Later

Debbie Elliott

It's been 10 years since the worst environmental disaster in U.S. history: the BP oil spill in the Gulf of Mexico. Here's how the Gulf Coast is recovering.

Copyright © 2020 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Sustainability: Ethics, Culture, and History

Case study: energy and the bp oil disaster, learning objectives.

The BP Oil Disaster of 2010 is presented as an example of complex human systems failure.

On the night of April 20, 2010, the Deepwater Horizon oil rig, one of hundreds operating in the Gulf of Mexico, exploded, killing eleven men, and placing one of the most rich and diverse coastal regions on earth in imminent danger of petroleum poisoning. BP had been drilling in waters a mile deep, and in the next two days, as the rig slowly sank, it tore a gash in the pipe leading to the oil well on the ocean floor. Over the next three months, two hundred million gallons of crude oil poured into the Gulf, before the technological means could be found to seal the undersea well. It was the worst environmental disaster in American history, and the largest peacetime oil spill ever.

The Deepwater Horizon Oil Rig on Fire The Deepwater Horizon oil rig on fire, April, 2010. It would later sink, precipitating the worst environmental disaster in United States history. Source: Public Domain U.S. Coast Guard

The BP oil disaster caused untold short- and long-term damage to the region. The initial impact on the Gulf—the oil washing up on beaches from Texas to Florida, and economic hardship caused by the closing down of Gulf fishing—was covered closely by the news media. The longer term impacts of the oil spill on wetlands erosion, and fish and wildlife populations, however, will not likely receive as much attention.

Much public debate over the spill has focused on the specific causes of the spill itself, and in apportioning responsibility. As with the example of bee colony collapse, however, the search for simple, definitive causes can be frustrating, because the breakdown is essentially systemic. Advanced industries such as crop pollination and oil extraction involve highly complex interactions among technological, governmental, economic, and natural resource systems. With that complexity comes vulnerability. The more complex a system, the more points at which its resiliency may be suddenly exposed. In the case of the Deepwater Horizon rig, multiple technological “safeguards” simply did not work, while poor and sometimes corrupt government oversight of the rig’s operation also amplified the vulnerability of the overall system—a case of governmental system failure making technological failure in industry more likely, with an environmental disaster as the result.

In hindsight, looking at all the weaknesses in the Gulf oil drilling system, the BP spill appears inevitable. But predicting the specific vulnerabilities within large, complex systems ahead of time can be next to impossible because of the quantity of variables at work. Oil extraction takes place within a culture of profit maximization and the normalization of risk, but in the end, the lesson of BP oil disaster is more than a cautionary tale of corporate recklessness and lax government oversight. The very fact that BP was drilling under such risky conditions—a mile underwater, in quest of oil another three miles under the ocean floor—is an expression of the global demand for oil, the world’s most valuable energy resource. To understand that demand, and the lengths to which the global energy industry will go to meet it, regardless of environmental risk, requires the longer view of our modern history as a fossil-fueled species.

Review Questions

In what ways is the BP Oil Disaster of 2010 an example of complex human systems failure, and what are its longer chains of causation in the history of human industrialization?

• Sustainability: A Comprehensive Foundation. Authored by : Tom Theis and Jonathan Tomkin, Editors.. Provided by : OpenStax CNX. Located at : http://cnx.org/contents/[email protected] . License : CC BY: Attribution . License Terms : Download for free at http://cnx.org/contents/[email protected]

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BP and the Gulf of Mexico Oil Spill

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• First, it provides students with an opportunity to examine how and why catastrophic failures occur.
• Second, the case highlights several factors that drive enhanced risk-taking in organizational decision-making.
• Finally, the case enables students to learn about the characteristics of an effective versus ineffective safety culture.
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Complaint and Summary Judgment: Deepwater Horizon – BP Gulf of Mexico Oil Spill

This is the complaint and summary judgement for Deepwater Horizon – BP Gulf of Mexico Oil Spill.

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We still don’t know the full impacts of the BP oil spill, 10 years later

The spill drove a push in science and some changes in regulations, but the dangers of offshore drilling remain.

Smoke rises from surface oil being burned by cleanup crews in the Gulf of Mexico after the Deepwater Horizon oil spill in April 2010.

The BP oil spill of 2010 started suddenly, explosively, and with deadly force. But the response has stretched out for years and scientists say there’s still much more we need to learn.

As a crew on the Deepwater Horizon drilling rig worked to close up an exploratory oil well deep under the Gulf of Mexico, a pulse of gas shot up, buckling the drill pipe. The emergency valve designed to cap the well in case of an accident, the “blowout protector,” failed, and the gas reached the drill rig, triggering an explosion that killed 11 crewmembers.

Over the next three months, the uncapped well leaked more than 300 Olympic-sized swimming pools of oil into the Gulf’s waters, making it the biggest oil spill in United States history. The leak pumped out 12 times more oil than the Exxon Valdez spill of 1989.

U.S. Coast Guard fire boats crews battle the blazing remnants of the offshore oil rig Deepwater Horizon on April 21, 2010 near New Orleans. An estimated 1,000 barrels of oil a day were still leaking into the Gulf at the time.

The spill opened many people’s eyes to the risks of drilling for oil in one of the most ecologically rich, culturally important, and economically valuable parts of the world. But 10 years and billions of dollars in cleanup efforts later, many of the same risks that allowed the disaster to occur remain.

“It took the better part of six to seven years [after the disaster] to get in place the inspection of blowout preventers and rules about making drilling plans safer and putting commonsense regulations in place, but those have been rescinded,” says Ian MacDonald , a scientist at Florida State University. “So basically we’re back to where we were in 2010, in terms of regulatory environment.”

And in some ways, more is known now than ever before about the Gulf and how the spill affected its ecosystems.

For Hungry Minds

“We’re just to the point now where we have enough data to recognize things we missed earlier, and there’s still a lot we don’t know,” says Samantha Joye , a marine scientist at the University of Georgia. “This is a marathon, not a sprint.”

Can this kind of spill happen again?

About 17 percent of the U.S.’s total crude oil production comes from offshore projects in the Gulf . Pipelines—26,000 miles of them—connect wells to the processing infrastructure that lines the coast. Before plummeting demand from the coronavirus pandemic drove already-low oil prices lower, the Gulf of Mexico was producing as much crude oil as it had in years.

“Even in times of low prices like today, offshore just keeps going on,” says Gregory Upton, Jr ., an energy economist at Louisiana State University.

A severely oiled brown pelican is rescued in Queen Bess Island, Louisiana, after the oil spill.

And drilling for oil in deep offshore waters is inherently dangerous for the people working the platforms, as well as potentially for the environments they’re drilling in.

“Working on the ultra-deep stuff is pretty much like working in outer space,” say Mark Davis, a water law expert at Tulane University.

But conditions on the Deepwater Horizon rig were particularly concerning. After the spill, the commission created by the Obama administration to investigate the spill reached stark, damning conclusions. Many lapses in safety had contributed to the disaster , many of which traced back to a culture both within BP and the industry more broadly that did not value safety enough.

Boats used absorbent booms to corral the Deepwater Horizon oil spill.

A new agency, the Bureau of Safety and Environmental Enforcement (BSEE), was created to track and enforce offshore drilling safety issues, something that had been handled by the same agency that approved leases to oil companies.

“Before Deepwater, there was this mentality that had set in in the 1990s and 2000s, that the oil and gas industry, as it was going farther offshore, was capable of self-regulating,” says Matt Lee Ashley , a researcher at the Center for American Progress. “Then Deepwater happened and burst that set of assumptions.”

BSEE announced a new set of safety rules for offshore operations in 2016. Among those rules was one that required blowout protectors—the piece that had failed at Deepwater Horizon—to be inspected by a third party, rather than self-certified by the drilling companies. But many of those rules, as well as other safety practices put in place after the disaster, have been weakened in recent years. Most notably, in 2019 the Trump administration finalized rollbacks of several components of the 2016 rules, including the independent safety certification for blowout protectors and bi-weekly testing.

Inspections and safety checks by BSEE have also declined some 13 percent between 2017 and 2019 and there have been nearly 40 percent less enforcement activities in that time compared to previous years, according to Lee Ashley’s analysis.

Today, more than 50 percent of Gulf oil production comes from ultra-deep wells drilled in 4,500 feet or more of water, compared with about 4,000 feet for Deepwater Horizon. The deeper the well, the more the risk: A 2013 study showed that for every hundred feet deeper a well is drilled, the likelihood of a company self-reported incident like a spill or an injury increased by more than 8 percent.

Terry Garcia, former deputy administrator of the National Oceanic and Atmospheric Administration and a member of a major safety commission convened after the Deepwater Horizon disaster, worries that the safety changes in the years after the disaster didn’t extend broadly enough, either.

“We have this tendency to fight the last war, to prepare for the last incident that occurred,” he says. After the 1989 Exxon Valdez spill, for example, new laws and regulations were enacted to deal with future tanker spills. But that focus on the future didn’t happen for oil rigs, and the next disaster is unlikely to look exactly like Deepwater.

A dead black drum fish floats through oiled waters in Grand Isle, Louisiana.

Another concern, says Scott Eustis, the science director at the Louisiana-based Healthy Gulf, a group that focuses on marine protection, comes from the ever-increasing pressures of climate change. Louisiana, which has the most comprehensive climate adaptation plan in the region, is expecting the number and intensity of major hurricanes to increase within the next 50 years. Each storm that blows through the Gulf threatens offshore drilling infrastructure.

“Since Deepwater Horizon, we’ve taken two steps forward and one step back, and that one step back is worrying because we could very much end up in a similar situation,” says Lee Ashley.

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What we know about the spill’s effect s.

After the spill, BP agreed to pay out more than $20 billion in penalties and damages, with around $13 billion directed toward restoration and a vast research effort in the region.

But scientists realized they lacked much of the basic background science necessary to predict where, when, and how the oil would spread or what its impacts on the region would be.

At first, it was difficult even to assess how much oil spilled from the well. Early initial assessments were low—but satellite imagery revealed that there was much more oil than had been reported. The final tally showed that the spill dumped more than 200 million gallons of oil.

Oil continued to sink to the ocean floor for more than a year, a recent study shows . It changed the amounts of sediment collecting on the bottom of the sea for years afterward and choked them of oxygen . Immediately after the spill, the 1,300 miles of contaminated coasts saw oil concentrations 100 times higher than background levelsl even eight years later , concentrations were 10 times higher than before the spill. And In February of this year, a study showed that the footprint of the oil spread some 30 percent wider than previously estimated, potentially contaminating many more fish communities than previously thought.

Scientists are still figuring out exactly how the oil impacted the biology of the Gulf, but the immediate effect was to turn the seafloor near the well site into a “toxic waste dump,” one study said. Studies are also showing that reef fish changed drastically after the spill; that fish absorbed some of the oil-sourced contaminants ; and that ecological communities throughout the water column, from tiny bacteria to deep sea corals to arthropods , could take decades to recover .

( Read about how the effects of the spill are still reverberating in dolphins ).

“It’s astounding,” says Joye . “We underestimated so many of the impacts when we were first looking.” Only after a decade of sustained observation, she says, have the true impacts of the spill started to become clear.

( Read about how pelican habitat on the Louisiana coast is being restored after the spill).

What we learned about the Gulf

The paradoxical effect of the spill is that scientists know more about the Gulf of Mexico, as well as the physics, ecology, and chemistry of oil spills, than they ever would have otherwise.

The white sand beaches of Orange Beach, Alabama are covered with oil.

It was clear from the moment the spill began that there were many basic science questions that were unknown about this area of the world, like ocean currents and wind patterns, knowledge gaps that hindered the recovery process.

“The first fundamental issue we faced in 2010 was a chronic lack of baseline data,” says Joye.

For example, no high-resolution map of the seafloor existed, information that would have helped scientists understand where the bottom-dwelling creatures of the Gulf might be affected. Driven by the disaster, federal scientists produced a map in 2016.

“It was crucial to be able to detect and predict where the oil would go,” says Oscar Garcia Pineda, a satellite expert. In 2010, it took days to get satellite images downloaded and processed; today the response time is about 20 minutes, he says. In conjunction with studies that used drifters , boats, drones , and other techniques, scientists have deepened their understanding of the Gulf’s restless movements.

But there’s much more still to learn, say Joye and MacDonald; it’s crucial to set up long-term monitoring programs so scientists can be better prepared for the inevitable next disaster.

“We need much better oceanographic data,” says MacDonald, “so we’re not trying to model after the fact whether Florida is going to get hit by this oil spill, or if it’ll go the other way.”

And other knowledge gaps also engender risk. For example, a 2004 hurricane triggered underwater landslides at another drilling site in the Gulf. The mudslide broke the drilling rig away from the well, leaving it leaking hundreds of barrels a day . But the mudslide risk across the Gulf hasn’t yet been thoroughly mapped out.

“There was a dearth of knowledge. It’s that old adage, ‘you can’t manage what you don’t understand’—well, you can’t protect what you don’t understand , ” says Garcia.

Why is there drilling in the Gulf of Mexico?

The reason the Deepwater Horizon well existed in the first place? Hundreds of billions of barrels of fossil fuel energy are buried deep beneath the Gulf’s seafloor.

Oil seeps from the floor of the Gulf naturally, in small volumes. Th e phenomenon has been long known to people who lived and traveled along its marshy shores and coastlines. Hernan de Soto, a Spanish explorer who sailed through the Gulf in 1543, used the gummy oil his sailors collected from the beaches to patch up his wooden ships. Tribal communities gathered tar that caught in the tangled cordgrass of the sandy barrier islands and used it for art and to waterproof pots.

Offshore drilling began in the late 1930s. The first site, Louisiana’s Creole platform, squatted just a mile and a half off the coast, its wooden legs sprouting up through water 14 feet deep.

By the 1950s, engineers were gaining ambition and confidence, nudging the limits of their drilling activities deeper and deeper, following the long, broad slope of the seafloor that tilted away from the Gulf’s shores. By 2000, over 300 operating oil rigs and thousands of platforms dotted the wide, shallow slope. But they pushed further, out to where the ground drops away sharply. Geologists’ glimpses into that underground world, from seismic observations and experimental drill holes, hinted at millions of barrels of oil lurking below, if only the drillers could get to it.

The Deepwater Horizon well, drilled in 2009, pushed the limits of that deep drilling. At its creation, it was the deepest well ever drilled, punching over 35,000 feet down into the ground below the sea, in water over 4,000 feet deep.

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Lessons from an oil spill: how BP gained - then lost - our trust

Senior Research Associate, RMIT University

Disclosure statement

Tony Jaques does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

RMIT University provides funding as a strategic partner of The Conversation AU.

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The Deepwater Horizon oil spill disaster in the Gulf of Mexico in 2010 is one of the most exhaustively analysed environmental and management crises in recent history. And BP‘s response will probably be remembered for a generation as the perfect example of how not to manage a crisis.

But it wasn’t always that way. This year marks the 25th anniversary of another BP oil spill which is now virtually forgotten, but was regarded at the time as a gold standard in how to respond effectively and protect reputation.

Although it is eclipsed by a litany of subsequent high profile oil spill disasters – such as the Erika breaking up off Brittany in 1999 and the Montara oil rig fire off northwest Australia in 2009 – there is much to be learned from what happened 25 years ago on the coast of Southern California.

In February 1990, less than a year after the debacle of the Exxon Valdez running aground in Alaska, the BP-chartered tanker American Trader accidentally ran over its own anchor off Huntington Beach in Orange County, spilling 400,000 gallons of crude oil, which came ashore on the prestigious surfing strip.

BP’s response was prompt and unequivocal. In just over two hours, oil skimming vessels were on the scene and the company’s crisis team was in the air. And within 24 hours there were 36 BP specialists on-site.

Even more impressive was the leadership of BP America Chairman James Ross, who flew straight to the scene. In a memorable press conference on the polluted breach Ross told reporters: “Our lawyers tell us it’s not our fault. But we feel like it’s our fault and we are going to act like it’s our own fault.”

Contrast this statesmanlike approach with the denial and blame-shifting which blighted BP’s response in 2010 when fire destroyed the oil rig Deepwater Horizon in the Gulf of Mexico, killing 11 workers and starting a torrent of oil onto a massive swathe of coastline. Then-BP CEO Tony Hayward commented that the amount of oil was “relatively tiny in a very big ocean.” His now infamous comment to the media that he would “like his life back”, was dubbed by the New York Times as “the sound bite from hell”.

The clean-up at Huntington Beach was swift and efficient. More than 100 people from other big oil companies took part on the spill response, and BP trained and equipped volunteer bird rescuers, who became some of the company’s strongest supporters in the community. And they worked very closely with government agencies, and the parade of political figures who wanted to be photographed on the beach. Ross later commented: “We are convinced that by working with them, we avoided jurisdictional disputes and a ton of controversy.”

The outcome is strikingly evident. The Los Angeles Times ran a story praising the company’s efforts under the headline “After spill, BP soaks up oil and good press.” It later ran a front-page photograph of the company’s crisis manager fulfilling his pledge to be the first to swim at the cleaned-up beach.

When BP America President James Ross was summoned to Washington he found himself praised by lawmakers. Compare that with the concerted attack by American politicians on BP after the Deepwater Horizon spill. President Barack Obama himself called for Hayward to be sacked.

Of course the volume of the Deepwater Horizon spill was much greater. But the lesson for today is not about the challenges of clean-up. It’s about the response at a management level, and what it teaches us about crisis leadership. Just like the Huntington Beach spill, James Ross too was quickly forgotten by the media and he went on to a successful career as CEO of Cable and Wireless and company Director.

By contrast British-born Hayward was famously pilloried by a headline in the New York Times - “BP’s CEO Tony Hayward: The most hated – and most clueless – man in America.” And when he was appointed to a role in a small oil company two years later the New York Times observed that for bewildered Americans who saw oil plumes rising, livelihoods crumbling and seabirds dying in the viscous crude, Hayward came to personify the catastrophe.

The starkly different outcomes of the two incidents could be put down to failure of corporate memory. To a rigidly hierarchical executive style which was acknowledged to exist at BP Headquarters. Or to over-dependence on a single spokesperson who was ill-suited to the task of conveying compassion and conviction. Whatever the cause, BP’s Gulf of Mexico oil spill has well and truly earned its place in the pantheon of bona fide PR disasters. And it’s a brutal warning that the impact of bad management can persist for decades.

But perhaps most importantly, it’s a reminder that individual managers set the tone in a crisis. Even after 25 years, there is much more to be learned from the little-known success of James Ross of BP in 1990 than can ever be gained from raking over the much studied disaster of BP and Tony Hayward in 2010.

This is part of an ongoing series on ‘bad’ management. Read more in the series here .

• Deepwater Horizon
• BP oil spill
• Bad management

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What happened during the Deepwater Horizon oil spill?

The Deepwater Horizon oil spill impacted the entire Gulf of Mexico, from deep-sea communities to more than 1,300 miles of shoreline (Credit: NOAA). View and print this infographic and see the description below .

The largest marine oil spill in U.S. history, the Deepwater Horizon oil spill, started on April 10, 2010. An estimated 60,000 barrels of oil spewed out of the damaged well each day. That is the equivalent of nearly 400 tanker trailers’ worth of oil per day! The volume and duration of this spill were greater than any previous spill in U.S. history: 134 million gallons of oil spilled into the Gulf of Mexico over the course of 87 days. The explosion that caused the spill also killed 11 people and injured 17.

In order to address the spill, scientists had to identify exactly where the oil was coming from, how to stop it, and how to respond to the areas it impacted. Scientists determined that the oil was spewing from 5,000 feet below the water’s surface. Reaching the well and sealing the leak was difficult and dangerous. After nearly 3 months of oil spilling into the Gulf of Mexico, responders were able to inject cement into the leaking area and stop the flow of oil.

The geographic range of the damage caused by the oil spill also challenged scientists. While responders were able to recover around 16% of the oil during initial efforts, the unprecedented duration of the spill resulted in the oil spreading throughout the Gulf of Mexico. Some of the oil was trapped deep underwater and collected on the seafloor. About half of the oil eventually rose to the water’s surface, where winds and currents pushed it west toward Louisiana. More than 1,300 miles of shoreline were impacted by oil—the equivalent to driving from New Orleans to New York City.

The oil devastated habitats and wildlife across the region, including deep-sea corals, birds, sea turtles, fish, and marine mammals. Oil sank to the ocean floor, mixed throughout the water, saturated marshes, and soiled beaches. Animals swam through, inhaled, and even swallowed the oil. The oil spill also significantly harmed humans. Many people suffered, including commercial and recreational fishers, residents, and businesses that depend on tourism like restaurants, hotels, and local tours.

Scientists and community members continue to work to restore habitats and fisheries damaged by the oil spill.

Deepwater Horizon: A First Hand Account of the Spill

Senior Scientist Lisa DiPinto from NOAA's Office of Response and Restoration remembers what it was like to witness the Deepwater Horizon oil spill. Watch this video to hear her first-hand experience of the spill’s aftermath.

Restoring the Gulf: 10 Years After Deepwater Horizon

The Deepwater Horizon spill impacted the entire Gulf ecosystem as well as the communities that rely on the Gulf's natural resources. Watch this video to learn more about the restoration efforts that have taken place in the last 10 years.

Infographic Description

This graphic shows a cross-section of the marine environment, illustrating where the oil from Deepwater Horizon spilled.

In the background, a beachside scene is shown with text reading “Beaches and Other Recreational Uses.”

In the rest of the graphic, oil is shown impacting the following areas, labeled with text:

• Marsh and Other Nearshore Habitat: A vegetated shoreline with a stream running into the ocean, oil spilling onto the vegetation.
• Beach Habitat: Shallow water and sandy shore covered with oil.
• Birds: Pelicans and other sea birds landing on oiled vegetation and water.
• Sea Turtles: Two turtles surfacing amid oil on the water.
• Fish and Water Column Species: A variety of different fish species swimming through oil in the water.
• Marine Mammals: Two dolphins swimming through oiled water.
• Deep-Sea Communities: A patch of deep-sea corals being smothered by oil sinking through the water.

Key Takeaway: Oil from the Deepwater Horizon spill affected many parts of the Gulf of Mexico Ecosystem, from beaches and nearshore habitats to deep-sea coral communities.

Coastal Pollution Topics

Marine Debris

Harmful Algal Blooms

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Author: NOAA

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Case Study: BP and the Gulf of Mexico Oil Spill

Do you agree with Tony Harvard ‘s quote at the end of the case? I would not agree in entirety with Tony Harvard’s claim that “This is not BP. It is an industry accident. There are a number of weaknesses in the industry that allowed this incident to happen, but as numerous studies into this incident, including the National Commission set-up by President Obama to look Into this incident – shows that the Incident was caused mainly because of BP and In some Instances by Its partners on this rig – Transoceanic and Hallucination.

Was this disaster strictly a BP failure or an industry accident? To understand responsibilities in this incident, we can study the actions of the players of the offshore drilling sub-industry Into three – government policies by the regulatory odes such as the MS (Mineral Management Service) and other government agencies, Industry practices as a wangle Ana octagons Day special companies, In tens case, BP, Transoceanic and Hallucination.

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The regulatory body MS had a clear conflict in overseeing the offshore drilling, as not only was it the body that ensured regulatory compliance, it was also financed by leases that it provided the oil companies for tracts in the Gulf of Mexico, and more importantly, MS received royalties based on the amount of oil produced at various wells. It was in the interest of MS to ensure oil extraction to start soonest, for loyalties to pour in.

In this role, it also became an industry partner, not only a regulator.

Mom’s policies did not keep in pace with the rapid advancement of departed drilling, nor did it have in place enough resources, especially in terms of petroleum engineering talent to monitor these practices efficiently. Overall, the industry had a penchant for resisting federal monitoring. The statistics showing over 900 fires and explosions on rigs only in the Gulf of Mexico with 60 dead and more than 1,500 injured since 2001, shows how dangerous Gulf drilling was, across all impasses in the Gulf, not only BP, making accidents in general an industry issue, not strictly a BP one.

The Departed Horizon rig explosion, from the extensive evidence of correspondence and accounts of involved persons, puts the fault primarily on the decisions made by BP and its partners on the departed rig.

While loose regulatory policies and widely- accepted industry practices allowed for this accident to happen, the decisions made by BP and to some extent by Transoceanic and Hallucination, were the main reason for the explosion.

As the National Commission report put it: “The immediate causes of the Macon ell blowout can be traced to a series of identifiable mistakes made by BP, Hallucination, and Transoceanic” and “The decisions made by these companies reveal systemic failures in risk management raising questions about the safety culture of the industry. ” (“Deep Water Summary To President,” n. D. ) What factors affect the competitive environment of the oil industry?

To understand the factors that affect the competitive environment of the oil industry, a useful framework would be a PESTLE analysis. The factors that affect the competitive environment of the oil industry are outlined in the table below: Page 2 of 9 Table 1: PESTLE Analysts PESTLE Analysis (“Top 20 Risk Factors Facing the Oil & Gas Industry – Energy Digital,” n.

D. ) Political Increased regulation following the Departed Horizon spill has not only increased cost of compliance, it has made Oil companies look like the bad person on the block.

The accident has also made the process of obtaining leases for drilling cumbersome, and has re-initiated the debate on whether offshore drilling is worth the cost in environmental terms. Economic Fluctuating 011 Ana gas prices are ten most gallants Doctor Tackling ten 011 Industry, tit increased taxation globally and turmoil in oil-producing countries contribute to volatility. Reserves are getting more difficult to find, and the available reserves are in high- danger areas such as departed deposits.

With reserves further out at sea and set much deeper, the estimates of size of deposits can greatly surprise as companies move into production, greatly affecting the projected economic benefit. While most top oil companies have vastly improved financial, the same cannot be said of all partners, vendors and suppliers, increasing the financial risk to oil- producing companies. General economic concerns weigh in on consumption and prices, as consumers in tough economies look to consume less and look for cheaper alternatives.

Shortage of rigs, equipment and personnel, as more companies compete for the same resources. Social Technological Competition within the industry, especially the top companies is fierce, especially with major companies globally, being monopolistic in nature and owned by governments of oil-producing nations. With the negativity surfacing out of the Departed Horizon accident, the oil industry is facing increasing scrutiny and resistance from all king of groups and sections of he population.

Public opinion that was starting to favor offshore drilling is now against the same.

There is a general trend to “go green”. While companies can have greener sources as part of their overall production portfolio, which even companies like BP have tried to do, the core crude oil will always be seen as a non-green resource and will be challenged by consumers with their support for renewable energy. The technology, especially for offshore drilling, has advanced to a point where companies can now drill more than 20,000 feet below the sea-bed. However, the exercise is wrought with extreme danger due to high-pressure environments and other challenges.

Companies in the oil industry will need to keep up research and development to ensure safer, faster, and more reliable technology is used in extraction of oil and gas.

Page 3 of 9 Legal The legal fallout from the Departed Horizon has been tremendous, with the overall oil industry being punished by high future costs due to actions of BP and the high cost that BP had to undertake for clean-up and compensation costs. Environmental The total cost of producing and consuming oil has been conclusively rover to De very Nell on ten environment. Netter tongue spells or tongue emission of carbon-dioxide into the environment and the oft-repeated phenomena of global warming. Question 2 What were the most significant flawed decisions made by BP and its partners in this The flawed decisions by BP and its partners were numerous in this case, beginning right from its application to drill, when it downplayed the environmental risks, claiming that a spill was unlikely, and were it to occur, it would not exceed 4,600 barrels and with minimal adverse impact (“10 Disastrous Mistakes BP Made Before

The Departed Horizon Exploded,” n. D. ).

Among the many operational flawed decisions that were made, many as a result to save further “lost circulation events”, time, and costs, the following were the most significant: Using untrained personnel: BSP Bob Kalmia was made the well site leader, yet was inexperienced and untrained for departed drilling. Using high-risk, cheaper methods: BP used a “long-string” system, which was riskier, but less expensive. This was a practice that BP employed more than the other oil companies in the industry.

Sacrificing safety of process for cost saving: The internalizes that ensured the casing remained at the centre of the hellebore weren’t sufficient, and the supplied ones were not to specification. However, to save valuable time, BP went ahead with installation. Not adhering to procedure: The lab results by Hallucination were not reported completely in the first instance to BP.

However, the final studies suggesting instability of the cement was never seen, or ignored, by both Hallucination and BP.

Skipping independent checks/balance: To save costs and time, BP declined the contractor Sulzberger from testing the completed cement Job as an independent rifer of quality of work undertaken. Extreme Cost-cutting: Using leftover fluids as the “spacer”, partly because BP did not want to deal with hazardous waste regulations were they to send the used fluids back to the mainland. Falsifying results to start extraction: Even when in the final tests, there was the suggestion of a potential leak; the conclusion made was that the testing was successful.

Avoiding necessary warning systems: Keeping the alarm system to inhibited mode to avoid false alarms and using a blow-out prevented that was known to be faulty (“10 Disastrous Mistakes BP Made Before The Departed Horizon Exploded,” n. D.

). There seemed to be a general overlap of decision-making and no formal process for procedural changes. There also seemed to be a pervasive attitude of “we own it, we call the shots” from BP. Page 4 of 9 Was this a case of poor strategic choices that were made over time or of a hikers taking culture?

Strategy is influenced greatly by culture and history which can be seen in this case. This was a case of poor strategic choices made by BP, partly because of its history and mostly because of its high-risk taking culture (to be overfed in detail in Q).

Evidence of its high-risk taking culture is evident from both the case and from other studies Like ten report Trot ten Notational commission. It consistently points to B its quest to be bigger and faster, choosing profits over safety.

There had been other major accidents Just a few years earlier to this accident, more notably the Texas refinery accident in 2005, the Thunder Horse rig nearly sinking in 2005, and the major leak in the Prudhoe Bay pipeline in Alaska in 2006. In all these cases, independent studies showed that the incidents were avoidable, had the safety ultra at BP been higher. Interestingly, BP had in place extensive personal safety procedures and rules, but not sufficient preprocessed safety procedures.

Question 3 How did BSP history and culture shape decision-making on the Departed Horizon British Petroleum, as it was formally known, had always operated as an arm of the British Empire, complete with government hierarchy and life employees, with most of its oil coming from middle-eastern countries.

Bureaucracy was the word of the day and operating costs were very high, resulting at the time to a profit per employee half hat of Exxon (“BP: ‘An accident waiting to happen’ – Fortune Features,” n. D. ).

With increasing trade and technological liberalizing, the middle-eastern countries set-up their own companies and BP was forced to leave. To make up a fraction of what it had lost, BP found two new sources of oil, albeit much in much riskier environments: Alaskan Prudhoe Bay and the North Sea.

Competitors used to refer to BP as the “two- pipeline” company. BP needed “elephants”- fields that increased profits substantially. The only places this could be found were in places where none had gone before – Caspian Sea, West Africa, and Gulf of Mexico (“BP: ‘An accident waiting to happen’ – Fortune Features,” n. . ). After taking over in 1995, John Browne pursued ever-cutting costs to increase profitability.

He merged with a number of smaller companies; doubling the company’s revenues and becoming the largest oil producer in the U. S. BSP rivals were now playing catch-up. Some directors worried that with the extreme cost-cutting and digesting of competing companies into BP, “There was a general feeling that they may be running a bit faster than they should have” (“BP: ‘An accident waiting to happen’ – Fortune Features,” n. ).

After the Texas explosion, a panel to study this incident reported “a lack of operating discipline, toleration of serious deviations from safe operating practices, and apparent complacency toward serious process-safety risks. ” It concluded that BSP “decentralized management system and entrepreneurial culture” had “delegated” safety issues. For example it reported, BSP global safety chief, reported to a deputy to the CEO (“BP: ‘An accident waiting to happen’ – Fortune Features,” n. D. ).

Page 5 of 9 When Tony Hayward took over in 2007, he promised more cost-savings and a “virtue f doing more for less”, and wanting to close the gap of USED ban with its rival Shell.

By 2010, the cost-savings had taken hold, and BP was more profitable than Shell (“BP: ‘An accident waiting to happen’ – Fortune Features,” n. D. ). All this was found to be too much, too Taste, as As as Day Nancy Elevens AT MI I won taught estate classes to BSP executives, “They Just did safety wrong. ” “They were producing a lot of standards. But many were not very good, and many were irrelevant.

” (“BP: ‘An accident waiting to happen’ – Fortune Features,” n. . ) This pattern of excessive cost-cutting, fast-results culture was seen over the entire gag of the Departed Horizon leading to the explosion. Even with observers and some partners alerting BP on the problems facing the rig, BP decides to ignore and ensure it got the rig to full operation and production, with little regard for the potential consequences of these actions. How did the political and regulatory environment affect decision-making by BP and its partners? There are three significant aspects of the political/regulatory environment in the case-study that affected decision-making by BP and its partners.

One was the fact that the Mineral Management Service was both a regulator and a ratter of sorts in the oil rig (it received royalties and fees from leases).

This allowed BP and its partners to have little regard for the pace at which it was getting the rig to full operational mode, with little oversight from MS, as it was in everybody best interests to have the rig in full production mode. Secondly, after repeated accidents at the Texas refinery, the pipeline incident at Prudhoe Bay, and the Thunder Horse rig, BP was subjected to large monetary fines, but not stricter safety guidelines and regulations.

With the Principal-Agent problem pervasive, especially in large public impasses, slowing down operations and lowering short-term productivity and output would have a bigger impact in changing the safety culture at BP than monetary fines. Finally, it was the permission that BP received from regulators, allowing them to set the cement plug deeper than usual. This allowed BP and its partners to proceed with temporary abandonment even though many were not comfortable with the change in process.

Question 4 What factors does BP appear to take into account when looking at its long-term sustainability?

To understand what factors BP takes into account for its long-term sustainability, we deed to look at both the concept of Sustainable Competitive Advantage (SAC) through the BRIO framework (“Applying the BRIO Framework,” n. D. ) and the industry factors using the Porter’s five forces framework. BRIO Framework: 1 . Is the Resource Valuable? Yes, the resource is indeed very valuable, without which global markets would stop producing 2. Is the Resource Rare? Yes, as a finite and non-renewable resource, even with existing large resources, oil will finish one day.

Page 6 of 9 3. Is it costly to imitate? Yes, it is very costly to imitate both the resource and what BP is doing at a global stage. . Is ten organization well-placed to exploit tens resource? Yes, “s global operations as one of the largest exploration companies place it at the forefront to be able to exploit the resource. Based on the four affirmative replies above, BP is said to have a sustained competitive advantage in the industry, with above normal economic implications for the company (“Applying the BRIO Framework,” n.

Having seen that BP has a sustained competitive advantage in the industry, the Porter’s five forces model allows us to understand the factors BP takes into account as part of its long- ERM sustainability: Table 2: Porter’s Five Forces Threat of New Entrants Power of Buyers Power of Suppliers Intensity of Rivalry Product Substitutes Porter’s Five Forces Technological advancements have allowed new companies in areas where oil extraction was too challenging and costly before. Current higher prices of oil have increased attractiveness and made it economically feasible to extract from more difficult deposits than before.

However, the industry is very capital intensive, and newer substantial oil deposits are scarce, making the barriers to entry fairly high.

After the BP spill, tighter safety and environmental compliance have forced massive investment in the industry, making it even more difficult for new entrants (“Top 20 Risk Factors Facing the Oil & Gas Industry – Energy Digital,” n. D. ). Oil being an easily traded commodity is very vulnerable to the power of buyers when there is over-supply of oil. However, the presence of oil cartels and the importance of oil to world economies ensure that such situations do not arise very often.

Hence, the industry is insulated from the power of buyers. The OPEC cartel maintains control ever most of the world’s oil supply. Any decisions of production changes by OPEC or supply changes due to other factors such as war, terrorism, etc. , fluctuates the price of oil considerably in the markets, making the industry vulnerable to this threat. As oil companies move into newer and more riskier areas of exploration, there exists a general shortage of supply of rigs, equipment, and personnel (“Top 20 Risk Factors Facing the Oil & Gas Industry – Energy Digital,” n.

. ). Rivalry in this industry is intense. With limited oil deposits, except in high-risk and high-cost areas, control over these sources is high. Competition is also unfair, as many industry rivals are national companies owned by governments of oil-producing nations. Oil was once considered a commodity that could not be replaced.

Today, this status is challenged by alternative energy, such as solar, photo-electric, etc. , are gaining in Importance, especially Owe to calls Tort netter environmental protection Ana Tort renewable sources of energy.

However, the penetration of oil as the primary energy source and the dependence of all sectors of the economy on oil make the threat of substitutes, at this point, fairly low. From Porter’s above, the factors that BP takes into account to ensure sustainable competitive advantage are technological advancements in extraction, reality of increased environmental regulation, access/discovery of new oil deposits, existence of cartels and government-owned monopolies, price volatility of oil and emergence of new energy sources.

Page 7 of 9 What strategic approaches would you recommend to BP in order to ensure longtime competitive advantage in this industry? In a world increasingly concerned with the harmful effects of oil consumption and calls for renewable and alternative sources of energy, BP should invest to ensure the resource remain “valuable”, by investing in technologies that would allow cleaner and more efficient burning of oil and hydrocarbons.

With reduced pollution levels and more efficient consumption of oils, the pace of move towards alternative energy would reduce. Ensure procedures and process in place for waste management generated in extraction.

If BP is on the forefront on waste and environment management, it would allow a sustained competitive advantage as BP would be the producer of choice in an increasingly pollution-sensitive world. Have adequate disaster response procedures in place to ensure quick response to any future disasters like that of the Departed Horizon. Exploration into deeper and higher risk areas will not only increase the chances of disasters, it will indeed increase the number of disasters. For sustained competitive advantage (Organization in BRIO), BP would need to ensure it is well placed to respond and contain such disasters.

Should BP find itself in a situation where a disaster is massive and the disaster response is not adequate, it should ensure that it has sufficient resources allocated for clean-up management to avoid he huge debacle resulting from the Departed Horizon due to unsatisfactory response and clean-up efforts by BP (“BP: ‘An accident waiting to happen’ – Fortune Features,” n. D. ). BP should continue looking for new and uncharted territory when it comes to oil exploration, as the only way to remain ahead of the game against its rivals in the industry.

It should not, in the quest for safety, lose its spirit of entrepreneurship that has propelled it forward so much in so little time. And finally, recognizing that the global trend is towards alternative and renewable sources of energy, and recognizing hat a few decades onwards, there is the possibility of oil becoming a secondary energy source, BP should invest towards alternative energy sources such as nuclear, wind, and other forms of alternative energy sources to ensure it remains one of the world’s largest and most important energy suppliers.

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BP Bets Big, Again, On the Gulf of Mexico

T HUNDER HORSE OIL PLATFORM—This hulking production base 150 miles offshore from New Orleans has long embodied BP’s outsize ambitions in the Gulf of Mexico and also reflected its recurring setbacks.

Stretching roughly three football fields and pumping crude from more than a mile below the water’s surface, Thunder Horse in 2005 was found listing so precariously that it appeared in danger of sinking.

Once it got roaring in 2008, three years behind schedule, it helped BP cement its position as one of the Gulf’s leading producers, capable of some of the industry’s biggest technical marvels.

Then in 2010, the Deepwater Horizon explosion caused the biggest offshore oil spill in U.S. history, costing the British company more than $60 billion and years of political and reputational damage.

Now three chief executives and 14 years later, BP is again betting big on the Gulf.

Thunder Horse is entrenched as one of the company’s steadiest producers, and a new production platform, called Argos, went online last year. At about one-third of the size, Argos links to subsea wells and has the capacity to produce more than half as much oil—roughly 140,000 barrels a day. BP, which will report earnings next week, has set its sights on harder-to-reach deposits in the Gulf, requiring drilling techniques to cope with more-intense pressures and higher temperatures.

In March, new CEO Murray Auchincloss was asked on stage at a Houston energy conference what business he’s most excited about. His answer: the Gulf of Mexico.

More specifically, Auchincloss called out the Paleogene, a geological layer dating back as far as 60-plus million years and where BP first discovered oil more than a decade ago. The company plans to decide whether to go forward with big projects there either later this year or next. BP says it could gain access to some 9 billion barrels of untapped oil—a massive supply.

“I think we stand the chance to open up the next great basin in the world, which is the Paleogene here in our backyard in the United States,” Auchincloss said.

No oil-and-gas supermajor has more riding on these Gulf of Mexico waters than BP, investors and industry participants say. BP is the smallest of the supermajor pack, soon to be further dwarfed as U.S. rivals Exxon Mobil and Chevron seek to close recent megadeals, and lagging behind London-based rival Shell in size and share performance.

Deep-water projects are among the industry’s biggest plays at the moment. Shell is active in the white-hot Namibia discovery, while Exxon is enjoying blockbuster production out of Guyana. Shell and Chevron also have their eyes on Paleogene oil finds in the Gulf of Mexico.

BP, which pulled back from frontier exploration in favor of its green-energy pivot in recent years under former Chief Executive Bernard Looney, isn’t involved in those big new discoveries. As a result, its Gulf of Mexico business remains the core of its deep water ambitions.

“In a resource industry, resources matter, so this could be seen as a relative disadvantage,” said RBC Capital Markets analyst Biraj Borkhataria.

Still, he expects BP to tie new Gulf projects into its existing infrastructure—an incumbent advantage—and make smaller upstream acquisitions while boosting its onshore U.S. natural-gas production.

“They’ve been one of the most successful operators” in the Gulf, said Lysle Brinker, a senior upstream oil and gas analyst with S&P Global Commodity Insights, “except for that massive mistake.”

BP has also been the focus of persistent speculation about its vulnerability as a takeover target. Some analysts and investors think it is only a matter of time before Europe’s biggest oil-and-gas companies consolidate, either through outright mergers or a combination of joint ventures and spin offs of core businesses with other U.S. or European companies or government-backed players in the Middle East.

BP has said it’s confident its strategy is bearing fruit now and will continue to do so.

BP’s existing Gulf of Mexico footprint and prospects are a prime asset for the company, and give it room to grow there, but the clock is ticking as the world transitions to other fuels—even if the timetable is uncertain.

“You’re trying to find as much as you can by the end of this decade and develop it, hopefully economically, within the first five years or so of the next decade,” Brinker said. “Because if you don’t, who knows?”

BP’s public embrace of the Gulf is a component in the company’s shift back toward its oil-and-gas roots, which started last year under Looney. In a surprise move, he stepped down last September over undisclosed details of work relationships.

Auchincloss, the former finance chief, stepped into the role permanently in January and pushed the company further back to fossil fuels, which currently produce higher returns than many alternative energy sources such as wind and solar.

In its bid to attract more U.S. shareholders, BP is under pressure to keep cash flowing through buybacks and dividends. Some investors, including a small but vocal London-based activist fund called Bluebell Capital Partners, want less spending on green energy and more on fossil fuels.

BP under Auchincloss has said it has the capacity to increase oil production by 2% to 3% through 2027.

He told investors in February that the company has the potential to move forward with the Paleogene projects, called Kaskida and Tiber, as well as expansion projects in Brazil, Canada and the Middle East.

He added that if enough of those projects pan out, “then I think we can do better than that 2% to 3%.”

But the profit margins have to be right, he said. “I’m going to be super-focused on returns.”

Paleogene oil costs more to bring up, says Mfon Usoro, senior energy analyst with research firm Wood Mackenzie. An ultra-high-pressure barrel will require capital investment of $13 to $15, compared with $6 to $9 for conventional Gulf of Mexico operations, Usoro says.

But aside from costs, BP and other Gulf producers also cite the less-intensive carbon emissions of oil from the basin, which ties into companies’ pledges to reduce emissions.

BP is finding new ways to cut costs, avoid downtime and improve safety in the Gulf of Mexico, Auchincloss said in a February interview. The company is testing out artificial intelligence that can predict equipment failures, by sending masses of data back to central engineering nerve centers in Houston and near London.

“Gen AI can sort it, it can structure it, can communicate it back to the engineers and scientists much faster than humans,” he said.

BP has focused on smaller, more-efficient offshore platforms, linking to and replicating what’s already in the water where possible to cut costs and time to production.

From its original design to completion over more than a decade, BP reduced Argos’s costs about 60%, Starlee Sykes, BP’s then-head of Gulf of Mexico and Canada deep water operations, said in an interview last year when the platform started production. Sykes now runs BP’s biogas business, Archaea Energy.

“I don’t think you’ll see many more Argoses or Thunder Horses,” Sykes said in an earlier interview aboard Thunder Horse, which has living quarters for around 300 people. “These are giant platforms.”

Write to Jenny Strasburg at [email protected]

BP bets big, again, on the Gulf of Mexico

THUNDER HORSE OIL PLATFORM—This hulking production base 150 miles offshore from New Orleans has long embodied BP’s outsize ambitions in the Gulf of Mexico and also reflected its recurring setbacks.

Stretching roughly three football fields and pumping crude from more than a mile below the water’s surface, Thunder Horse in 2005 was found listing so precariously that it appeared in danger of sinking.

Once it got roaring in 2008, three years behind schedule, it helped BP cement its position as one of the Gulf’s leading producers, capable of some of the industry’s biggest technical marvels.

Then in 2010, the Deepwater Horizon explosion caused the biggest offshore oil spill in U.S. history, costing the British company more than $60 billion and years of political and reputational damage.

Now three chief executives and 14 years later, BP is again betting big on the Gulf.

Thunder Horse is entrenched as one of the company’s steadiest producers, and a new production platform, called Argos, went online last year. At about one-third of the size, Argos links to subsea wells and has the capacity to produce more than half as much oil—roughly 140,000 barrels a day. BP, which will report earnings next week, has set its sights on harder-to-reach deposits in the Gulf, requiring drilling techniques to cope with more-intense pressures and higher temperatures.

In March, new CEO Murray Auchincloss was asked on stage at a Houston energy conference what business he’s most excited about. His answer: the Gulf of Mexico.

More specifically, Auchincloss called out the Paleogene, a geological layer dating back as far as 60-plus million years and where BP first discovered oil more than a decade ago. The company plans to decide whether to go forward with big projects there either later this year or next. BP says it could gain access to some 9 billion barrels of untapped oil—a massive supply.

“I think we stand the chance to open up the next great basin in the world, which is the Paleogene here in our backyard in the United States," Auchincloss said.

No oil-and-gas supermajor has more riding on these Gulf of Mexico waters than BP, investors and industry participants say. BP is the smallest of the supermajor pack, soon to be further dwarfed as U.S. rivals Exxon Mobil and Chevron seek to close recent megadeals, and lagging behind London-based rival Shell in size and share performance.

Deep-water projects are among the industry’s biggest plays at the moment. Shell is active in the white-hot Namibia discovery, while Exxon is enjoying blockbuster production out of Guyana. Shell and Chevron also have their eyes on Paleogene oil finds in the Gulf of Mexico.

BP, which pulled back from frontier exploration in favor of its green-energy pivot in recent years under former Chief Executive Bernard Looney, isn’t involved in those big new discoveries. As a result, its Gulf of Mexico business remains the core of its deep water ambitions.

“In a resource industry, resources matter, so this could be seen as a relative disadvantage," said RBC Capital Markets analyst Biraj Borkhataria.

Still, he expects BP to tie new Gulf projects into its existing infrastructure—an incumbent advantage—and make smaller upstream acquisitions while boosting its onshore U.S. natural-gas production.

“They’ve been one of the most successful operators" in the Gulf, said Lysle Brinker, a senior upstream oil and gas analyst with S&P Global Commodity Insights, “except for that massive mistake."

BP has also been the focus of persistent speculation about its vulnerability as a takeover target. Some analysts and investors think it is only a matter of time before Europe’s biggest oil-and-gas companies consolidate, either through outright mergers or a combination of joint ventures and spin offs of core businesses with other U.S. or European companies or government-backed players in the Middle East.

BP has said it’s confident its strategy is bearing fruit now and will continue to do so.

BP’s existing Gulf of Mexico footprint and prospects are a prime asset for the company, and give it room to grow there, but the clock is ticking as the world transitions to other fuels—even if the timetable is uncertain.

“You’re trying to find as much as you can by the end of this decade and develop it, hopefully economically, within the first five years or so of the next decade," Brinker said. “Because if you don’t, who knows?"

BP’s public embrace of the Gulf is a component in the company’s shift back toward its oil-and-gas roots, which started last year under Looney. In a surprise move, he stepped down last September over undisclosed details of work relationships.

Auchincloss, the former finance chief, stepped into the role permanently in January and pushed the company further back to fossil fuels, which currently produce higher returns than many alternative energy sources such as wind and solar.

In its bid to attract more U.S. shareholders, BP is under pressure to keep cash flowing through buybacks and dividends. Some investors, including a small but vocal London-based activist fund called Bluebell Capital Partners, want less spending on green energy and more on fossil fuels.

BP under Auchincloss has said it has the capacity to increase oil production by 2% to 3% through 2027.

He told investors in February that the company has the potential to move forward with the Paleogene projects, called Kaskida and Tiber, as well as expansion projects in Brazil, Canada and the Middle East.

He added that if enough of those projects pan out, “then I think we can do better than that 2% to 3%."

But the profit margins have to be right, he said. “I’m going to be super-focused on returns."

Paleogene oil costs more to bring up, says Mfon Usoro, senior energy analyst with research firm Wood Mackenzie. An ultra-high-pressure barrel will require capital investment of $13 to $15, compared with $6 to $9 for conventional Gulf of Mexico operations, Usoro says.

But aside from costs, BP and other Gulf producers also cite the less-intensive carbon emissions of oil from the basin, which ties into companies’ pledges to reduce emissions.

BP is finding new ways to cut costs, avoid downtime and improve safety in the Gulf of Mexico, Auchincloss said in a February interview. The company is testing out artificial intelligence that can predict equipment failures, by sending masses of data back to central engineering nerve centers in Houston and near London.

“Gen AI can sort it, it can structure it, can communicate it back to the engineers and scientists much faster than humans," he said.

BP has focused on smaller, more-efficient offshore platforms, linking to and replicating what’s already in the water where possible to cut costs and time to production.

From its original design to completion over more than a decade, BP reduced Argos’s costs about 60%, Starlee Sykes, BP’s then-head of Gulf of Mexico and Canada deep water operations, said in an interview last year when the platform started production. Sykes now runs BP’s biogas business, Archaea Energy.

“I don’t think you’ll see many more Argoses or Thunder Horses," Sykes said in an earlier interview aboard Thunder Horse, which has living quarters for around 300 people. “These are giant platforms."

Write to Jenny Strasburg at [email protected]

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