BP Company and Deepwater Horizon Accidents

Deepwater Horizon offshore drilling unit on fire 2010

On April 20, 2010, The Deepwater Horizon oil spill accident happened in Gulf of Mexico, United States of America. This accident, so far, is the biggest marine oil spill in history and the second biggest oil spill in history after Lakeview Gusher Oil Spill in last century. On July 15, after some failed efforts to plug the leakage, BP succeeded to cap the well. Government officials estimated the volume spilled ranged around 4,9 million barrels of crude oil at the rate 35.000 to 60.000 barrels a day. On August 4, BP succeed to do static kill method to seal the oil flow gushing by pumping heavy mud and cement through the blow-out preventer and into the well. To ensure the plug works well, relief wells will be connected into the well pouring of heavy fluids further.

This oil spill has endangered surroundings environment and related businesses, such as fisheries and tourism. Many experts have been working to protect beaches along the northern Gulf coast using skimmer ships, floating containment booms, anchored barriers, and sand-filled barricades along shorelines. The U.S. Government has put BP as the responsible party and officials have committed to holding the company accountable for all cleanup costs and other damage.

Since Deepwater Horizon oil spill occurs in current time, many updates are found in media regarding how BP, government, and other stakeholders respond to this situation. Until now, the efforts to minimize environment impacts are still done. This paper’s objectives are trying to see the historical point of view and the event itself from business ethical perspective.

Company History

BP is global third largest energy company headquartered in London, U.K. BP’s name is taken from former company legal name of “British Petroleum.” The company is public company which is listed on LSE and NYSE (Wikipedia, 2010c). BP is a among the largest private sector energy corporations in the world and is one of the six “supermajors”, the six largest non state-owned energy companies.

BP Logo

BP was started in 1901 by William Knox D’Arcy, an Australian-British mining entrepreneur. He was offered a concession by Shah of Iran to explore for oil in the country of Persia (now Iran). Burmah Oil Co joined D’Arcy and in 1908, they found the first commercially significant find in the Middle East and created the Anglo-Persian Oil Company (APOC) in the next year (Australian Dictionary of Biography, 2006). The British government became the APOC main stakeholder on World War I by injecting new capital into the company to get secure oil supplies for its ships.

APOC made good profits through the 1920s and 30s because Western society’s trend in car and power plant consuming massive quantity of petroleum. The company changed the name into Anglo-Iranian Oil Company (AIOC) in 1935. After World War II, many Iranians were not happy with AIOC’s presence. But in 1951, the parliament elected a nationalist, Mohammed Mossadeq, as prime minister. Mossadeq nationalized AOIC and merged it into National Iranian Oil Company. In 1953, U.S. Government succeeded a coup against the Mossadeq government. AOIC resumed operations with only 40% shares in new international consortium. To move beyond its image as a quasi-colonial enterprise, it changed the name into the British Petroleum Company in 1954.

In 1959, British Petroleum Company expanded to Alaska and in 1965 to North Sea. In 1977, British Petroleum Company had already started pumping oil from Alaska down a 1,200 km-long pipeline that ran all the way to refineries in the south of the state. In 1978, the company acquired a controlling interest in Standard Oil of Ohio to expand to U.S. retail market.

During 1981 to 2010, BP had major changes. In 1987, British Government under Margareth Thatcher sold its entire holding in the company, marking privatization. There were also company merger with Standard Oil of California and Gulf Oil in 1984 and also acquisition of Britoil, Amoco, ARCO, and Burmah-Castrol. After all mergers and acquisitions, in 2001 the company formally renamed itself as BP plc and adopted the tagline “Beyond Petroleum.”

BP’s Reputation on Environment and Safety Record

BP was criticized as a bad company based on environmental records. Many events in BP’s history described as bad environment ethic practices. In 1991, EPA toxic release data mentioned BP as the most polluting company in the U.S. and in 1992, Greenpeace International named BP as one of Scotland’s two largest polluters.

In 1999, it was charged by burning polluted gases at its’ Ohio refinery and agreed to pay a $1.7 million fine. In 2000, BP paid a $10 million fine to the EPA and agreed to reduce air pollution coming from its U.S. refineries by tens of thousands of tons. In 2006, Prudhoe Bay oil spill happened in Alaska at BP’s pipeline spilling more than one million liters oil to Alaska and made BP fined $20 million. Two weeks before the blowout in Deepwater horizon, BP refinery in Texas also released large amount of toxic chemicals into the skies from April 6 to May 16, including benzene, nitrogen oxides, and carbon monoxides.

Regarding safety, BP was also criticized as a bad company based on safety records. In March 2005, explosion of BP’s refinery in Texas killed 15 deaths and injured 180 people. An investigation of the explosion by the U.S. Chemical Safety and Hazard Investigation Board blamed BP for the explosion. It found organizational and safety deficiencies at all levels of the BP Corporation and said management failures could be traced from Texas to London. The company pleaded guilty to violation of the Clean Air Act and was fined $50 million and sentenced to three years probation. Occupational Health and Safety Administration (OSHA) fined BP an additional of $87 million.

On the other hand, BP has also put some actions on environment matters. In 1997, BP withdrew from Global Climate Coalition, an industry organization established to promote global warming skepticism. BP Solar developed solar panel technology as alternative energy source. BP Solar spent $8 billion to research alternative methods of energy source. BP also sponsored of the Scripps Institution CO2 program to measure carbon dioxide levels in the atmosphere.

BP also found Energy Biosciences Institute, in collaboration with the University of California Berkeley, the Lawrence Berkeley National Laboratory, the University of Illinois at Urbana-Champaign. However, BP’s investment in green technologies is considered too small compared overall budget by stakeholders. This has made BP called as greenwashing, a deceptive use of green PR or green marketing to promote a misleading perception that BP’s activities are environmentally friendly.

The Accident of Deepwater Horizon Oil Spill

Deepwater Horizon was an ultra-deepwater, dynamically positioned, column-stabilized, semi-submersible mobile offshore drilling unit (MODU). Basically, it was a semi-submersible oil rig used to drill below deep water, which can be operated in water up to 2400 m deep to a maximum drill depth of 9100 m. It was owned by Transocean and under lease to BP from March 2008 to September 2013.

Previously, Deepwater Horizon succeeded to drill in Atlantis oil fields (Gulf of Mexico, 1998) and Thunder Horse oil fields (Gulf of Mexico, 1999). In 2006 it discovered oil in the Kaskida field and in 2009 the Tiber field. In February 2010, Deepwater Horizon resumed drilling operations in Macondo Prospect oil field, continued Marinara oil rig drilling operation which was halted on November 2009.

Macondo Prospect oil field is oil and gas prospect in Gulf of Mexico, off the coast of Louisiana. It is located on Mississippi Canyon Block 252 in the Gulf of Mexico in a water depth of 1522 meters. It may have held 50 million barrels producible reserves of oil. BP serves as the operator, holding a 65% interest in the prospect, Anadarko holds 25%, and MOEX 2007 holds the remaining 10%.

On April 20, 2010, an explosion on Deepwater Horizon was happened. The blowout was triggered by high pressured methane gas that escaped from the well and shot up the drill column, expanding quickly as it burst through several seals and barriers before exploding. Deepwater Horizon sank on 22 April 2010 after 36 hours burning. The remains of Deepwater Horizon were located resting on the seafloor approximately 1,500 m deep at that location, and about 400 m northwest of the well.

The precise cause of the Deepwater Horizon blowout is still unclear. However, BP representatives suggested that the Blowout Preventer could have suffered a hydraulic leak. Blowout Preventer (BOP) is a large, specialized valve used to seal, control and monitor oil and gas wells, which meant to be a fail-safe device. The blowout itself happened possibly because BP instructed to remove drilling mud from the drilling operation before it was capped. Heavy mud is commonly used to push the oil and gas down to prevent blowout.

U.S. Government has point on BP the responsible party, and officials have committed to hold the company accountable for all cleanup costs and other damage. BP agreed to use all resources to pay the cost of oil spill, spending $7 million a day to contain the disaster. In total, BP has agreed to create a $20 billion spill response fund. For the payments, BP plan cut its capital spending budget, sell $10 billion in assets, and drop its dividend.

Attempts to stop the leak

Several attempts was planned to stop the Deepwater Horizon Oil Spill. As a long term and permanent solution, BP planned to make relief wells that will intercept the existing wellbore. And then, heavy fluids and cement can be pumped down hole to kill the well. BP estimated this process will take at least 90 days and it needs other actions prior to this process to avoid worse consequences.

There were some attempts to be short term and temporary solution. Some of them failed. An attempt to activate BOP with remote operated vehicle (ROV) and put containment dome over the leak failed. The attempt called “top kill”, and “junk shot” methods also failed as well. The attempts were starting to get result when BP inserted a smaller pipe tube into the wide burst pipe. The small pipe diverted the flow into ships waiting on surface. On July 15, BP succeeded to shut off the pipes. It worked well and the leak had been stopped after all the blowout preventer valves had been closed on the newly-fitted cap.

To get more permanent result, on August 4, BP did static kill method to seal the oil flow by pumping heavy mud and cement through the BOP into the well. The heavy mud was pumped at a slow rate into the well-head until well was in a static condition To ensure the plug works well, relief wells will be connected into the well pouring of heavy fluids further.

Business Ethical Review

Deepwater Horizon oil spill was another case of BP’s worse business ethics practice. As seen in historical review, Deep Water Horizon accident case was one of many cases done by BP regarding its unethical way of doing business. Even though BP made bad reputation image and fined by government, it kept doing unethical business.

It was started at U.S. Government policies regarding oil company. BP and other oil companies always do a very intensive lobby to U.S. Government. These lobbies result many government policies give advantage to oil industries, including BP. As an example in this case, U.S. government gave permit to BP to drill in Macondo prospect without proper plan and complete environmental review. Without proper plan, this operation led to accidents and handled in relatively long period of time. Without complete environmental review, marine and wildlife habitats also related businesses had a great loss when the accident happened.

BP tried to cut cost and save time in exchange with lowering safety procedure. Mike Williams, an employee who saved during the accident, said that there were a series of mishaps weeks before the accident happened. BP’s manager pushed Transocean, the drilling contractor, to drill faster and therefore made the well’s bottom splited and became dangerous. BP also have detected BOP errors few weeks before the accident without repaired it. BP also instructed to remove heavy mud from the drilling operation to safe time, even though Transocean still recommended doing the operation in conservative but save way. From moral view, BP should do proper drilling procedure and when BOP equimpent had error, it should stop drilling and fixed BOP before continue even if the cost raised, but in reality BP just ignored them to cut cost and save times.

We can see BP cases in Deepwater Horizon accidents from shareholder and stakeholder theories perspectives. Both of them are theories about how corporate leaders deal in their business environment by each of their different perspectives, one is emphasizing to put priority on shareholders’ interests, the other is emphasizing to put priority on larger business stakeholders’ interests.

Even though shareholder and stakeholder theories shared different view of management conduct, BP violated both of them by conducting its way of business. Shareholders theory is introduced Milton Friedman reviewing social responsibilities of business:

There is one and only one social responsibility of business: to use its resources to engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.

As we can see from Friedman description, BP violated shareholders theory by conducting business with deception and fraud. Many conducts of BP’s business by deception and fraud led to the accidents. As the result, beside government punishment and BP’s massive obligation to pay the fines, stock market also punished BP as the company’s total value lost since nearly 52% in 50 days on the NYSE.

According to Edward Freeman, stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. Stakeholders are individuals or groups that provide critical support to business firm. In this case, BP’s stakeholders are its shareholders, employees, contractors, customers, local community of Louisiana, and marine environment. The stakeholders get benefits and risks regarding their involvement with BP activities. According to stakeholder theory, business leaders’ duty is to balance the shareholders’ interests with other stakeholders’ interests.

BP violated stakeholder theory by conducting business without balancing the stakeholders’ interest, even endangered them. BP did not consider the stakeholders by pacing the drillling process even though it was a dangerous process and not repairing error BOP even though it knew weeks before the accident happened. BP tried to cut cost and save time even though the safety procedure was lowered.

This accident reminds us that ethical in doing business is still very important, even though profit is also important. There should be a balance for both of these. Without strong normative principles as BP’s foundation, it seem BP actions  changed into short term and self interest actions leaving ethical considerations. If BP had the principles, it made good long term reputation and saved a lot of money.

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