Deep Water Horizon Oil Spill - Coursework Example

Section/# Deep Water Horizon Oil Spill The deepwater horizon oil rig was designed and built by Hyundai Heavy Machinery and cost an estimated $560 million. The rig was a transportable rig meaning that it could be towed and moved to location to engage in drilling operations where needed. The rig itself was completed by Hyundai Heavy Machinery in 2001 and delivered to the first contract holders soon thereafter. Although the rig itself was extraordinarily expensive and represented some of the most cutting edge drilling technology of that time, it nonetheless experienced one of the worst oil disasters in history. As a function of understanding this particular disaster, this brief analysis will examine the lead ups and causes that effected the disaster as well as examining six BETs (Business Ethical Truisms). On April the 20th at 9:45 PM the Macondo oil rig experienced a blow out that resulted from a jet of seawater being ejected from the riser accompanied by a slushy of mud and oil followed by jets of methane. This mixture, especially the methane, ignited and caused a series of explosions that served to cripple the well and eventually took the lives of 11 personnel.1 At the time the explosion occurred, the Deepwater Horizon rig was drilling at a depth of around 5000 feet into what experts have described as the Macondo Prospect which is located approximately 40 miles from the coast of Louisiana (Koenig et al 300). Although the ownership of Deepwater Horizon has remained unclear to a host of individuals, the fact of the matter was that BP did not operate the rig solely under its own direction. Rather, BP was the owner of the rig itself but only held a 65% share of ownership with relation to the Mississippi Canyon drilling expedition that resulted in the disaster of Deepwater Horizon. Additionally, the remaining 35% of interest in the rig was split between Anadarko Petroleum Corporation, aka Halliburton Corporation, (which held a 25% share) and MOEX Offshore 2007 (which held a 10% share). After the explosion took place, the Macondo Blow-Out began to gush crude oil into the ocean at a rate of around 2.6 million gallons per day. This figure is disputed by different groups that either wish to minimize or maximize the effect that the Deepwater Horizon disaster had on the surrounding environment; however, for this study, the author has chosen to employ the Coast Guard’s estimates as those which were most likely to not experience any form of particular bias with relation to the disaster. Most scholars agree that the rate of flow of the oil seepage continued virtually unabated until the well was capped on the 19th of September of the same year. Certain experts disagree with this analysis and claim that the well gushed more oil in the initial stages whereas near the time when the well was capped, most of the pressure had been relieved thus much less oil was flowing. Regardless of the model one considers, both views account for approximately the same total amount of oil being released into the Gulf of Mexico. Similarly, depending on the insurance firms that are consulted total losses that have resulted with relation to the Deepwater Horizon spill range from around 10 billion to upwards of 38 billion dollars in damages. However, the most recent figures have firmly determined that BP has currently spent around 38 billion USD to remediate the disaster. This remediation includes the total damages to coastal fisheries/shrimp farming/loss of tourism etc. Additionally, BP has up until this point paid around 14 billion USD for cleanup relating to the disaster. BP’s total claims with relation to the disaster have increased beyond what they believed they would ever be responsible for as the firm has recently pledged a further 847 million USD to the process of cleanup and remediation of the after effects of the spill. Although much of the money for the cleanup and remediation efforts have been covered by existing funds that BP had access to within its own financial structure, a great deal of funding for the cleanup and remediation was also covered by a litany of insurance policies that BP had which helped to cover such catastrophic damages. Even still, the sheer size of the cleanup effort has meant that BP has had to draw upon credit and sell existing assets in order to cover the total cost that such an effort has necessarily incurred on the company. As such, BP only recently announced that has been forced to sell a 5.6 billion USD share of its stake in a key oil field in the Gulf of Mexico. Such a share loss will doubtless decrease BP’s profitability in the long run within the given market but also has the direct effect of rapidly raising the needed capital that BP demands in order to cover the ever rising costs of cleanup and remediation that has been previously enumerated on in this essay. Although many individuals see BP as a monolithic company with limitless resources, it should be quickly understood that it has been extraordinarily difficult on the firm to harness that type of fluid capital that has been necessary in order to meet the needs of the total damages which their negligence (and by extension the negligence of their shareholders) entailed. A formal investigation by the United States government determined that the primary reason for the back pressure and subsequent explosion and release of oil was due to a faulty cement job that had been performed in order to seat the well head onto the ocean floor. Moreover, the investigation found out that although the explosion itself was a result of a faulty cement job, a series of oversights contributed and accelerated the process that resulted in the Deepwater Horizon oil spill. Furthermore, faulty maintenance, poor electrical equipment, bypassed gas alarms, automatic shutdown systems, and a general lack of regard and/or concern for instituting the proper training procedures in order to ensure that such an incident did not occur were disregarded as non-important by key staff in charge of the rig and safety procedures. Lastly, the investigation found a supreme lack of oversight existed with respect to ensuring that compliance with the safety regulations that had been put in place was evident throughout the firm (Sole 249). As little to no oversight existed, it was an easy situation for responsible entities to disregard key safety features that if instituted properly might have worked to avert, delay, or outright stop such a disaster from occurring in the first place. Business Ethical Truisms: Explanation and Analysis This of course brings to the analysis to the first BET (Business Ethical Truism) that has been described in course literature as: individuals have different values and priorities that guide their decisions and behavior. With regards to the Macando Blow-Out, the differential in values and priorities can of course be related to the fact that a great many safety protocols and systems were ignored as a means of more rapidly increasing the means of oil extraction. This has been noted in a range of documents that relate to the investigation of what caused the spill in the first place (A Safer, Stronger BP 94). Secondly, the proven fact of the matter is that the oil works on both this particular rig and others owned and operated by BP and other firms have vocally noted that they have been tacitly encouraged to cut corners and ignore a great many safety mechanisms that could have helped to provide a failsafe against such an eventuality. Finally, the differential between values and priorities can be seen in the fact that the upper levels of management insisted that the protocols be followed that had been lain out; however, when it came to the mid and lower levels of supervision, these individuals saw such requirements as a stumbling block towards the production requirements that they had and thereby chose to ignore them. By choosing to expedite the extraction process at the risk of endangering the lives of all of the workers on the rig and the environmental destruction that could result, the middle management chose a morally untenable ground that ultimately culminated in the disaster. This segues well into the second BET which can be described as follows: talk is cheap; ethics is mostly about behavior. Typically, people are what they do not what they say. If there was one of the six BETS that this analysis could definitively state is perhaps the most important of all it would be this one. The fact of the matter was that there was something of a double standard on board the rig and within the policy, metrics, milestones, and goals that BP and its affiliates espoused. Whereas it was obvious that a level of compliance with procedure was required and necessary, the fact of the matter was that this compliance and adherence to procedure was done oftentimes with mere lip service. As has been made plainly obvious by the inquest into the events surrounding the Macando Blow Out, the researcher can note that although a level of safety features were in place and supposedly employed by shareholders on board, the level to which they actually put these into practice was far different. As a means of more effectively integrating the importance of ethical behavior, the middle and lower levels of management should have been more concerned with safety and ensuring that procedures were followed; rather than merely attempting to maximize the bottom line and present good looking figures to higher levels of management. As the lowest shareholders in the process, the oil workers themselves, soon found out, numbers and profit alone was the prime motivator, with safety and compliance a distant second or even third. As such, the connection between the words spoken and the deeds performed by management were incongruent. Likewise, the third BET which will herein be discussed is the fact that good managers prevent problems and ethics scandals. This should not be seen as a type of admission that ethics scandals are somehow covered up by the good manager; rather, it is indicative of the fact that good managers prevent ethics scandals from occurring the first place by dealing with their determinant causes at the lowest level possible and not allowing them to come to be massive cover-ups and ethics scandals that shake the very foundations of an organization/firm. The same can be said for the situation with BP and the Macando Blow-Out. Rather than cutting corners and hoping that these risks and gambles would not come back to haunt the firm, the management would have done far better to be concerned with dealing with whatever extent problems presented themselves by preventing the scandal in the first place. This of course ties back in to each and every one of the BETs where will herein be discussed as it assumes that the ultimate responsibility of the good manager is to institute a level of checks and balances into procedure that ensures that they will have a level of purview of the ways in which business is conducted. In such a way, if there are problems and issues that need to be addressed, the management will be able to speak to them and work to correct them prior to a larger more problematic situation developing. The fourth BET which will be enumerated upon within this brief essay is that of the fact that business decisions and business relationships are complex. As such, legitimate priorities often conflict, and managers make decisions with imperfect and inadequate information. As has been noted from the preceding analysis, the conflict centered upon the fact that the shareholders at the top demanded actionable and impressive numbers and statistics of new wells drilled and total output accrued (Webley & Warner 409). Likewise, they expected that the priorities of ethical and environmental/safety controls would also be implemented at the same time; causing a situation to develop in which lower management was left to chose based upon which they would follow. This ultimately led to a situation in which communication was mixed and the shareholders in middle and lower management inferred that the most important metric that they should seek to fulfill in order to provide a level of safety and job security for their own personal self interests would be to seek to maximize the numbers that they reported each and every week, day, or month. Accordingly, the fifth BET which will be discussed is that of the fact that an organization’s culture, structure, strategy, and resource allocation strongly impact managers’ and employees’ behavior. This can be seen in many firms by the way in which unvoiced directives are inferred by the employees of the organization and implemented as a form of de-facto law. Much the same has been the case with the Macando Blow-Out. Whereas BP and others have sought to recuse themselves from a high degree of blame, the fact of the matter is that their tacit acceptance of the means by which the oil was being extracted, the level of safety protocols in place, and the extent to which these were being ignored were all perfectly well and good with the monitoring and auditing functions that had previously been completed on these rigs. Not until after the disaster was the entity no longer fully comfortable with the way that the oversight on the wells had been performed in the past. Without a clear and effective strategy that was aimed at ensuring safety and environmental control, the Macando Blow Out, or a situation very much similar, was all but guaranteed. The final BET that this analysis will cover has to do with the fact that legal, auditing, and/or regulatory weaknesses often contribute to ethics scandals. Whereas common knowledge necessarily encourages one to think that the answer to all ethics scandals and/or violations must necessarily demand a higher level of oversight and auditing, the fact of the matter is that many further layers of auditing, monitoring, and legal requirements encourage the shareholders, at every stage of the organization’s structure, to merely make the scene look as it should in order to pass such compliance requirements. This has a severe and lasting impact on the organizational ethical framework due to the fact that the shareholders at each and every level of encouraged to merely making the steps necessary to show lip service to and brief compliance with such standards. As a means of doing this, the level of ethical behavior within the organization necessarily drops due to the lack of belief on the part of the shareholders that such actions are both necessary and warranted. As the investigation has revealed, the faux compliance that many oil rigs exhibited as a means of meeting the requirements of whatever inspection was at hand was merely done in order to pass whatever inquiry was ongoing at the time. As such, the lapses in ethical and safety standards were immediately realized once the compliance period had ended. This served not only to erode the sense of appreciation for ethical standards and compliance within the average employee, it also served to reinforce an organization wide understanding that ethics and safety protocols could be bent and or broken in order to affect a higher level of efficiency or productivity. Shareholders Seeking to determine shareholders that were impacted by the BP spill is an easy matter; however, seeking to find what degree each of these shareholders has suffered as a result is far more complex. Perhaps the easiest shareholder to gauge is that of BP/TransOcean. BP has already paid around 14 billion dollars for cleanup and remediation of the affected regions. However, this figure in and of itself is expected to rise as the result of several outstanding court cases has yet to be heard. Additionally, BP has also given around 10 billion to affected business in and around the Gulf Coast region. Accordingly, thus far, a figure approaching 30 billion dollars has been expended by BP and its affiliates. Although this number may seem as non commensurate with the amount of damage that has been wrought, it represents a staggering figure and more than 15% of yearly sales that the firm is responsible for generating. The second shareholder is that of the United States government. Due to the fact that the spill was but a scant 40 miles from the coast of the United States, the main environmental, economic, and ecological impacts have most severely been felt by the United States. However, seeking to quantify this into a discernible value of monies lost or total number of fisheries damaged/tax dollars not received is an exercise in futility. Therefore, suffice it to say that the combined efforts of cleanup, use of the Coast Guard, and severely weakened economies of the Gulf Region have made a discernible and recognizable impact upon the total cash revenues and potential for business development that the government of the United States could reasonable expect to draw upon. It is further worth mentioning the fact that although BP/TransOcean has expended a massive amount of money in ameliorating the damages they have effected upon the shareholders of the Gulf Coast, little if any money has been transferred to the United States government to cover the high cost of remediation and lost revenues that the spill engenders. The third, and perhaps most important, shareholder in this process is that of the Gulf Coast fishermen. Due to the fact that the spill has provided a massively negative impact on the fisheries and native environment for many of the species that these fishermen rely upon, the ability of these entrepreneurs and businesses to draw a profit from the affected areas is greatly reduced. As a function of this, the economies of the affected regions, already economically depressed as compared with much of the remainder of the United States, have experienced special difficulties recently. Likewise, the tourism industry of the Gulf Coast has experienced a great loss as a result of the affects of the BP spill. Whereas the waters are no longer slick with the deposits of oil residue, the understanding by tourists that the region is somehow polluted and unfit for a tourist destination continues to pervade the general consciousness of many (Tinsley et al 94). As such, an industry that has taken many, many years to develop and compete with other perhaps more attractive alternatives in Florida or elsewhere in the Gulf of Mexico has been flooded with negative images and suffers from the after affects of a spill that took place over 2 years ago. The final shareholder is perhaps the most difficult to quantify with respect to the total amount of damage that has been wrought as a result of the BP spill (Helman 109). This shareholder is that of the natural wildlife that has been damaged as a result of the oil release. It is a known fact that the level of fish and shrimp have decreased; however, the true level to which the ecosystem itself has suffered and will be able to regenerate is in question. As a function of this, it is not fully known to this very day to what levels the BP spill has unalterably affected the natural environment upon which the economies of the Gulf Coast region have become so dependent. Prevention: As a means of preventing a situation like the Macando Blow Out from occurring again, it is necessary to discuss some of the key preventions that could affect this in the future. The first of these has to do with a change in the company and/or organizations culture. Due to the fact that individuals have different values and priorities that guide their decisions, it is incumbent upon the researcher and/or shareholder within BP to understand that the main root cause that could have sought to prevent such a disaster from occurring was the disregard for and lack of appreciation for the compliance and safety monitoring that should have been put in place from the very beginning. In the same vein, an additional level of prevention could have been realized in the fact that the lower levels of shareholders within the organization soon came to realize that talk is cheap and actions themselves more appropriately demonstrated the needs and wants of the larger organization. As such, it would be incumbent for the firm in the future to ensure that they have a clear level of correspondence between their stated goals and the means by which the lower levels of management and line employees seek to implement these in order to meet the requisite standards. A final prevention that could have been employed as a means of ensuring that the situation that has been described never came to the degree of prominence that it currently has is for the organization to seek to ensure that they have a set of management resources that would actively work to prevent ethics scandals and problems. Whereas it is impossible for a firm to not have any bad apples in management, it is possible through a change in the company’s culture to ensure that the individuals who represent a high level of motivation, dedication, and ethical standards are rewarded and placed in position of management and purview over ethical considerations. In such a way, a high number of individuals that ascribed to the standards that have previously been defined would have helped to ensure that the self-regulating process within BP could have prevented the disaster outright. Rather than being gifted by an overabundance of self-interested middle management that was solely dedicated to the presentation of profitability and statistics generation, more of a focus upon ethically minded management would have raised the importance of safety and environmental controls and likely have outright prevented the manifestation of the tragedy as it has unfolded. Works Cited "A Safer, Stronger BP." Vital Speeches Of The Day 78.3 (2012): 93-97. Academic Search Complete. Web. 12 Mar. 2013. Helman, Christopher. "Bp Is Booming (Shhh!)." Forbes 189.8 (2012): 106-112. Business Source Premier. Web. 12 Mar. 2013. Koenig, Thomas H., and Michael L. Rustad. "Reconceptualizing The Bp Oil Spill As Parens Patriae Products Liability." Houston Law Review 49.2 (2012): 291-392. Academic Search Complete. Web. 12 Mar. 2013. Sole, Shannon L. "BPs Compensation Fund: A Buoy For Both Claimants And BP." Journal Of Corporation Law 37.1 (2011): 245-263. Business Source Premier. Web. 12 Mar. 2013. Tinsley, Catherine H., Robin L. Dillon, and Peter M. Madsen. "How To Avoid Catastrophe." Harvard Business Review 89.4 (2011): 90-97. Business Source Premier. Web. 12 Mar. 2013. Webley, Simon, and Andrea Werner. "Corporate Codes Of Ethics: Necessary But Not Sufficient." Business Ethics: A European Review 17.4 (2008): 405-415. Business Source Premier. Web. 12 Mar. 2013. Read More