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Number: Lecturer: BP oil spill in the Gulf of Mexico: Impact on Small business and compensation Introduction The Deepwater Horizon oil spill in the Gulf of Mexico is touted as the world’s biggest oil industry disaster to happen in the marines. It begun on the evening of 20th April 2010 on a BP-owned Transocean operated Macondo Prospect. It started as a gas leak that caused an explosion of an oil rig and eventual sinking causing a sea-floor oil gush for eighty-seven days before being contained.

It is estimated that 4.9 million barrels of oil were discharged causing an environmental disaster on both marine and wildlife habitats. Fishing and tourism industry was and are still the biggest casualty to date with extensive damage reported (Kinver, 1). Despite being contained, the surface effect still is felt to date. The length of shoreline that was damaged stretches far along beaches of a number of states from Tampa Bay in Florida to Texas. The spill directly affected about 68,000 square miles (180,000km²).

It had washed up the coastlines of Louisiana, Mississippi, Florida, and Alabama by early June 2010. Subsequently it reached Texas over a thousand miles away and sipping through the sand along the coast. It made natural life amongst creatures unbearable causing severe organ damage, death and being born with deformities. This paper considers the effects of this disaster economically and specifically on small businesses that were affected in general. It might not touch specifics in some but the overall picture of the disaster.

The small businesses that we are looking at are those operating oil and gas industry, marine-related tourism and fishing. BP established a $20 billion Oil Spill compensation liability trust fund to compensate individuals and businesses affected by the oil spill (Dymond, 1). i) Oil and gas industry Effects The business suffered in terms of a moratorium and regulatory changes. Initially, the industry was on an upswing due to heightened drilling activities arising from dramatic oil prices increases.

Onshore wells in Louisiana had extensively been exploited; hence developers began to consider offshore drilling in the Gulf of Mexico. In the mid-1990s, small oil companies 12,500 were producing oil. Hence, small oil companies were pivotal in offshore development. It led to their proliferation to support offshore activities offering specialized equipment and skills and hence gained an advantage by patenting their products. By 2009, Louisiana was the nation’s third-largest in total energy production creating more than 320,000 jobs in oil and gas industry and related sectors.

This significantly provided revenue to other industries and even attracting fishermen during off-peak seasons. Companies supporting oil and gas industry have had to innovate due to changing nature, location and technological advancements in offshore drilling. Currently, support businesses in this sector vary in size from family-owned outfits to large international companies. They are involved in exploration, extraction (production), refinement, and distribution. Each phase requires a variety of support services and associated factors, hence different moratoria.

The involvement of small business in oil and gas industry in the Gulf is more pronounced in offshore supply services, environmental consulting, geographical/seismic services, underwater constructions, and dredging. Many self-help contractors were involved in the transportation of supplies and personnel to offshore rigs and platforms. Providing supplies and catering services are also competitive services available. Small businesses are involved in small highly specialized fabrication yards, but not rig contracting or large scale fabrication due to the need for substantial capital investment.

When the disaster occurred, the federal government announced a six-month suspension of all pending, current or approved offshore drilling operations of new deep-water wells off the coast of Mexico. Through the Bureau of Ocean Energy, Management, Regulation, and Enforcement (BOEMRE), new regulation requirements for offshore oil and gas drilling activity were instituted. Permitting was actions required for drilling were halted for all permits, be it shallow or deep water. Those who were in the process in permitting had to be stopped except those which were already producing oil.

A moratorium of six months was announced on all exploratory drilling in depths greater than five hundred feet. It resulted in the closure of thirty-six rigs operating in the area. In general, it affected shallow-water drilling permit approval rates, meaning that associated small businesses were all affected. Some companies terminated contracts other renegotiated leases, and active rigs drastically reduced. The rate of use of offshore support vessel went down alongside pay rates for support services both before and after the moratorium (U.S. Small Business Administration, 45).

Compensation During the recovery, many factors came into play when engaging third parties in the clean-up exercise. It created jobs for those which would be able to provide the right logistical requirements and capacity, those who didn’t, had no work. In this form of business very few received compensation from loss of jobs but many applications were rejected outright (U.S. Small Business Administration, 54). ii) Commercial fishing Effects Commercial fishing is a significant industry in the Gulf of Mexico.

In 2009, 1.2 billion pounds of seafood were landed at the ports of Louisiana valued at about $274 million. In Mississippi, fishermen landed about 230 million pounds, 28.9 million in Alabama valued at $38 and $39 million respectively. These three States led the nation in fishing of oysters (70%), shrimp (47%) and blue crab (31%). The processing and distribution of seafood are important for these states’ economies generating $8.7 billion between 2000 and 2010. The plants establishments in these States are about 130 employing over sixty-five hundred employees in the Gulf region.

Commercial and distribution of seafood in the Gulf of Mexico and elsewhere involve both full-time and part-time employment. Temporary work, piece-work, and seasonal work are common arrangements in certain sectors of the fishing industry. It has both skilled work and non-skilled to either manage fishing in the long-term engagements or hand laborers on a short-term basis. Those engaged on piece rate or temporary basis work on a rotational basis between fishing and regional agricultural farms. Seasonal work support youth locally and young adults of all ethnicities on cash-based arrangements.

Small seafood wholesale, fishermen, and retail business and any other related business transact business on a cash basis. From a cultural perspective, ethnic minorities in the seafood industry often share labor, seafood, and fiscal resources. Such informal processes mean that many participants lack full documentation for labor hours and income. This situation complicates claims processes associated with the oil spill (Mervin, 1). Through the collaboration with various decision-making agencies and processes, large areas of federal and state jurisdiction waters were closed.

These are areas where commercial and recreational fishing activities used to happen. The closures were as a result of highly dynamic situations or some regulated in terms of opening and closing, sometimes on short notice. It was necessitated by the fact that risks needed to be mitigated in seafood contamination reaching the marketplace with about 37% of federal waters under lock-down. Some minimal fishing was allowed to keep people in harvesting, processing, distribution, and commercial and recreational support sectors across the region.

Fishery closures and the eventual engagement of fishery participants in paid oil clean-up meant diminished harvest levels in the affected region. It impacted small businesses indirectly or directly involved in the seafood production value-chain. Uncertainties about the safety of seafood consumption after fishing was reopened persisted for some time with buyers avoiding supplies from this region. This affected everybody in the entire industry process and it was estimated that it would take at least five years for full recovery in consumption to be realized.

Fishing production fell to 186 million pounds from a year average as the aftermath of the spill from the previous average of 252 million. It also had an effect of putting many people out of employment or the engagement hours drastically reduced (U.S. Small Business Administration, 60). Compensation The company engaged initially in the clean-up activities to maintain a household income means when fishing was rolled back due to area closure. Not all fishermen were qualified, though, to participate in the clean-up, not all were logistically proximate to clean-up areas or willing to participate.

Several ways of compensation and mitigation of the after-effects were employed. The process through which claims were settled evolved over time. The authority overseeing the process of claims and claimants, and the requirements for documentation evolved as the magnitude of losses suffered and claims become clearer. An initial round of $5,000 advance checks for emergency purposes was widely distributed to spill-affected claimants (Kelly, 1). The process was tedious as it required one to demonstrate spill-induced loss of earning or profit, damages to property, loss of livelihood, and physical injury.

The claims were administered in four parts; Emergency Advance Payments (EAPs), Interim Payment, Quick Final Payment, and Full Review Final Payment. EAPs compensate up to six months of seasonally adjusted lost income/profit with minimal documentation. Those injured applied for Interim on a quarterly basis and Final payments. Quick Final Payments were offered to those who claimed EAPs or Interim. Individuals received $5,000 and businesses received $25,000. This compensation method did not last for so long as the agency concerned was dissolved due to inaccuracies in compensation and a court-managed process was created (U.S. Small Business Administration, 70). iii) Tourism Effects Marine-related tourism in the Gulf of Mexico is multi-faceted with region receives visitors from around the nation to participate in a variety of activities.

They include beach-going, eco-tourism, wildlife viewing, various water sports, and recreational fishing. Consumption of local seafood is very important, and thousand of local businesses support or facilitate such activities. Mississippi and Alabama beaches receive visitors from northern states during winter months and visitors from southern states during summer months. New Orleans is a year-round popular destination. The region is popular for conferences and conventions, and entertainment locations with franchised businesses.

Recreational fishing, hunting, and other outdoor activities are popular. As discussed earlier, about 37% of federal waters and 85% of state waters were closed from fishing at the peak of the disaster. It affected all kinds of recreational fishing, swimming advisories were announced and beach closures due to unwarranted conditions. Spill-related processes and events impacted the marine-related tourism industry. Due to media coverage of the events during the oils spill, far-reaching damaging consequences were felt resulting wide-spread cancelation of hotel bookings.

Activities in marine-related tourism diminished, instead choosing to visit East Coast (U.S. Small Business Administration, 100). Compensation As it were with recovery efforts to fishing, spill response activities were started by engaging charter operators in marketing and promotional efforts, earning income to hitherto idol capacity. They would have struggled in business, but it does not mean that they were earning as it were with their normal business operations. In this sector, though, the formal compensation was dissatisfactory to them as concerning payment schedule.

There was reported difficulty in reimbursing damaged equipment and decontamination of vessels as at the conclusion of the program. In fact, others were never reimbursed at all though their participation in the recovery efforts and resultant compensation was satisfactory (U.S. Small Business Administration, 108). Conclusion Despite the compensation and clean-up exercise that were conducted four years ago, full recovery has not been realized. Environmental impact is still under careful research as it still has an effect on seafood contamination and wildlife wellbeing.

It is still expected that the impact will still be there for some time to come. This study touched on important kinds and patterns of economic and social impact on the communities along the seashore. It follows a coherent pattern of study that can be done and impact studied more carefully in the future. The understanding of the topic will inform any future research and if such kind of a disaster can happen then, it will be the starting point of major studies to come (U.S. Small Business Administration, 121).

Works Cited Dymond, J. 3 March 2012. “BP oil spill: Louisiana ruin remains.” BBC. Web. 21 April 2015 http://www.bbc.com/news/world-us-canada-17186786 Kelly, J. 18 April 2014. “Compensation battle rages four years after BPs U.S. oil spill.” Reuters. Web. 21 April 2015 http://www.reuters.com/article/2014/04/18/us-usa-spill-aftermath-insight-idUSBREA3H0AA20140418 Kinver, M. 20April 2011. “BP oil spill: The environmental impact one year on.” BBC. http://www.bbc.com/news/science-environment-13123036 Mervin, J.

20 April 2011. “Counting the cost of the BP disaster one year on.” BBC. Web 21 April 2015 http://www.bbc.com/news/business-13120605 U.S. Small Business Administration. “Small Business Impacts Associated with the 2010 Oil Spill and Drilling Moratorium in the Gulf of Mexico.” U.S. Small Business Administration. November 2013. Web 21 April 2015. https://www.sba.gov/sites/default/files/rs417tot.pdf