Macondo Blow Out - Research Paper Example

Macondo Blow-Out 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. 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 (Rose et al 2). 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 (Milmo 1). 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 (Reed 1). 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 ot 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 (Shavell 1999). 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. One can readily understand from the situation surrounding the Macondo Blow-Out that the situation itself was entirely preventable had BP and its affiliates shared a mutual concern for safety operations and oversight with regards to the many failures that only served to worsen and exacerbate the situation. As has been evidenced, the costs of such failures have exponentially outweighed the cost of implementing such procedures due to the fact that but a small amount of time and a inconsequential amount of investment would have been necessary to make sure that the rig operated under the compliant nature that all oil rigs should. However, one can only hope that such a disaster can serve as fair warning to the oil rig owners, operators, and key shareholders the world over that the costs of safety measures are far outweighed by the costs of environmental remediation and payouts that must be distributed to the affected communities that will be inversely damaged by such a disaster. Works Cited Milmo, Dan. "BP's Deepwater Horizon Costs Rise $847m." The Guardian. Guardian News and Media, 31 July 2012. Web. 08 Nov. 2012. . Reed, Stanley. "DealBook." DealBook. N.p., 15 Sept. 2012. Web. 08 Nov. 2012. . Rose, Mary Annette, and Brian Hunt. "Learning From Engineering Failures: A Case Study Of The Deepwater Horizon." Technology & Engineering Teacher 71.5 (2012): 5-11. Academic Search Complete. Web. 8 Nov. 2012. Shavell, Steven. "Should BP Be Liable For Economic Losses Due To The Moratorium On Oil Drilling Imposed After The Deepwater Horizon Accident?." Vanderbilt Law Review 64.6 (2011): 1995-2008. Academic Search Complete. 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