The Impact of the British Petroleum Deepwater Horizon Oil Spill in the Gulf of Mexico - Essay Example

?ASSESSING & ANALYZING THE IMPACT OF THE BRITISH PETROLEUM (BP) DEEPWATER HORIZON OIL SPILL IN THE GULF OF MEXICO Table of Contents Table of Contents2 British Petroleum (BP) – An Overview 4 Gulf of Mexico Oil Spill 4 BP’s Strategic Plan 8 Total S. A. Gas Leak Incident – A Comparison 11 Exxon Valdez Spill vs. BP Oil Spill 12 Impacts of Media 13 Risk Analysis 15 Political Analysis 15 Economical Analysis 15 Sociological Analysis 16 Technological Analysis 16 Legal Analysis 16 Environmental Analysis 17 Stakeholder Analysis 17 Recovery and Continuity Plan 20 References 20 British Petroleum (BP) – An Overview British Petroleum (BP) Plc. is a petroleum manufacturing company which was founded in the year 1889. It is a London based company and is one of the largest companies in the world. It is engaged in the business of exploration of oil and petroleum and manufacturing of various petroleum products. BP is vertically integrated and is engaged in all allied business activities related to the oil and gas industry (Yahoo Finance, 2012). It is a multinational company and its shares are traded in the New York Stock Exchange (NYSE) and London Stock Exchange (LSE) with the ticker symbol “BP”. BP is associated with a rich history and has achieved numerous landmarks on its way to become a large multinational company as it stands today. BP is committed towards becoming the industry leader and maximising the wealth of its shareholders through energy supply to its customers in a responsible and safe manner. The business segments of BP are primarily two, namely a) the oil exploration and manufacturing unit, and b) the marketing and refining business unit. Recently BP has engaged itself in exploring sources of renewable energies as well. The recent tragic incident involving the Gulf of Mexico oil spill had a significant negative impact on BP and the company has taken several strategic initiatives to restore its reputation in the market. Gulf of Mexico Oil Spill The Gulf of Mexico oil spill incident took place on April 20, 2012. It is regarded as one of the largest disastrous event corresponding to the petroleum industry history. The incident took place at Deepwater Horizon, which is a semi-submersible rig meant for oil drilling and situated offshore in the Gulf of Mexico. An explosion occurred which set the oil rig on fire and 11 crewmen were found dead. Several other workers working there were injured. The explosion took place while the oil drilling was on at a water depth of around 1500 m and BP was the principle operator of this project. The explosion occurred because of the ignition of methane gas in the drilling rig which expanded into the rig due to high pressure exerted by the methane gas. Later on after this mishap, oil leak was found which began to spread at a fast rate. According to the reports of Flow Rate Technical Group, the leak resulted in spilling out of oil amounting to around 4,900,000 barrels of oil. The resulting oil spill quickly spread over a large area of water covering around 1,500 square kilometres. After considerable efforts the wellhead was successfully capped on July 15, 2010. A commission was set up by the US government to investigate on the reasons behind the explosion and oil spill which released its final report on January 5, 2011. According to this report several faults were identified on the part of BP which led to the occurrence of this disastrous event. They were mainly accused of making an attempt to work on the project at cheap rate that resulted in the explosion and oil leakage. One of such fault detected was that BP did not make use of any diagnostic tool which could have the ability to test for the tensile strength of the cement used to build the rig. Another major fault in the part of BP was that it ignored the pressure test which indicated negative results. In addition to this BP did not make any effort to plug the pipe with the help of cement. Hence all these facts suggest that BP was primarily responsible for the oil spill at Deepwater Horizon. The investigation report about this tragic incident prepared by BP revealed some key findings. They are: The cement barrier that was in place was not successful in isolating the hydrocarbons. The barriers in the form of shoe track were also unable to help in successful isolation of the hydrocarbons. The above two findings suggest that hydrocarbons, mainly methane gas gushed into the oil well undetected and the control over the well was lost by the BP workers present there. The pressure test which showed negative results was accepted by the BP personnel responsible for the purpose. It was accepted even though the well integrity was not established at that moment. The influx of hydrocarbons was undetected until the moment it rose up to the riser. Control over the well could not be regained even after all the immediate control measures were exercised by the personnel. The above three findings indicate the reasons behind the ignition of hydrocarbons in Deepwater Horizon. The methane gas vented out into the rig as a result of the diversion of the gas made to the mud gas separator. The ignition of the hydrocarbon could not be prevented through the gas and fire system installed for the purpose. These two findings suggest that the Blowout Preventer was unable to seal the oil well (BP, 2010a, p. 49). Table – 1: Events leading to the incident of Deepwater Horizon Source: (BP, 2010a, p.111) Fig -1: Deepwater Horizon - Oil Slick Source: (NASA, 2010) BP’s Strategic Plan There was no such strategic specific plan formulated by BP to stop or prevent occurrence of an incidence of the stature equivalent to that of Gulf of Mexico oil spill that followed the explosion of Deepwater Horizon. Hence the response to this incident by BP was more of a reactive one than proactive. Considerable efforts were made by the BP officials to stop the aftermath of the explosion and tried to stop the oil spill. Soon after the explosion occurred, BP released six submarines into the floor of the ocean which were remote controlled with the objective of shutting off the Blowout Preventer (BOP) so as to prevent oil spilling into the ocean waters. As a matter of fact, the BOP that was in place when the explosion occurred was meant to shut off immediately after the explosion but it failed to work and did not close at that moment. The submarines that were sent to close the BOP also failed to operate successfully. Figure – 2 shows the Macondo Well and the BOP that was installed there. To be specific, BP tried to operate the BOP in its emergency mode utilising three methods, but all were in vain. The three operating methods of BOP followed by BP were as given below: The BOP was meant to become active in case of emergency. It was supposed to seal the bore of the well and the marine riser was supposed to get separated from the well. However the fire that was the resultant of the explosion that took place in the oil well must have disabled the BOP from operating in the way it was supposed to operate. Another control mechanism was in place for emergency situations in the wellbore which was known as Automated Mode Function (AMF). This control mechanism was designed for the purpose of automatically sealing the oil well if the hydraulic pressure is lost or if the electrical power and the link of control pads located in the BOP and the rig is lost. The intervention of rig personnel was not required in this case. However, the investigation of the control pads located in the BOP conducted after the occurrence of the incident suggests that a fault was discovered in the solenoid valve situated in the yellow coloured pod in the BOP. Also the AMF batteries present in the blue coloured control pod of the BOP did not have sufficient charge required for the purpose during the course of the incident. All these prevalent conditions in the control pods of the BOP must have prevented the initiation or activation of the AMF control mechanism. There was another emergency method installed by BP for the purpose of operating the BOP which consisted of a vehicle that was remotely controlled. It was there to initiate the activation of the auto shear function. Blind Shear Ram (BSR) present in the BOP got closed post 33 hours of the occurrence of the explosion in the oil well. However the BSR was not successful to seal the oil well (BP, 2010a, p.11). After this attempt to close the BOP, which was a failure attempt, BP took the initiative to bring the oil funnel to the ocean water surface by lowering a large dome made up of steel and concrete. However this also proved to be a failure attempt in the part of BP since the domes got clogged up with ice crystals. Apart from this, several other attempts were made by BP to stop the oil spill but all efforts went in vain and it did not succeed in preventing the oil spill. By the time, the oil spill activity was successfully stopped, a huge amount of oil have already spilled out of the pipeline and engulfed a large area of the ocean floor. Ultimately it turned out to be one of the largest tragic events in the history of petroleum industry having several negative economic and environmental impacts. Figure – 2 (Macondo Well) Source: (BP, 2010a, p.12) Total S. A. Gas Leak Incident – A Comparison Total S. A. is a multinational company based on France. It is engaged in the business of oil exploration and allied activities. It is also a large company operating in the oil and petroleum sector like BP. Total S. A. Company is headquartered at Tour Total, France. A recent gas leak incident took place in one of the oil wells managed by Total S. A. The event occurred on March 25, 2012 in the Elgin well situated in the North Sea at a distance of 340 km towards the east of Scotland. The leak was detected while the operation of decommissioning of the oil well was taking place. However, the incident was managed quite well and it did not result in any type of injuries to any personnel working there. All the people working there were safely evacuated and taken away from the site. The methane gas leakage was supposed to occur as a result of one layer of chalk reservoir which was unexploited. The methane gas that leaked out was released into the atmosphere. All non-essential staffs were evacuated from oil exploring platform named Shearwater platform located nearby to the Elgin field. Later on the leakage was successfully repaired by Total and the leaking gas was diverted away from the Elgin and Shearwater platform (Dittrick, 2012, p.19-20). Total was successful in stopping the leakage and prevented any significant negative impact because of the leakage. This incident when compared with the BP oil spill event, it can be concluded that BP was not successful in preventing the oil spill and the BP’s management team was not able to manage the situation well like that of Total. Exxon Valdez Spill vs. BP Oil Spill The incident corresponding to the Exxon Valdez oil spill took place in the State of Alaska, United States long back in the year 1989. Exxon Valdez was the name of an oil tanker which collided with a reef that was submerged and was invisible from above the ocean floor. The collision resulted in an oil spill of around 10.8 millions volume and got spread over a distance of around 460 miles and contaminated the nearby shoreline. As compared to this oil spill incident, BP oil spill incident occurred only recently in 2010. Table – 2 shows the comparison of events related to these two oil spill incidents. Both the events resulted in a significant negative impact on the environment and economic situation of the nation. These incidents are a result of lapse in human judgement and failure of technical systems on a large scale. The incident of Exxon Valdez took place much before the BP oil spill incident. Hence, it can be assumed that learning from the mistakes of Exxon Valdez incident, more improved risk assessment and control mechanism must have been developed before the BP oil spill event occurred. However, BP was unsuccessful in its efforts to prevent the dire consequences of the oil well explosion and its subsequent effects (Sylves, & Comfort, 2012, p.84). Table – 2 (Exxon Valdez and BP Oil Spill - Comparison) Source: (Sylves, & Comfort, 2012, p.84) Impacts of Media Media played a significant role and had a considerable effect on BP because of this tragic event of oil spill in the Gulf of Mexico. The incident was well-covered by the different forms of media like newspapers, television, etc. Few months after the incident occurred in the Gulf of Mexico, a detailed report covering the incident and its related issues were published in “The New York Times” newspaper. It revealed many facts about the incident which no one knew before the publication of this report by New York Times. It presented a detailed explanation about the reasons behind the explosion, the reason behind the destruction of the oil rig and how the personnel present at the site tried to handle the situation. The report actually criticised about the absence of required safety measures needed to be performed at that moment when the incident took place. It also talked about the lack of communication which otherwise may have prevented the explosion of the rig at the first place (Barstow, Rohde, & Saul, 2010). Social media was also prompt to the situation as well. Soon after the incident took place, the whole world came to know about it. People from all over the world started commenting on the event and gave negative feedbacks through social media. BP started losing the trust of its stakeholders. BP tried to prevent media from getting an access to the areas which were impacted due to the oil spill incident. However, it did not succeed and BP was forced to take prompt actions to prevent the negative impacts of the incident. BP made all considerable efforts to contain media but it was all in vain and BP had to respond to the situation and take all possible steps to control the crisis situation. Soon after the incident, the stock price of BP fell drastically. It resulted in a huge amount of loss not only for BP but also the world economy as a whole. BP had to spend huge amount of money in the form of compensation for the affected people. The cost of the cleanup operations conducted by BP amounted to huge amount of money and it is still continuing. Everyone got informed about the fact of complete failure of management regarding the risk analysis of the situation by BP. Media was greatly instrumental in conveying these facts to the people and stakeholders of the company. Hence media can be supposed to have had a rippling effect on BP regarding the handling of this situation. Risk Analysis The risk analysis of BP after the incident of oil spill in the Gulf of Mexico involves the analysis of various external factors related to the company. Analysis of external factors of BP can be summed up as the analysis of political, economical, technological, sociological, legal and environmental factors associated with the company (Cowan, 2006, p.58). It is known as PESTEL analysis and it helps in the identification regarding the implications of the oil spill in the Gulf of Mexico on BP which is held responsible for the occurrence of this event. Political Analysis If we analyse this crisis situation it can be found that it proves to be an advantage for the environment groups, primarily those people who are concerned about taking steps to reduce the consumption of oil in all the developed nations of the world including United States. Barack Obama, the President of United States has already declared that no more drilling of oils in offshore regions would be allowed and it has been suspended. This crisis situation has resulted in impressing the risks involved in the extraction of petroleum on large number of people all around the world. Economical Analysis The large amount of oil that has spilled because of the incident had a significant impact on the world economy. BP was held responsible for incurring all types of costs associated with the cleanup activities carried on by them to help recover from the crisis situation. This had a subsequent impact on the oil price because of all these costs incurred being added up to set the selling price of oil. Consequently, the rise in oil prices had a significant impact on the economies of most of the nations in the world. Moreover, the stringent regulations relative to the fact of preventing oil drilling in offshore areas mean that BP and other oil exploring companies are to look for alternative sources for oil exploration. They are required to move to remote areas where it is not that easy to explore oil. All these factors have a considerable impact on the economic issues. Sociological Analysis If we look at the sociological impact of the oil spill incident, it can be observed that it took a toll on the reputation of BP. The green washing initiatives taken by the company is no longer effective. Most of the stakeholders of the company lost faith and trust on the company. This tragic incident had resulted in motivating people to divert their attention towards renewable energy sources. These are all the socio-logical impacts of the oil spill incident in the Gulf of Mexico. Technological Analysis If we look at the technological aspects of the incident, it can be observed that the technology has not been that effective in the cleanup operations being conducted by BP. The huge dome made up of concrete and steel that was used for the cleanup purpose was not effective in controlling the situation. Hence, this type of oil spill incident provides an impetus for the researchers to come up with new technological advancements which could be used effectively used for the cleanup process. Legal Analysis The legal impacts of the Deepwater Horizon oil spill incident includes several new legal restrictions being imposed on activities related to oil exploration. This can have an impact on the people through convincing people regarding issues related to imposition of carbon taxes and increased level of restrictions on mining activities. It might result in imposing restrictions related to exploration of natural gases as well since it possesses threat of the risk of explosion. Environmental Analysis The environmental analysis of the incident includes all the factors that have mentioned regarding risk analysis till now. Environmental management has received prime importance because of the several damaging impacts of this oil spill incident on the marine life and the environment as a whole. People are now more concerned about saving the environment and maintaining the ecological balance through elimination of human activities leading to the destruction of ecology. Stakeholder Analysis Stakeholders of a company include any person or entity who have an interest on the company or can exercise their power in the various strategic decision making process by the company management. Stakeholders can be of different types and can have different levels of influence on an organisation (Jeffs, 2008, p.107). The analysis of the shareholders of BP has a significant impact on its strategies and policies being implemented in reaction to the incident related to Gulf of Mexico oil spill. Mendelow’s matrix is one of the strategic tools which could be utilised for identification, classification and analysis of the stakeholders of BP to understand the impacts of Deepwater Horizon oil spill on its stakeholders and the company. Mendelow’s Matrix comprises of four quadrants, which divides or classifies the stakeholders of a company based on their interests and power exerted on the company as high or low. After the identification of the key stakeholders of BP, it could be divided amongst the four quadrants of the Mendelow’s Matrix (Botten, et al., 2012, p.39-41). The four quadrants could be classified as shown in Fig - 3 as: a) Quadrant A: high interest and low power, b) Quadrant B: low interest and high power, c) Quadrant C: low interest and low power, and d) Quadrant D: high interest and low power. Hence the stakeholders falling in Quadrant C would not have such significant impact of the oil spill incident on BP. Those falling in Quadrant A would have serious impact and those falling in Quadrants B and D would have moderate level of impact on BP. Thus, the stakeholder analysis performed in this way would let us know BP’s different stakeholders and their impacts on the tragic incident. Fig – 3: Mendelow’s matrix Low High High Power Low Interest Source: (Author’s Creation) The key stakeholders of BP involved in the Gulf of Mexico oil spill incident are identified and classified into the four categories of Mendelow’s Matrix as given below: Quadrant A: Board of Directors of BP, Environmentalists, Government, Media. Quadrant B: Customers, Shareholders, Suppliers. Quadrant C: Employees, Families of employees. Quadrant D: Collaborators, Competitors, Fishermen, Tourism, Inhabitants of coastal states in US. Of all the stakeholders of BP who has a direct impact because of the oil spill, the Gulf coast, the tourists visiting the coast and the marine life present there have a significant role to play. Only time will say, what long-term effects this incident can have on the marine life present deep water in the region of the coast of Gulf of Mexico. The coastal areas and the wetlands present there were affected the most because of this event of oil spill. Many of the species of animals living in the region on the coast and under water could become extinct because of the toxic effects of the spilled oil in the ocean. Vast wetlands are existent in the Louisiana region and almost 90% of the creatures living there spend their entire life in the estuaries present in and around those wetlands. Animals like bay anchovies and oysters are the permanent dwellers in the region. Hence the oil spill can have a direct negative impact on all these creatures and animals proving to be a life threat for them (Mascarelli, 2010, p.22). As regards the tourism industry, the Mexican gulf coast is a major tourist spot and plenty of tourists visit the place. Hence the BP oil spill can have a significant impact on the Gulf coast tourism resulting in a huge monetary and economic loss. A lot of money has to spend for the revival of trust of the tourists visiting the place. Recovery and Continuity Plan BP has made considerable efforts to recover the lost trust of its stakeholders after the incident of oil spill that occurred on the Gulf of Mexico. As regards its recovery and continuity plan, BP has prepared two plans which have been named as, “Gulf Oil Response plan” and the “Site-Specific Plan” which were 582 pages and 52 pages reports respectively (Binder, 2010). The larger volume plan was more of a generic plan which discussed about the various findings and analysis of the oil spill incident, and the activities to be conducted by BP and the roles to be played by different personnel of the company and it did not say much about the actions to be taken up by BP in case of another such similar oil spill situation (McIntyre, 2010). The BP’s plan also suggests means of removing as much spilled oil as possible from the Gulf region and in quick time. The Gulf Oil Response Plan talks about different aspects of oil spill and how BP would locate an oil spill, assess it, measure the volume of oil spill, etc (BP, 2010b, p.2-7). References Binder, D., 2010. Lessons From the BP Emergency Action Plan in Action. [Pdf] Available at: [Accessed July14 2012]. Botten, N., 2012. Marketing for Stakeholders. Oxford: Butterworth-Heinemann. BP, 2010a. Deepwater Horizon Accident Investigation report. [Pdf] Available at: [Accessed July14 2012]. BP, 2010b. Regional Oil Spill Response Plan – Gulf of Mexico. [Pdf] Available at: < http://info.publicintelligence.net/BPGoMspillresponseplan.pdf> [Accessed July14 2012]. Cowan, N., 2006. Risk Analysis and Evaluation. 2nd ed. Kent: Institute of Financial Services. Dittrick, P., 2012. Total, Transocean Drilling Relief Well to Stem Elgin Gas Leak. Oil and Gas Journal, 110(4d). [Pdf] Available at: [Accessed July14 2012]. Jeffs, C., 2008. Strategic Management. California: SAGE Publications. McIntyre, S., 2010. The BP Oil Spill Response “Plan”. [Online] Available at: [Accessed July14 2012]. NASA, 2010. Oil Slick in the Gulf of Mexico. [Online] Available at: [Accessed July14 2012]. Yahoo Finance, 2012. BP plc (BP): Profile. [Online] Available at: [Accessed July 14 2012]. Sylves, R. T. & Comfort, L. K., 2012. The Exxon Valdez and BP Deepwater Horizon Oil Spills: Reducing Risk in Socio-Technical Systems. American Behavioral Scientist, 56(1). [Pdf] Available at: [Accessed July 26 2012]. Barstow, D., Rohde, D., & Saul, S., 2010. Deepwater Horizon’s Final Hours. The New York Times. [Online] Available at: [Accessed July 26 2012]. Mascarelli, A., 2010. After the oil. Nature, 467(2). [Pdf] Available at: http://www.nature.com/news/2010/100901/pdf/467022a.pdf [Accessed July 26 2012]. Read More