Case 7.5 BP and the Deepwater Horizon Explosion: Safety First? ; and BP and the

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Case 7.5 BP and the Deepwater Horizon Explosion: Safety First? ; and

BP and the Deepwater Horizon Explosion: Safety First? Background and Nature of Market BP PLC is a holding company with three operating segments: Exploration and Production; Refining and Marketing; and Gas, Power, and Renewables. Exploration and Production’s together with pipeline transportation and natural gas processing. Refining and Marketing includes oil supply and trading, as well as refining and petrochemicals manufacturing and marketing, including the marketing and trading of natural gas. BP is also involved in low- carbon power development, including solar and wholesale marketing and trading (BP Alter- native Energy). BP has a presence in 100 countries and employs 96,000 people in these countries. It has nearly 24,000 retail service stations around the world, and its stations sell coffee made from fair-trade beans. It is the second largest oil company in the world and one of the world’s ten largest corporations. Until 2007, BP had been a perennial favorite of nongovernmental organizations (NGOs) and environmental groups. For example, Business Ethics named BP the world’s most admired company and one of its top corporate citizens. Green Investors named BP its top company because of BP’s continuing commitment to investment in alternative energy sources. BP lists its social and community policy as follows: Objectives • • • • To earn and build our reputation as a responsible corporate citizen To promote and help the company achieve its business objectives To encourage and promote employee involvement in community upliftment To contribute to social and economic development BP has been recognized for its work in helping AIDS victims in Africa. BP Alternative Energy was launched in 2005 and anticipates investing some $8 billion in BP Alternative Energy over the next decade, reinforcing its determination to grow its businesses “beyond petroleum.” In July 2006, BP and GE announced their intention to jointly develop and deploy hydrogen power projects that dramatically reduce emissions of the greenhouse gas carbon dioxide from electricity generation. Vivienne Cox, BP’s Chief Executive of Gas, Power, and Renewables, said, on announcing the joint venture, “The combination of our two compa- nies’ skills and resources in this area is formidable, and is the latest example of our intent to make a real difference in the face of the challenge of climate change.”8 There were issues that belied BP’s good-citizen status. In 2001, BP admitted that it had hired private investigators to collect information on Greenpeace and The Body Shop. Also in 2001, its annual meeting created a stir when a shareholder proposal to stop the erection of a pipeline in mainline China was defeated when the board of direc- tors opposed the proposal. BP’s political donations were also a controversial and newsworthy subject until it abandoned the practice with the following statement: In early 2002 the company Chairman, Lord Browne, announced that it will no longer make donations to political parties anywhere in the world. In a speech to the Royal Institute of International Affairs, Browne, [sic] said “we have to remember that however large our turnover might be, we still have no democratic legitimacy anywhere in the world.... We’ve decided, as a global policy, that from now on we will make no political contributions from corporate funds anywhere in the world.” However, BP will continue to parti- cipate in industry lobbying campaigns and the funding of think-tanks. “We will engage in the policy debate, stating our views and encouraging the development of ideas—but we won’t fund any political activity or any political party,” he said. In response to a question, Browne said that over the long term donations to political parties were not effective.

5. Evaluate the social responsibility positions of BP in light of the refinery explosion and the pipeline issue. What can companies learn from the BP experience?

6. Applying the regulatory cycle, what do you see happening with regulation in offshore drilling and the refinery and drilling portions of the oil and gas business?

7. When does OSHA assess criminal penalties? When does the Clean Air Act require criminal penalties? Wouldn’t workers’ comp cover the employees for the deaths and injuries? Why is there civil litigation?

8. The judge’s opinion on the moratorium contained this discussion of the government’s use of a report by experts on offshore drilling: Much to the government’s discomfort and this Court’s uneasiness, the Summary also states that “the recommendations contained in this report have been peer-reviewed by seven experts identi- fied by the National Academy of Engineering.” As the plaintiffs, and the experts themselves, point-experts charge it was a “misrepresentation.” It was factually incorrect. Although the experts agreed with the safety recommendations contained in the body of the main Report, five of the National Acad- emy experts and three of the other experts have pub- licly stated that they “do not agree with the six month blanket moratorium” on floating drilling. They envi- sioned a more limited kind of moratorium, but a blan- ket moratorium was added after their final review, they complain, and was never agreed to by them. A factor that might cause some apprehension about the probity of the process that led to the Report. The draft reviewed by the experts, for example, recommended a six-month moratorium on explora- tory wells deeper than 1000 feet (not 500 feet) to allow for implementation of suggested safety measures. The Report makes no effort to explicitly justify the moratorium: it does not discuss any irreparable harm that would warrant a suspension of opera- tions, it does not explain how long it would take to implement the recommended safety measures. The Report does generalize that “[w]hile technolo- gical progress has enabled the pursuit of deeper oil and gas deposits in deeper water, the risks associated with operating in water depths in excess of 1,000 feet are significantly more com- plex than in shallow water.”46 Evaluate the ethics of the Secretary of Interior regarding the representations of what the experts concluded.

9. Evaluate Mr. Hayward’s parting statement and his views on accountability.

Explanation / Answer

. Evaluate the social responsibility positions of BP in light of the refinery explosion and the pipeline issue. What can companies learn from the BP experience?

A Transocean document from 2001 identified 260 design errors that could require removal of the blowout preventer. A 2004 study by the MMS concluded standard blowout preventers would be unable to cut through many pipes in a deepwater well.

BP manager who had been on board the rig until five days before the blast. He told investigators that three months before the disaster he had been warned by Halliburton, which was acting as a contractor on the well, that the rig's blowout preventer could be faulty.

Gas could be leaking out of the device, Halliburton reported, which would suggest that it was not fulfilling its role as the last line of defence against a possible blowout of oil or gas.

Sepulvado said he informed his bosses at BP's Houston headquarters, but they in turn appear not to have passed on the information, as they were obliged, to federal authorities.

Although BP did not prepare a spill response plan for the Deepwater Horizon, it did have a generic plan for Gulf of Mexico operations. This plan described a discharge over 20,000 bbl as the worst case scenario.

Discharge from the Deepwater Horizon could be as high as 4,000,000 bbl. That means all of BP's response plans are useles.

the rig had a dead battery in the blowout preventer control pad, a "useless" test version of a key component, and a cutting tool that wasn't strong enough to shear through 10% of the well's pipes.

All above incidents shows that there is a serious negligence by BP and the company was in a compromising positing without caring about the enviornment. The responsibility towards society was not in any count. A company as famous as BP must be socially responsible as it is the society which made them so successful. The enviornment should be one of the priority for any company and no such project should be implemented which as even a single loop hole. It is the enviornment and its diversity due to which we can breathe and harming enviornment is a start of an end of a society.

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