Running head: BP AND THE GULF OF MEXICO OIL SPILL 1

Case Analysis: BP And The Gulf Of Mexico Oil Spill

Hoffmann, Christian

MGMT 6000 A, Foundations of Teamwork and Leadership

Dr. Ken Rossi

November 23, 2016

Case Analysis: BP and The Gulf Of Mexico Oil Spill

Introduction

On the 20th of April 2010, a number of unfortunate incidence have led to an outstanding

explosion of the BP Deepwater Horizon oil rig situated in the Gulf of Mexico. As a result,

initiating the largest maritime disaster oil spill in the global history. Several debatable decisions

by various stakeholders, not just right before the incident, but also within the company and

drilling history have trigger this event. Additionally, many attempts to deal with the spill oil as

well as reputation and financial losses by BP have proven to be a mismanagement crisis

communication. This paper aims to assess BP’s and the industries responsibilities of

mismanagement and shortcomings in evaluation of decision making. Furthermore, I will outline

an assessment of judgements made by BP’s management to handle the crisis communication.

Case Analysis

Starting with an explosion, 11 people were killed, 17 injured and more than 780 million

gallons of crude leaked into the sea. BP was made responsible for close to $40 billion in fines,

cleanup costs, and settlements as a result of the oil spill in 2010, with an additional $16 billion

due to the Clean Water Act. All of this could only happen because project management for the

platform made a number of questionable decisions. Nevertheless, the project management is not

to blame for everything. They only behave in BP’s low safety and high profit culture. All of this

is created in a very unique industry environment where a few market participants dictate

standards to the regulatory body and create a fast growing, money printing and unsupervised

development into riskier projects. (Roberto, 2011)

The Industry Culture

As a matter of fact, the Mineral Management Service (MMS) that was founded in 1982

has two consolidating interests. First, providing a regulatory oversight for all maritime drilling

projects. Second, the achievement of revenue goals for the federal government by issuing drilling

permeants and collecting royalties by pumped oil. This situation is particularly worrying because

the big gap in knowledge of the overseeing body. The agency is unable to review and prove all

procedures in a responsible way. Furthermore, any required changes in regulations are fare

behind the development within the industry. Since all mineral oil companies are global acting

entities, they have resources and knowledge way beyond the MMS. This situation was the

medium for a very savagely interpretation of any law and standard. Driven by an increased

demand from the U.S. and the greed of all companies. Riskier projects took place that lead to a

culture where companies earned high profits if the projects went well but payed only a minor

share of the caused damage. It can be argued that the main driver of the industry is a market

driven culture. Cameron & Quinn describe this type of culture well in saying that “…the core

values that dominate market-type organizations are competitiveness and productivity.” (Cameron

& Quinn, 2011, p. 39). Which is exactly what we can see within the oil industry.

The workers who experienced safety problems knew that the most important task was to

prepare the rig for drilling in order to make money. As different tests suggested a potential leak,

the workers knew that the company does not want any further delay and that it may turn out to be

ok and even if something happens in a couple of years, the fines were low compared to the

return. That overall direction influenced all levels of operation and the political and regulatory

environment supported these risk taking exercises which were mainly focusing on profits and not

on safety.
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BP’s Decision and Safety Culture

Within this culture Mr. John Browne, who was known for being very strict and relentless

cost cutting manager, created a work environment where decisions were made under weighting

risks for profits on a very rational base. This led to an overall review and change in all divisions

and rules. Especially safety standards and project feasibility decisions were mainly affected. By

this Browne achieved historical revenue and processes but increased the number of accidents,

law suits and overall wellbeing of their employees. He created as similar market (market-driven)

culture that has the basic underlying assumption for management to drive the organization

toward productivity. (Cameron & Quinn, 2011, p. 40) There is no doubt about the financial

success of the company in the following years but with aggressively squeezing expenses in order

to boost profits, safety issues happened more often. “In March 2005, a fire at BP’s largest oil

refinery in Texas caused 15 deaths and 180 injuries. The refinery had a history of neglected

maintenance and budget cuts” (Roberto, 2011) An investigation managed by James Baker,

Secretary of State at the time, was looking into the safety culture of BP. “The report described a

lack of operating discipline, toleration of serious deviations from safe operating practices and

apparent complacency toward serious process-safety risks” (Roberto, 2011). The cost cutting and

the decentralization of the company caused severe misinterpretations about the safety standards

in place which urgently needed to be improved.

In 2005, a BP oil rig in the Gulf of Mexico almost sank during Hurricane Dennis. Instead

of carefully looking over the stability and safety standards on the oil rig, BP blamed the near

catastrophe on human failure. Another incident happened in 2006 when a BP pipeline caused the

largest spill on Alaska’s North Slope. Additionally, the OSHA “proposed a $2.4 million fine

against BP based on safety violations discovered at a Toledo, Ohio refinery” (Roberto, 2011) An
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OSHA spokesman said that it is frustrating seeing BP not learning from its own mistakes and

that the company is still not putting regulations in place to secure their worker’s safety.

After several years, Mr. Tony Hayward took office and strengthen this mindset even

further. As Schein said, one of a leader’s strongest abilities is to decide what to pay attention to.

“If leaders are aware of this process, then being systematic in paying attention to certain things

becomes a powerful way of communicating a message, especially if leaders are totally consistent

in their own behavior” (Schein, 2010) Tony Hayward expressed and said what he wanted to pay

attention to but he was inconsistent in his behavior which influenced the overall operation of BP.

He wanted to make safety a major concern of the company but his action focused on profits

which became the global understanding of the decision-evaluation process.

Decision Making on the Deepwater Horizon before the Incident

With this background the decisions made on the Deepwater Horizon are still not

understandable for any outsider but derive their intentions. The Deepwater Horizon rig, owned

and operated by offshore-oil-drilling company Transocean and leased by oil company BP, was

situated in the Macondo oil prospect, 49 miles off the coast of Louisiana. The oil well over

which it was positioned was located on the seabed 4,993 feet below the surface and extended

approximately 18,000 feet into the rock. BP established a budget of $96.2 million to drill and

estimated 51 days of work. On the night of April 20 BP was not only $58 million over budget but

also a surge of natural gas blasted through a concrete core recently installed by contractor

Halliburton in order to seal the well for later use. It later emerged through documents released by

Wikileaks (Wikileaks, 2010a) that a similar incident had occurred on a BP-owned rig in the

Caspian Sea in September 2008. Both cores were likely too weak to withstand the pressure

because they were composed of a concrete mixture that used nitrogen gas to accelerate curing.
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John Guide also decides beforehand to only use six, instead of twenty-one centralizers. They

were supposed to ensure a proper cement job and stabilize the whole drilling process. Both

decisions were made under pressure. Time, as well as money pushed the management to safe

centralizers and use the unstable but cheaper concrete. After this, the normal testing procedure

was speeded up and done under insufficient circumstances to catch up time and ovoid further

costs of delay.

Once the cement could not withstand the pressure of the core, the natural gas traveled up

the Deepwater rig’s riser to the platform and inflamed. The rig capsized and sank on the morning

of April 22, rupturing the riser, through which drilling mud had been injected in order to

counteract the upward pressure of oil and natural gas. Without any opposing force, oil began to

discharge into the gulf. The volume of oil escaping the damaged well—originally estimated by

BP to be about 1,000 barrels per day—was thought by U.S. government officials to have peaked

at more than 60,000 barrels per day.

All of this can be tracked back to a series of decisions that were made under the high

influence of a group norms that values bold and risky decisions under the acceptance of potential

(human) damage. (Wikileaks, 2010b). Decisions made, display that the environment in which

BP’s employees act have joint understanding of a very objective, calculating decision making

process were losses, nevertheless if financial or human, have to be weighted and can be

negligible. (Schein, 2010, p. 14) In Addition to that, the industry culture is also partly

observable. Since all sub-contractor had the chance to stop any step within the dangerous

process, the obeyed all orders and act as they were told to. One can assume that this is also

because of a high competition and also their focus on business and understanding in group

norms.
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Conclusion: Was this disaster a BP failure or an industry accident?

The oil industry, and therefore BP too, was driven by incentives that are promoting

aggressive exploration of oil reservoirs. The fines of a couple million dollars are not high enough

to cause a change in an industry which is generating billions in profits every year. In addition to

that, the industry oversight did not have enough power to punish BP for its failure to meet safety

standards.

Specifically with the Deepwater Horizon, BP tried everything to avoid another lost

circulation. Driven by that motive, BP made some decisions which “were not with industry best

practices; however, they were within acceptable industry standards” (Roberto, 2011, p. 4) The

main corporate interest was to finally make a profit out of the Macondo well which put the

workers under a tremendous pressure to perform on a very tight time schedule.

BP’s executives knew that if they would hit the break-even, the return on investment was

way higher which kept them going. The lack of regulations made it possible for the company to

continue and to hope that everything will work out even though several tests suggested that the

process is not going well. That is the major problem, that there was no independent organization

in place which was able to effectively stop the practices due to a number of safety concerns.

Management Reactions to the Accident

First of all, it is important to no, that BP has not prepared a crisis communication plan. As

a matter of fact, the former BP CEO Tony Hayward recognized in an interview to Money

Program on BBC 2 that “BP’s contingency plans were inadequate” and that BP “was not

prepared” for the Gulf oil disaster and was “making it up day to day” in the early stages. (Nathan

A. Heller, 2012, p. 4) He also said that BP was not prepared to deal with the intense media

scrutiny over the Gulf oil disaster and that he felt he was “demonized and vilified”. This can
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especially be noted by their response in expressing concern and empathy to the accident victims

as well as other stakeholders. BP was neither quick, nor accurate and consistent in responding to

the accident; consequently, its initial response and messages generated a lot of harm to its image

and reputation. Instead they rather blamed third parties and abdicated responsibility. In a

situation like this, honesty and integrity are crucial for the way the situation is handled and

perceived. That Hayward was not prepared is one mistake but that he tried to downsize the

problem is unacceptable. Later on, BP launched a massive public relations campaign. The

company began running apologetic ads, with showing Hayward apologizing for the disaster and

taking “full responsibility for cleaning up the spill in the Gulf”. BP also launched a print ads

campaign in US newspapers like The New York Times, the Wall Street Journal, USA Today and

The Washington Post. This ads campaign was widely criticized by many stakeholders and even

by the President Barack Obama, who considered that the money should have been spent on

clean-up efforts and on compensating victims. (Daniel De Wolf & Mohamed Mejri, 2013, p. 53)

Overall, the BP initial crisis communication was mainly focused on legal concerns and resulted

in denials of responsibility, minimization of the extent of damages and lack of useful information

to stakeholders. This is another way of displaying the company’s priorities in regard to their

profits and risks.

Recommendation

As described in the analysis part, all issues follow a strict flow that starts from an

insufficient government regulation, with a wild-grown industry environment, leading to BP’s

special culture. Therefor I am going to follow the same chain of logic with my recommendations.
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Industry Recommendation

First of all, I think, that an industry environment is something that grew over a couple of

decades and is influenced by many people from every side of participants. In addition to that,

society and each local culture can accept or disregard certain actions. (Schein, 2010, p. 150)

With this in mind, government, as the executing entity of society should create further

boundaries to mineral oil companies and their projects. I should not be the case, that government

lacks the knowledge and power to control the actions and barrier the risk of catastrophes like the

Deepwater Horizon. Therefore, a financial independent organ should approve or disapprove all

actions taken by these companies. Furthermore, risks and rewards should be more evenly

distributed between society and shareholders. If companies fail to set legit safety standards, the

overseeing agency has to ensure a proper prosecution with relation to companies’ financial

situation. This means, setting penalties to such a level where applied risk management tools

account human and natural risk in the same way as the potential money loss.

Recommendation for BP

From the perspective of BP it looks obvious that there are changes that need to be made.

But similar to the potential transformation of the industry it is a long, challenging process to

transform a culture. “Change in culture,… depends on the implementation of behaviors by

individuals in the organization that reinforce the new cultural values and are consistent with

them” (Cameron & Quinn, 2011, p. 117) This means, only if the core value align with a new

understanding of how standards and norms should be applied in future a potential cultural change

will take place. In order to strengthen the safety culture, the overall corporate practices needed to

ensure that safety is a valued as high as it should be. Hayward’s first practices should show that

safety is the top priority of the company and that they would do anything in order to ensure the
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highest safety standards which are known at the time. Economic performance is important but

Hayward need to clearly express and act in a way that his employees value safety higher than

anything. They need to be encouraged to report issues and the report procedures need to be

streamlined. It is crucial that the employees feel that their reports are taken seriously because that

will create a safety culture in which everybody is taking his or her colleague accountable for

their actions. Regularly meetings would help to be aware of certain issues which then can be

taken care of.

Applied on the Macondo drilling rig, the company was stressing two points at the at this

point. First, to avoid another lost circulation event and second to finally start the oil extraction of

oil. These two points were both supporting cost cutting decisions and risky practices like the

continuing of the process despite the safety issues. The workers were trying to meet the

company’s expectation which did not focus on safety in these days.

The workers knew that the most important task was to finish the drilling process

and to make the rig ready for oil extraction. BP, Transocean, and Halliburton were all making

choices in order to save money and time which were both crucial for the company. The workers

were pushed to make risky decisions and continue even though here were safety issues because

of the corporate pressure to start the oil extraction. The workers mirrored the corporate

motivation and did take significant risk due to the circumstances which were all influencing the

operations in way explained above. This as an example should be avoided by all means.

Conclusion

A crisis facilitates always the potential to reconstruct and learn new. Since the BP wants

to stay in business and act as a global citizen, the management is asked to take responsibilities
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and initiate changes within the cooperation. Nevertheless, it is also necessary to understand the

cultural influence of an industry environment where competition is highest good and all players

aim. Furthermore, four lessons could be learned from the analysis of failures in the Deepwater

Horizon crisis communication. At first, this case study shows that as many companies, BP seems

to ignore the role of crisis communication, before, during and after the crisis. Second, and during

a crisis, Stakeholders want to feel informed, safe and connected when a crisis occurs, then, open

timely and trustworthy reporting, as well as regular dialog and communication with all

stakeholders should be insured before, during and after the crisis. Third, crisis communication

should be viewed as a proactive function rather as an only a reactive one. Fourth, as the proactive

crisis communication approach involves proactive interaction with key stakeholders and

generates solid trust and credibility, there is a big chance that such an approach will be more

effective in post-crisis stage and would help the company to better restore and repair reputational

damages.

Lessons learned

In my personal perspective I have learned two very important messages. First, regardless

of the industry understanding of certain things, there are global rules and standards that should be

applies. These rules are my personal moral and ethical standards I want to be held accountable

by. This might lead to a situation where I might be unfitted for only profit oriented a very

competitive industry but will be suited better in a well-balanced and social culture. The second

thing is, that my actions as a manager are at least as important as what I say. The concept of

being a role model was clearly shown in this examples and one could see that both CEO’s had a
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different agenda, even though Hayward claimed to focused on safety too. Besides this, the case is

a nice way of displaying a specific type of industry culture.

References

Cameron, K. S., & Quinn, R. E. (2011). Diagnosing and Changing Organizational

Culture: Based on the Competing Values Framework (Third edition). San Francisco, CA: Jossey-

Bass.

Daniel De Wolf, & Mohamed Mejri. (2013). Crisis communication failures: The BP Case

Study (International Journal of Advances in Management and Economics No. Vol. 2) (pp. 48–

56). Dunkerque, France: University of Littoral Côte d’Opale (ULCO)/Management &

Economics.

Roberto, M. (2011). BP AND THE GULF OF MEXICO OIL SPILL (Case No. W11366)

(p. 19). Richard Ivey School of Business.

Nathan A. Heller. (2012). Leadership in Crisis: An Exploration of the British Petroleum

Case (International Journal of Business and Social Science No. Vol. 3 No. 18.) (p. 12).

Stephenville, Texas, USA: Tarleton State University.

Schein, E. H. (2010). Organizational culture and leadership (4. ed). San Francisco, Calif:

Jossey-Bass.

Wikileaks. (2010a, May 6). U.S.: The Ramifications of the Deepwater Horizon Oil Spill.

Retrieved September 28, 2016, from https://wikileaks.org/gifiles/docs/13/1363911_u-s-the-

ramifications-of-the-deepwater-horizon-oil-spill-.html

Wikileaks. (2010b, November 11). Deepwater Horizon: a “culture of complacency.”

Retrieved from https://wikileaks.org/gifiles/docs/99/991379_deepwater-horizon-a-culture-of-

complacency-.html