British Petroleum Company After Deepwater Horizon Disaster Case Study

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Updated: Feb 15th, 2024

Transocean was an oil industry support company that dealt with deepwater drilling tools. When this company experienced the Deepwater Horizon disaster, it was realized that its risk management strategy was very weak. Usually, the gas levels could not have prevented the alarm system from going off. Nonetheless, the alarms were put out of action to prevent the bogus ones from disturbing people while sleeping. However, the emergency alarm that went out on the night of April 20 was apparently a true alarm.

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This disaster was named the largest marine oil spill in the U.S. as of 2010. Many analysts were surprised how such a disaster could have taken place, specifically involving a big company like BP, which ought to have effective risk management strategies.

In an attempt to close Macondo, there are a number of decisions that were arrived at, each made up of numerous trade-offs of time and multiple stakeholders, safety, money, time, and risk mitigation. These issues attracted a lot of debate, with many asking whether the management and the operational problems were tackled and whether these issues affected most of the companies in the oil industry, or existed only within BP.

The company formed a number of task forces to tackle these issues and to find out the main cause of the disaster. The task force also aimed at establishing the players that were responsible for the disaster. The performance of BP started experiencing problems in 1987 when the government sold its final 31% share. As more new private companies joined BP, its performance continued to deteriorate.

The poor performance finally exposed the company to near bankruptcy, which made it important for the company to commence serious cost-cutting strategies. With a smooth portfolio of activities and streamlined workforce, the company’s CEO started to execute an antagonistic growth approach in 2000. Besides focusing on growth, the company also started redrawing its positioning strategy; and by 2001, it had introduced its ‘Beyond Petroleum’ tagline.

At the same time, the company changed its name to ‘BP’. This campaign, which was associated with green, linked BP with environmental conservation. The search for the real cause of the Deepwater Horizon Disaster commenced in early 2011 and greatly engaged different parties involved in the Macondo well project – this was a very open exercise. The conditions that made the well to blow out may have been contributed by the three main conclusions that caused the Macondo well to close.

The newly appointed executive, Hayward, opened his term with a speech that put a lot of emphasis on taking safety issues rather than focusing only on growth and production targets. He also brought in the idea of reducing the levels of management and desired to transform the company’s culture to reduce risk exposure.

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Hayward thought that there were too many decision-makers, causing too much caution. The efforts that Hayward made to reduce the company’s exposure to risk within a short period changed the company from a small-sized, government-sponsored company to one of the largest privately-owned oil companies in the world. In fact, a month before the Deepwater Horizon disaster occurred, the company was listed on the London Stock Exchange.

Organizational Strategy

In the late 1980s, BP was composed of a number of management layers, which were organized in a matrix structure that prevented quick decision making. In 1989, Robert Horton, who was the CEO from 1989 introduced a cost-cutting strategy, which aimed at reducing annual expenses by $750 million. To achieve this, the CEO trimmed off several layers of management and reduced the employees at the headquarters by 80. This strategy was also intended to augment the decision-making by the managers, therefore, enhancing the speed of doing business in general.

Horton also turned the departments’ hierarchical structures into flexible and smaller teams, which were responsible for ensuring open lines of communication. Also, Horton relocated decision-making powers away from the central center to downstream and upstream departments. This structure was known as ‘asset federation’, which was afterward adopted in the whole company.

However, the structure had some problems because each site managers were responsible for their ‘asset’ independently and benefited directly from its performance, thereby, making it hard to share best practices on risk management among different sites. In addition, the centralized body was disadvantageous because it had little failure notice over the performance setting targets, especially in a field whereby safety and risk management were critical to the achievement of lasting success.

Decisions

The decisions that arrived prior to the explosion on the deepwater horizon are questioned by the investigating committee. Even with the warnings from BP’s contractors and employees, the conclusions still go against industry rules. BP appears to economize on time and cost and making less effort to hold increasing risks, by choosing dangerous measures frequently. This forced them to employ a shortcut to speed up finishing off well. Nevertheless, there are five vital decisions agreed by the BP committee highly criticized.

They include, first, the failure to secure the wellhead with a lockdown sleeve before allowing pressure on the seal from below. The second was a failure to run a cement bond log to evaluate the effectiveness of the cement job. The third was the decision to use a good design with few barriers to gas flow. The fifth was a failure to circulate potentially gas-bearing, drilling mud out of the well.

Conclusion

The search for the real cause of the Deepwater Horizon Disaster commenced in early 2011 and greatly engaged different parties involved in the Macondo well project – this was a very open exercise. The conditions that made the well to blow out may have been contributed by the three main conclusions that caused the Macondo well to close. These conclusions include numbers of centralizers used, failure to use cement bond log, and well casing. Despite the final cause being found, there are other conditions worth examining. These include the culture and organizational architecture of BP and its contractors, and the deepwater horizon.

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The outcome was a result of various things, such as earlier decisions on how best to structure incentive systems, and how to convey hazardous model results, and each of the three decisions discussed earlier on. All through the process of decision making, caution over cost was advocated by some actors for fitting troubles even when it is not convenient. Nevertheless, proof from the court, which points out the three main decisions came down on the side of cost reduction and expediency over caution.

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IvyPanda. 2024. "British Petroleum Company After Deepwater Horizon Disaster." February 15, 2024. https://ivypanda.com/essays/british-petroleum-company-after-deepwater-horizon-disaster/.

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