Question

BP: Safety First or Profits First?

On April 20, 2010, the Deepwater Horizon, a drilling rig operating in the Gulf of Mexico, exploded, killing 11 workers and injuring another 17. Investigators determined that the likely cause was a column of methane gas that rose through the borehole under extremely high pressure, expanded on reaching the surface, and then ignited, with catastrophic consequences. After burning for 36 hours, the rig collapsed and sank into the Gulf. It triggered one of the worst environmental disasters in recent U.S. history, devastated the tourism and fishing industries throughout the Gulf Coast, and raised serious questions about the efficacy of government regulation and the safety of deepwater drilling.

The Deepwater Horizon was owned and operated by Swiss-headquartered Transocean. Under contract to BP, it was in the final stages of completing an exploratory well in mile-deep water in the Macondo Prospect. Halliburton, an experienced oil well service company, had just finished cementing in the well. Later testimony indicated that the rig technicians had failed to react to a buildup of gas pressures in the well; they also ignored a critical test of the cement job itself. A few days after the explosion, Coast Guard officials noticed that oil was leaking from the drill site. Initial estimates provided by BP officials were 1,000 barrels a day; over time the estimate progressively rose to between 35,000 and 60,000 barrels per day. In total, about 5 million barrels of oil leaked into the Gulf before BP finally capped the well after 87 days on July 15.

Although officials of BP, Transocean, and Halliburton found fault with each other’s performance—and independent investigations indicated that all three made mistakes—ultimate responsibility lay with BP, as owner of the Macondo well. Investigators uncovered a series of decisions by BP officials that—at least in hindsight—suggested that the company was more worried about controlling costs than promoting safety. The Macondo project was $58 million over budget and six weeks behind schedule, and internal memos indicated that BP managers on the rig were under increasing pressure to complete the project quickly. The National Commission on the BP Deepwater Oil Spill and Offshore Drilling, a group of independent experts selected by President Barack Obama, concluded that “systematic failures in risk management…place in doubt the safety culture of the entire industry” (report at p. vii).

Unfortunately, the Deepwater Horizon tragedy was not the first time that BP’s commitment to safety was called into question. BP’s Texas City refinery suffered a fire in 2004; in 2005 a deadly explosion at the same plant killed 15 individuals and injured 170 workers. A U.S. Department of Energy study cited deficiencies in the safety culture at BP as the root cause of the incident. The Occupational Safety and Health Administration (OSHA) fined BP $87 million after conducting a safety audit of the refinery in 2009, despite BP’s claim that they had spent $1 billion improving the refinery. OSHA inspectors discovered problems with pressure-relief values during a 2006 inspection at BP’s refinery in Toledo, Ohio, that the company jointly owned with Husky Oil. When OSHA returned to the Toledo facility in 2009, its inspectors determined that BP had replaced the problem valves that OSHA had cited in the 2006 inspection, but not other valves that suffered from the same problem. BP’s safety performance at Prudhoe Bay in the Alaskan North Slope field has also raised concerns. In 2006, over 5,000 barrels of oil leaked from corroded pipelines there in two separate incidents; the leakage was attributed to poor maintenance and inadequate inspections. In 2011, BP agreed to settle a civil lawsuit over these spills for $25 million, after having previously paid a $20 million fine for violating the Clean Water Act.

To address these concerns, the BP Board of Directors replaced CEO John Browne with Tony Hayward in May 2007. Hayward was often quoted as saying he had two primary challenges, to cut costs and to improve the company’s safety record, both of which were below industry standards. However, BP continued to have problems. The Macondo spill was preceded by a small spill at its Atlantis platform in the Gulf of Mexico in 2008. The spill—only 193 barrels—was caused by a rupture in a piece of steel tubing, which was connected to a defective pump, which the company had chosen not to repair to control costs. Company executives praised employees for the lean operations at the Atlantis operation—4 percent below budget—instead of criticizing them for the spill. Its North Slope operations also continued to experience problems. In September 2008, two segments of pipe flew 900 feet after a high-pressure natural gas pipeline ruptured. That pipeline had not been inspected for more than a decade. A two-foot gash in an oil pipeline in November 2009 resulted in a 1,000 barrel-spill of oil, gas, and water, damaging the tundra. Poor or deferred maintenance again appears to be the culprit.

BP’s commitment to safety was further called into question when it suspended Phil Dziubinski, BP’s ethics and compliance officer in Alaska—a position the company created as part of its renewed commitment to safety—the day after the Macondo well exploded. The company claimed the action was part of a corporate reorganization in which 200 of its professional staff were let go. Dziubinski believes he was drummed out of the company for pushing safety issues too aggressively. He was particularly concerned that the company’s heavy use of overtime was endangering safety because of worker fatigue. Dziubinski filed suit against BP for wrongful dismissal. The case was later settled out of court.

Despite its safety performance, BP executives continue to assert that “BP’s absolute No. 1 priority is safe and reliable operations.”

Case Questions:

1-BP replaced the deficient pressure-relief valves identified by OSHA during a 2006 inspection of its Toledo refinery. It did not replace valves suffering similar problems that OSHA inspectors did not identify. Was such a decision legal? Was such a decision ethical?

2-What would you have done if you were the manager of the Toledo refinery?

3-Suppose you (the manager of the Toledo refinery) had just received a memo from corporate headquarters that your plant operating costs were over budget. Would that affect your answer?

4-Should BP put safety first or profits first?

5-Some critics have argued that BP’s commitment to safety was inadequate, despite the company’s statements to the contrary. Suppose that critics were correct. If you were the new CEO of BP and were genuinely committed to improving safety, what steps would you take to do improve BP’s safety culture?

Answer 1

1. BP replaced the deficient pressure-relief valves identified by OSHA during a 2006 inspection of its Toledo refinery. It did not replace valves suffering similar problems that OSHA inspectors did not identify. Such a decision was legal as legally there was no compulsion on them to verify the whole system . But ethically since it was a safety issue impacting human lives and property they should have checked each and every valve and if found defective should have replaced them . Auditors of OSHA only do sample checking and practically they can not check each and every part of the system . The onus is on the BP to check every thing and replace every defective part to prevent any unsafe incident or to prevent accident .

2. If I were the manager of Toledo refinery I would have definately gone out of the way if required to change all the defective valves.

3. If I will review a Memo from corporate headquarters that my plant operating costs were over budget even then I will go out of the way to get the defective valves replaced . I will definately review the operating cost of the plant and see where we are over . Will find out along with team the reasons why we are over and will take actions to bring back the operating cost within budget . For replacing all defective valves if we can forego some of the expences which may not be essential that year we can forego them. But the exercise will be thorough . I will go for a re audit of the refinery myself through my safety team and see why we could not identify those valves . We will identify if there are other safety issues.

4. BP should put safety first and profit second because one accident can erode profits of generations.

5. I will reconstitute a safety commitee and will ensure one member of every department is a part of the team . Along with this one member from every operational area will be a part of the safety commitee. This committee will conduct a safety tour of the whole refinery . The safety committee will be subdivided into groups comprising of 2 or 3 members . Each sub group will be assigned an area of the refinery to conduct safety tour . By the end of the day each sub group will submit a report all unsafe operations happening inside the refinery. The report will be compiled by the safety head . There will be a formal meeting chaired by me . Where all unsafe operations will be discussed and deadlines will be set for the jobs to be done to make sure that unsafe operations are mitigated or are made safe. Again next month there will be a tour where along with auditing the completion of jobs required for mitigating or making safe the unsafe operations reported in last tour and subsequently discussed in the meeting . Along with this the subgroups will also identify if there are any other unsafe operations in their area.

The other action I will take is that anybody in the refinery can any time report any unsafe incident to me directly . We will also place placards and sign boards at all essential areas where safety first will be prioritised.