978-0470639948 Cases Barnard

Unlock access to all the studying documents.

View Full Document

BP and the Gulf of Mexico Oil Spill

By Mark Barnard

Mark Barnard is an Associate Professor of Management in the School of Business at

Edgewood College in Madison, Wisconsin. His research interests include employment

relationships, organizational behavior, and strategic management.

I. Case Synopsis / Case Overview

This case presents the events leading up to, and following, the blowout of BP’s Deepwater

Horizon well in the Gulf of Mexico. Background information is provided about BP’s history and

its environmental, social responsibility and safety record. The deepwater drilling process is

explained along with federal laws governing offshore drilling. The role and responsibilities of

BP (majority owner of the well), Transocean (owner and operator of the drilling rig), and

Halliburton (cement contractor) are explored. Details of the events leading up to the disaster,

attempts to seal the well, cleanup efforts, economic and environmental impacts, and costs of the

disaster are included. Preliminary findings of several investigations surrounding the disaster are

briefly summarized.

II. Pre-case or Follow-up Activities

Additional resources such as testimony of events, investigative reports, press releases, timelines,

videos, graphics, and photos, are included at the end of the teaching note. Instructors and

students can use the additional material for further research concerning the disaster.

III. Learning Objectives

After studying and discussing this case, students will be able to

Evaluate the complexity of ethical decision making in a high stress environment.

Identify actions a company can take to create an environment in which ethical decision

making is encouraged and facilitated.

Analyze and explain the tension between managers’ fiduciary responsibilities to earn as much

money as legally possible for stockholders and additional spending required to decrease risk

and improve safety.

Recommend approaches for creating, managing and enforcing an ethical decision making

environment when multiple organizations work together.

Recognize the complexity of profiting from a company’s unethical but legal actions.

IV. Timeline Outline / Classroom Management (Outline for a 75 minute class)

Ask students to briefly summarize the main events/facts in the case. [5 minutes]

Facilitate student discussion/debate about which company had primary responsibility for the

well blowout and ensuing events (Question 1). Summarize the main points of the arguments.

(Prior to class, the instructor can assign two groups of 3 to 4 students to come to class

prepared to debate this issue.) [15 minutes]

Guide student discussion regarding questions 2, 3 and 4. Summarize the main points to the

discussion. [30 minutes]

Organize and facilitate debate among students about whether BP should profit from the well

after it is reopened or sold (Question 5). Summarize the main points of the arguments.

(Prior to class, the instructor can assign two groups of 3 to 4 students to come to class

prepared to debate the pros and cons regarding BP’s profiting from the well.) [15 minutes]

Update class on the latest news and results of investigative bodies. (See the list of additional

resources at the end of the teaching note.) [5 minutes]

Have students summarize key lessons learned. [5 minutes]

V. Discussion Questions and Answers

The questions at the end of the case ask students to identify the ethical and unethical actions and

behaviors of the companies involved with the well and determine which company bears primary

responsibility for the blowout and ensuing events; how ethical decisions can best be encouraged

in situations where multiple companies are working together on a project; the steps companies

can take to help employees make ethical decisions when faced with cost and/or time pressures;

managers’ fiduciary responsibilities to earn a high rate of return vs. the costs of reducing risks;

and whether BP should profit from selling or extracting oil from the well.

1. Identify the ethical and unethical actions and behaviors of BP, Transocean, and

Halliburton. Based on your analysis, which company bears primary responsibility for

the well blowout and ensuing events. [15 minutes]

Before answering the question of which company bears responsibility for the well blowout,

BP’s responsibilities included:

Geological assessment, engineering design, and regulatory approvals required for

construction and operation of the well.

Transocean’s responsibilities included:

Leasing and maintaining the Deepwater Horizon drilling rig.

Halliburton’s responsibilities included:

All cement work carried out, including the cementing that was done when closing down the

well.

In addition to understanding each company’s responsibilities, students should also identify the

BP’s actions before and after the explosion:

Used a long string casing liner in the well instead of a liner tieback casing.

Installed six centralizers to hold the well casing in place instead of 21 centralizers

recommended by Halliburton.

Reduced the mud circulation process, which was used to check for gas leaks, to only 30

minutes instead of the 6 to 12 hours required to fully circulate the mud.

Donald Vidrine, BP’s top ranking manager on the rig, demanded that a second negative

pressure test be conducted because of the unacceptable results of the first test.

Vidrine discussed the negative pressure test results with his superior at BP’s Houston office.

During the final activities to close the well, no actions were taken when mud control events

occurred indicating that gas might be entering the well.

Sent more than 30 vessels to the area around the well to skim oil from the ocean’s surface.

Under pressure from the U.S. government, created a $20 billion escrow fund to pay damage

claims and government penalties.

Transocean’s actions before and after the explosion:

Jim Harrell, Transocean’s rig manager, raised concerns about whether sufficient precautions

had been taken to ensure no gas was escaping into the well.

During the final activities to close the well, no actions were taken by Transocean employees

when mud control events occurred indicating that gas might be entering the well.

BP placed partial blame on Transocean for the well’s blowout.

Halliburton’s actions before and after the explosion:

Job log initially indicated concerns that a long string casing would prevent a successful

cement job. After further testing was done, job log later indicated that it was possible to

obtain a successful cement job and fulfill MMS regulations.

Long string casing was cemented into place.

Placed cement plug at the bottom of the well. Tests indicated that no gas was leaking into the

well.

2. In a situation where multiple companies are working together

(contractor/subcontractors) what would be the best approach to ensure that ethical

decision making takes place? [10 minutes]

In determining how to ensure better ethical decision making when multiple companies are

working together, students should consider:

BP’s investigation that identified failure of “team interfaces” as one reason for the disaster.

Approximately ten companies were involved in various capacities related to the well’s

drilling and operations.

Possible actions:

BP should clearly communicate their ethical standards to each subcontractor and provide

employees with thorough training in ethical decision making practices expected by BP.

A clear process/procedure should have been in place for employees to know who to go to

with ethical concerns or questions.

3. What steps can a company take to make sure that an employee will make the best

decision possible in situations where delays are costly or pressure from other employees,

executives, or partners to continue working can be intense? [10 minutes]

Points from the case students should consider:

Drilling stoppages would cost BP $1 million or more per day and increase the costs of other

companies involved in the drilling process.

High levels of pressure could be exerted on an employee raising a safety issue and alternate

explanations provided that could undermine the employee’s concern.

An ‘expert’ may misinterpret test results that result in improper decisions being made yet

would not be challenged by a less experienced or lower ranking employee.

Decisions may need to be made with incomplete information.

Possible actions:

Provide extensive ethical training to all employees involved in the well or drilling process,

including land-based managers.

Train higher level executives/managers to support any employee’s concern regarding risk or

safety issues and immediately authorize a pause in the work process for further review.

Create a clear decision-making process for employees to follow when questions arise as to

the best course of action.

4. How can a company’s executives balance their fiduciary responsibilities to earn as high a

rate of return as legally possible against the need to use more costly materials or

processes that, while not legally required, may potentially reduce risks? [10 minutes]

First, discuss the fiduciary responsibilities of a corporation’s executives to provide as large a

financial return as legally possible to the company’s owners (stockholders). Students can also

discuss BP’s responsibilities to a broader range of stakeholders (employees, partners, service

Identify the shortcuts and less expensive materials or processes used. Calculate the added costs

to BP of increasing safety and reducing risks by using more costly materials/supplies and taking

additional time to ensure safe practices and decrease the risk of a well blowout. (BP would

accrue charges of approximately $1 million per day for suspending drilling operations.)

Conducting a final cement bond test (a few hours) plus contractor costs/fees.

Using additional centralizers (cost unknown).

Consider the ultimate costs of the mistakes:

Loss of 11 lives

Up to $60 billion in costs

5. Should BP reopen the well or sell the well? Would it be ethical for BP to profit either by

extracting and processing oil from the well or by selling the well to another company?

[15 minutes]

There are proven gas and oil reserves in the well drilled by the Deepwater Horizon. (It is

Students can discuss whether they think it would be better for BP to sell the well or extract

the oil and gas itself. One might argue that BP could still tap into the well, extract the oil and

Next, students can discuss whether BP should profit from either option or use the revenue to

VI. Other References and Resources

Investigative Committees:

Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), U.S.

Department of the Interior. Includes government documents related to the BP/Deepwater

that have been cleared for public release. http://www.boemre.gov/deepwaterreadingroom/

National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling.

Includes press releases, videos of meetings, reports and related documents.

http://www.oilspillcommission.gov

U.S. House of Representatives Committee on Energy and Commerce. Includes testimony,

videos, reports and related documents. Go to http://energycommerce.house.gov and search

“BP.”

U.S. Geological Survey Freedom of Information Act (FOIA) Electronic Reading Room.

http://www.usgs.gov/foia/

Company Websites:

BP. http://www.bp.com

Transocean. http://www.deepwater.com

Halliburton. http://www.halliburton.com

News Sources:

CNN website for the Gulf Disaster. Includes stories, graphics, interactive maps, photos,

videos, data. http://www.cnn.com/SPECIALS/2010/gulf.coast.oil.spill/

New York Times website for the Gulf Disaster.

http://topics.nytimes.com/top/reference/timestopics/subjects/o/oil_spills/gulf_of_mexico_201

0/index.html

Newsweek website for the Gulf Disaster.

http://www.newsweek.com/tag/gulf-of-mexico.html

Videos:

BP’s Deepwater Horizon Accident Investigation Report.

http://bp.concerts.com/gom/deepwater_horizon_report_long.htm

Growth of the number of oil rigs in the Gulf from 1942 to 2005.

http://www.youtube.com/watch?v=bh_wNVUx9SI

Other Resources:

Glossary of terms.

http://news.blogs.cnn.com/2010/05/25/gulf-coast-oil-spill-demystified-a-glossary/

Graphic illustrating what BP says went wrong.

http://sciblogs.co.nz/visibly-shaken/2010/05/31/what-actually-went-wrong-on-deepwater-hor

izon/

Map: Impact of the oil disaster.

http://www.cnn.com/SPECIALS/2010/ gulf .coast.oil.spill/interactive/map.impact.google/inde

x.html

Timeline of events. https://spreadsheets.google.com/ccc?

key=0AonYZs4MzlZbdG5Yc2NVa2ZhM29PNElBVTlEZG9NNWc&hl=en#gid=0

Timeline of the disaster and aftermath.

http://www.cnn.com/2010/US/05/03/timeline.gulf.spill/index.html