Deepwater Horizon Oil Rig Explosion: a Film Study

Introduction

Deepwater Horizon is a 2016 film directed by Peter Berg based on the real-life Deepwater Horizon oil rig explosion in the Gulf of Mexico which occured on April 20th 2010 killing 11 employees out of 126. It is the worst oil disaster in US history in which the blowout lasted for 87 days spilling 210 million gallons (estimation) into the ocean. This semi-submersible offshore oil drilling rig owned by private contractor, Transocean (an offshore oil drilling company) and charted out to British Petroleum (BP), was beginning to drill off the Southern Coast of Louisiana. The film depicts accurate events according to Chief Electronics Technician aboard the rig, Michael “Mike” Williams (Mark Wahlberg), whose job was overseeing the rig’s computers and electrical systems. He was one of the last workers to leave the rig, bypassing lifeboats to help save others who were still trapped. The film also centers around James “Mr Jimmy” Harrell (Kurt Russell) who is the Offshore Installation Manager, Caleb Holloway (Dylan O’ Brien) who is part of the drilling team, Andrea Fleytas (Gina Rodriguez) the Dynamic Position Operator, and BP managers Donald Vidrine (John Malkovich) and Robert Kaluza (Brad Leland). The film depicts the issues that went wrong resulting in the rig explosion and rescument of the employees. The research below details events and challenges that occurred and the reasons as to why. Many are due to having/lacking Management Competencies and Corporate Governance. The aim of this project is to analyze what went wrong as a business and why. Furthermore strategies are given to help BP plan for the future and deal with the challenges that occurred.

Current Challenges for BP

The Deepwater Horizon spilled an estimation of 210 million gallons of oil into the Gulf of Mexico making this the largest accidental ocean spill in history according to Smithsonian. A long 22-mile oil plume was reported during the spill which allowed the oil to mix with seawater and settle just below the surface. 20% of the spilled oil ended up on top of the surface and in the seafloor. This damaged deep sea corals and other ecosystems unseen at the surface which are still trying to heal. According to biologicaldiversity.org, BP is responsible for the harming/killing of 82 000 birds, 6 165 sea turtles and 25 900 marine mammals.

When the facts about how the oil spill started reached the public BP faced a bad image being created. Their customers didn’t want to be loyal to a company who didn’t care to follow the correct safety procedures for its employees and who damaged the environment and marine life so drastically. This is proven in the statistics evaluated by Experian Simmons DataStream: BP lost a noticeable number of its American customers. The percentage fell from 26.4% to 16.4% between April 26 and June 28 2010 which is a loss of 38% of their customer base in nine weeks. During the same time BP’s loyal customer base declined 56%. BP faces a challenge of trying to win back their lost customers. Losing customers was one of the factors that resulted in BP incurring a loss of $6.26 billion.

BP had to pay $61 billion for damages. This is larger than the market capitalization of the next two biggest independent U.S. oil companies ConocoPhillips and Occidental Petroleum, and more than twice the size of the biggest U.S. independent oil company Anadarko Petroleum. Costs for the damages were paid to various parties including hundreds of lawyers, 400 local governments, thousands of claimants such Transocean, and the Environmental Protection Agency (EPA) for the Clean Water Act penalties and natural resource damages. That specific payment for the EPA includes medical and cleanup costs, property damage and economic losses. An oil analyst at Oppenheimer & Co, Fadel Gheit, stated that “before the accident, BP had a market capitalization of $180 billion. The accident shaved off one-third of the market capitalization of the company. It’s a miracle that the company is still in business.”

Initially BP tried to fight the ruling of settling claimants to the Supreme Court, but they lost the case. This results in uncertainty for the company as to how much more they have to pay out over and above a first settlement claim of $18.7 billion. In 2015, five years after the spill, half the parties who filled monetary claims against BP still haven’t been paid. This means that BP could potentially be sued and have to pay out more money than planned.

BP’s stock fell by 51% in forty days on the New York Stock Exchange after the spill. It went from $60.57 billion to $29.20 billion. They had to sell up to $30 billion of assets and almost $22 billion of disposals. This resulted in the value of their company decreasing and therefore the share prices as well. BP’s total value lost is $105 billion since the day of the oil spill on 20th April 2010.

Creative Thinking and Problem Solving Strategies

The Delphi Technique can be used to help solve the problem of the large amount of oil spilt into the Gulf of Mexico which killed thousands of marine animals. BP can organize an initiative for getting experts around the world to provide input and advice on the best method to use for cleaning up the oil. As the facilitator BP can pose the initiative as a questionnaire gathering lots of information in an organized fashion. Using this strategy BP will be able to analyze each questionnaire that is done thoroughly and a decision will be made once every option is discussed and the best way forward is chosen. For example BP can start by putting physical barriers in place in the ocean trapping all the oil together and making it easier to clean it all up and not miss any.

BP’s bad image created caused a threat. They risked losing a lot of their clientele resulting in suffering a loss. This is exactly what happened. As mentioned above they lost 38% of their customer base and incurred a loss of $6.26 billion. BP can use the strategy of performing an external SWOT analysis. The threats have already been identified, therefore BP can work on ways to create opportunities for themselves. For example, they must get reporters on board for their clean up initiative to report to the public and news channels on all that BP is doing to help clean up the environmental damages. This advertisement will provide BP the opportunity to show their good deed to the public and gain back their lost customers when they see that BP is making an effort to help the situation. This strategy is important for BP to use to analyze what went wrong and what can be done to fix it.

BP had to pay $61 billion for damages. Their new goal should be to regain the money they paid out and to rebuild the value of the company for the benefit of the shareholders and customers. A Decision Tree strategy can be used because it aims at promoting rational decision making and clarifying available options and the consequences of each. Processes for the decision can be calculated and a value is reached that shows the probability of success of each option. This will help BP as their decision to help this challenge can be to improve their image. This will result in their customers returning and therefore an increase in sales. Decisions on how their image were to be improved will be placed in the Decision Tree and each option is discussed and thought about. BP must have options to improve their image in a cost effective and ethical manner, for example, advertising them saving endangered marine animals affected by the oil spill.

BP has a challenge of potentially being sued and having to pay out more money than planned because they didn’t initially pay claimants. BP must do a Pros and Cons Chart as a strategy to help with this challenge to analyze if not paying claimants will benefit them in the long run. As it stands BP have two cons: Potentially being sued and having to pay out more money than planned. More cons that they can add will be that they will lose more clientele because customers don’t want to support a business who don’t care to help those affected by the spill. The only pro would be that they would be saving money that would have been paid out. It is important for BP to perform this strategy because they will be able to analyze their decision better and can clearly see the consequences in doing so. The Cons in this chart will add up to more than the pros therefore BP will see that their decision not to initially pay claimants was a bad idea. They can then formulate a strategy that will help with this challenge, for example, apologizing to the parties affected by not receiving claimants and earning back their trust towards BP. Their sales can improve by their good initiative being advertised to the public and they can regain some of the client base they initially lost.

BP’s stock fell therefore the company’s value and share prices decreased. A Value Chain Analysis can be used to help this challenge. BP have to be very careful about where and how they spend their money due to losing so much after the spill. This strategy can be used to analyze where value is being created for them in the overall running of their business. By doing this they will be able to stop activities where no/little value is being created and therefore be saving costs they can’t afford to be spending. They can start by analyzing each activity in each sector and determine from there where value is/isn’t being created.

Management Competencies

Judgement/Decision Making

There is mud in the pipe drilled into the seabed to pump up oil. This mud is referred to as “cement” in the film because it is used to prevent gases and flammable oils from escaping and exploding onto the rig. BP managers, Vidrine and Kaluza sent away the Schlumberger crew who were meant to run a test on the mud to see if the presence and quality was strong enough for the drilling to begin (cement bond log test). This was a decision made due to the fact that BP was behind schedule 43 days and $50 million over budget. BP made the initiative to lower expenses by not doing the test, therefore getting ahead of schedule and not losing more money. As a company they are supposed to be risk oriented, but sacrificed a test that ensures the safety of their employees before performing dangerous work. If they had run the test Schlumberger would have detected that the mud was not strong enough to withhold too much pressure and the explosion could have been prevented. Vidrine and Kaluza should have evaluated their judgement on the situation before taking action as wise leaders should do to decide clearly if what they were doing was right. They should have acted with integrity, but instead acted out of selfishness. There reasoning for not doing the test was illogical and put the safety of their employees in jeopardy.

Leadership

The results of two negative tests on the drill pipe were unexplainable created a challenge aboard the rig. It showed high pressure yet no mud was leaking through the pipe onto the rig. Normally if there is high pressure it means there is a leak and mud will rise out the drill pipe. Vidrine took on the characteristics of a leader to deal with the situation and explained what he thought was wrong and what should be done. Vidrine’s solution was to do another test again, but on the kill line not the drill pipe because he says it was just a faulty sensor reading. If there is no pressure on the kill line then it proves the fact that there was a faulty sensor reading on the drill pipe. Vidrine emphasized that this solution was logical because no-one provided any other and although not everyone agreed on it he initiated the test anyways. As a leader he has to make sure things are going according to plan so if he accepted the fact that there could be another reason as to why the mud didn’t leak through meant that additional expenses would have risen in returning the Schlumberger crew, stopping the drilling operation and performing the cement bond log test. But because BP was so far behind schedule and over budget he motivated his theory and solution on the employees making them doubt themselves, therefore demoralizing them.

Analysis

No safety procedure test was done in case of an emergency. Vidrine and Kaluza should have gathered the relevant information on all their system checks. From this they could have seen how a problem could have arisen and led to challenges. Alternate plans would have been created and the necessary safety procedures practiced in case of an emergency, therefore solutions would have been preempted. This all comes to play in the aftermath of the explosion. When the mud first exploded three situations took place: Caleb Holloway screamed out to the engineers “what do we do,” an engineer told an employee to stand ready by the EDS (also known as the AMF Deadman System) to cut the pipe if necessary and Holloway rescued an employee and told them to go to the lifeboats. If Vidrine and Kaluza had enforced a safety procedure test the employees would have known what to do in the emergency.

Team Work

In the office Jimmy Harrell and the BP managers were not co-operating together because each party had a different view of the situation for sending the Schlumberger crew away without testing the cement. BP managers weren’t listening to what Harrell had to say and the point he was making about taking the safety of the employees into consideration. BP defended by saying trust the integrity of their cement job. Each party has different goals, but as a team they should all be working together to achieve the same thing. This disagreement was not expressed in a constructive way and ended up with Harrell accusing the intentions of their decision and them speaking down on Harrell as though they are right. As a team they did not find a way to work co-operatively together and a way forward was forced upon by Jimmy who was trying to look after the safety of the employees. Harrell and managers have a different viewpoint: Harrell worries about the rig and the crew who lives on it. Managers only care for the cost of the company trying to get it as high as possible

Corporate Governance and CSR

Ethics

In the office Harrell confronts the BP managers (Vidrine and Kaluza) on their unethical behaviour for sending the Schlumberger crew away without doing a cement bond log test for fear of discovering a problem that needs fixing. This would result in additional expenses to fix it and further delay. This test is permitted by the Mineral Management Service (MMS) which was not done and therefore unethical. As managers it is ethical to make sure their employees are working in a safe environment which they did not prioritise. Harrell is ensuring ethical standards are met by forcing the managers to perform a negative pressure test to determine the integrity of the cement which is important for certifying the safety of the employees. Safety was overlooked, therefore risk analysis was not thoroughly conducted which would have prepared the employees for a case of emergency.

Transparency

There is a moment in the film during the Negative Pressure test scene when none of the employees can explain why the pressure in the pipe was very high yet no mud was leaking out. This was caused by the lack of transparency. The employees didn’t have accurate facts and figures of the pipe and the quality of the mud inside it due to the fact that the BP managers sent the Schlumberger crew away before they could do the test. If it had been done the employees would have had the correct information to understand what was happening in the pipe and be able to strategize what to do next in a clear and confident manner. This lack of transparency resulted in the uncertainty of the employees yet production continued due to Vidrine’s insistence. The BP managers should have ensured the cement bond log testing was done so that they could have trusted the integrity of the results which would have lead to better decision making than what was initially done.

Adequate and Effective Control

After the fire has erupted on the rig two employees in the control room are seen trying to help each other. The one is putting the jacket on for the other and is telling him what to do (get to the lifeboats and swim away from the rig). The BP managers never had adequate and effective control due to no implemented safety evacuation procedures implemented in case of an emergency. The result of that is shown in this scene where the employees didn’t know exactly what to do in their state of shock. The managers should have ensured that all employees had a balance of knowledge and skills imperative for a safety culture by having the control they do. It was the responsibility of the managers to ensure a safety team was in place in case of an emergency to guide the evacuation. Because no control was done regarding the training of the employees and lack of knowledge given, no-one knew how to evacuate the rig. The National Commission report states that senior management did not provide control over the prevention, response and recovery of the explosion. Instead of BP ensuring a safety culture there was rather a culture of complacency through the abandonment of risk assessments.

Independence

When a rig explosion occurs there is one final pipe shut down procedure which only comes into effect when there's no electric power, hydraulic pressure and communication with the Blow Out Preventer. This is called the AMF Deadman System (referred to in the movie as the EDS) which cuts the drill pipe to prevent the oil and gases from continuing to rise. During the explosion Andrea Fleytas was in the control room and was going to press the EDS button that would disconnect the oil rig from the pipe. She possesses this quality of independence which is imperative for her job. She was willing to step aside and make the correct decision which would have stopped the gases and mud from continuing to reach the surface and ignite on the rig, however an employee stopped her by reminding her that she did not have the authority to press it. Unbeknownst to her at the time, it wouldn’t have worked because the system was faulty due to the batteries being drained and valves were wired incorrectly.

Corporate Social Responsibility (CSR)

In the BP office Vidrine admits to Harrell that their goal is to increase the company’s profit by eliminating expenses such as the cost for doing the cement bond log test. Their goal of achieving CSR was done unethically. They wanted to look after the interest of their shareholders by pleasing them by increasing the value of BP. They did this by cutting corners (therefore risking the safety of their employees) and not being honest in the integrity manner of how they were satisfying their shareholders.

Conclusion

Through the use of analyzing the actions which lead to the oil spill and explosion it can be concluded that BP’s managers did not embody the correct management competencies and characteristics of Corporate Governance. These factors are imperative for managers to have to be able to lead the business in a successful and efficient manner which was not achieved. BP is fully to blame for the Deepwater Horizon oil spill as there was a lack of, for example, unethical business practice and teamwork done through the control of their managers which lead to the explosion taking place. Their management team did not have the correct goal in mind for BP and through this caused challenges which affects BP drastically. Problem solving techniques were identified and strategies were given to help with the challenges. This movie is relevant to the content covered in Grade 12 Business Studies because it provides us a personal look into the business of the petroleum industry which is linked with our syllabus theme being petrol stations. We can see first-hand of the consequences experienced for not embodying the characteristics of a true leader/manager and embracing unethical behaviour. This is an important lesson us students need to understand as we can experience the implications of bad decision making. This film also has characters such as Vidrine and Kaluza who embody traits taught to us in the Business Studies syllabus: Management and Corporate Governance.