The Bernard P. McDonough Center -...

The Bernard P. McDonough Centerfor Leadership and Business

at Marietta College

BP and the Deepwater Horizon Spill of 2010: What Really Happened? Written by: Blakely Dye and Drew Schulte

Learning Objectives

Develop an understanding of the working relationship in the Gulf among BP, Halliburton, Transocean, and the United States government

Critically analyze the actions of each party involved and decide who was responsible

Apply the stakeholder and shareholder theory and the bad leadership theory to the oil spill (See Exhibit Seven on page eight)

OverviewThe Deepwater Horizon spill (also known as the Macondo blowout) in 2010 is considered one of the biggest environmental disasters in history. The rig exploded on April 20, 2010 which led to three months of oil spilling into the Gulf of Mexico. The explosion killed 11 men working on the rig and injured 17 others.1 On July 15, the leak was capped after releasing over 4.9 million barrels of crude oil.2 On September 19, the federal government declared the well “effectively dead.”3

The oil spill affected wildlife, local fisheries, and tourism. According to some figures, over 180 sea turtles, 4 dolphins, and 2,500 birds have been found dead.4 Although this number may seem small, federal officials say that the full environmental impact may not be observed for another few years.5 Even worse, local fisheries in the Gulf also experienced significant restrictions on the areas in which they could fish or catch shrimp, causing them to lose business. The National Oceanic and Atmospheric Administration said it had closed nearly 46,000 square miles, or about 19 percent of federal waters, in May of 2010.6

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Exhibit One: Annual Tourism & Fishing Revenue” Economic Activity by County

Final report. (2011 January 11). National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Retrieved fromhttp://www.oilspillcommission.gov/sites/default/files/documents/FinalReportChapter4.pdf.

Actors Involved and their Stakes BP worked in the Gulf with Halliburton, the world’s second largest oilfield services corporation, and Transocean, one of the world’s largest offshore drilling contractors. In the Gulf, Transocean owned the rig, BP owned the well, and Halliburton worked on the construction of both.7 Overall, these companies have a history of inadequate and ineffective communication among each other. The United States government also provided oversight of the drilling.

Transocean: Company SummaryTransocean is a contracting firm that constructs and operates oil rigs. Founded in 1919 in Louisiana under the name of Danciger Oil & Refining Company, it purchased its first rig during same year. It continued to grow in the early 20th century by collaborating with partners in the industry to develop and foster a competitive industry for crude oil drilling. Transocean further advanced the industry in 1954 with its innovative creation of the jackup drilling rig. This advancement set the standard for drilling technologies across the world. In 2007, Transocean became the world’s largest off-shore driller after a merger with GlobalSantaFe.

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Transocean prides itself on its ability to manage rig operations with an unrivaled commitment to safe and cooperative operations between extracting partners. This statement is expanded upon in Transocean’s Vision and Core values.

Exhibit Two: Transocean Vision and Core Values

Our VisionTransocean will be universally recognized for innovation and excellence in unlocking the world's resources.

-We will conduct our operations in an incident-free workplace, all the time, everywhere.

-We will be our customers' trusted partner and their preferred solution provider.-Our people's passion and commitment to overcoming challenges will be our

trademark.-We will deliver outstanding value to our customers, our employees, and our

shareholders.Our Core ValuesWe want to create an environment in which different cultures can interact in a positive way to create a competitive advantage, and we will be united by our commitment to our core values of Transocean FIRST, which stands for:Financial Discipline: Our decisions will be made to ensure long-term growth for the benefit of employees, customers and shareholders.Integrity and Honesty: Our actions will be conducted following the highest standard of ethics, honesty and personal integrity. This will foster and maintain trust and confidence of our employees, customers and suppliers.Respect for Employees, Customers and Suppliers: Our employees will be developed and motivated to meet the challenges ahead. Individuality and diversity will be valued and performance recognized. We will provide our customers with unsurpassed value-added service. Our relationship with suppliers will reflect respect, understanding and sound business practice.Safety: Personal safety and employee health is our greatest responsibility, followed by the protection of our environment and company property.Technical Leadership: Our competitive advantage is based on continually improving our processes and finding innovative solutions to the technical challenges in meeting the needs of our customers.

Our vision and core values. Transocean. Retrieved from http://www.deepwater.com/fw/main/Mission-Safety-Vision-Core-Values-138.html.

The Deepwater Horizon rig leased to BP was a semi-submerged rig equipped with dynamic engines to provide constant stability in deep seawater. It set ambitious standards as one of the industry’s deepest extraction rigs contracted to drill at deep sea depths of 5,000 feet.8

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Key Failures of TransoceanIt has been suggested that Transocean was responsible for the oil spill. It was, in fact, Transocean’s equipment that malfunctioned, ultimately leading to the April 20, 2010 Horizon catastrophe. Two factors related to Transocean contributed to the oil spill.

1. Transocean did not communicate with BP about the lessons learned from previous problems on the rig that foreshadowed the coming spill.

In December of 2009, the rig experienced problems when gas entered the riser on the rigs that the crew was working on. This is the same thing that occurred before the explosion that occurred four months later. Lessons learned from the December problems could have prevented future issues if Transocean had communicated more effectively.9

2. Transocean did not ensure that the blowout preventer (BOP) was functioning properly. The BOP is used to deal with extreme pressures and uncontrolled flows such as what occurred during the oil spill in 2010. Thus, the BOP prevents large-scale explosions.

There was a malfunction in the BOP that was indicted during a test of it before April of 2010.

Furthermore, in the days leading up to the explosion, operators reported to Transocean staff that shards of rubber were coming up through the drill’s shaft. The rubber was later reported to be a former asset to the BOP.10 This means that Transocean ignored signs that the BOP was not functioning fully which led to worsened conditions when the rig exploded.

Halliburton: Company Summary

Exhibit Three: Corporate Profile of Halliburton

Corporate Profile

Founded in 1919, Halliburton is one of the world’s largest providers of products and services to the energy industry. With more than 58,000 employees in approximately 80 countries, the company serves the upstream oil and gas industry throughout the lifecycle of the reservoir – from locating hydrocarbons and managing geological data, to drilling and formation evaluation, well construction and completion, and optimizing production through the life of the field.Our BusinessHalliburton consists of two divisions: Drilling and Evaluation and Completion and Production. As of December 31, 2010, these two divisions accounted for over 18 billion dollars in Revenue.

Corporate Profile. Halliburton. Retrieved from http://www.halliburton.com/AboutUs/default.aspx?pageid=2458&navid=966.

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http://www.halliburton.com/AboutUs/default.aspx?navid=969&pageid=2316



Halliburton played a crucial role in the construction and drilling processes of the Horizon rig. This premier energy developer was responsible for the complete construction of the well.Key Failures of HalliburtonHalliburton was also blamed for its flaws in construction of the well. According to studies of the well after the spill, the construction of the well was inherently flawed.

1. There was limited circulation of drilling mud through the wellbore before cementing occurred. Circulation allows for the original mud at the bottom of the well to be brought to the surface which reduces the likelihood of problems within the well. However, Halliburton circulated only 350 barrels of mud before cementing rather than 2,760 barrels which would have forced all the original mud to the surface.11

2. The rate of pumping cement down into the well was at a very low rate of 4 barrels or less per minute. Higher flows generally increase efficiency in displacing the mud out of the well. It has been suggested that Halliburton decided to exchange a lower rate of cement pumping for an increased profit since a higher rate of pumping would have increased profit loss.12

3. Halliburton pumped a limited the volume of cement that into the well. More cement in a well insures that there is less contamination in the well and a limitation on slight errors in its placement.13

4. Halliburton used nitrogen foam cement which reduced the pressure the cement would exert on the well. Before placing the cement in the well, the foam was tested and was shown to be unstable. Halliburton ignored these tests and used the foam regardless.14

5. Halliburton recognized in April of 2010, before the oil spill, that the engineering of the cement might increase the risks of instability but they ignored these risks and informed BP that it could extract oil from the well.15

BP: Company SummaryBP is a multinational company that prides itself on premier oil explorations in Persia. Since striking it big in the early 20th century, BP has grown to become one of the world’s top explorers, drillers, refiners, and researchers of oil and energy resources. BP is a global energy group headquartered in London that employs over 80,000 people and operates in over 100 countries worldwide. It is the third-largest energy company in the world.16

Exhibit Four: The BP Brand BP is progressive, responsible, innovative, and performance driven. Our logo – the Helios - symbolizes these values. Named after the Greek sun god, the Helios represents energy in its many forms. Of all the forms of

energy that make up BP and its services, perhaps the most vital is the human energy our people bring to everything we do. This is what fuels our brand.

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BP Brand. BP. Retrieved from http://www.bp.com/sectiongenericarticle.do?categoryId=9020655&contentId=7037996.

BP strives to be progressive, responsible, innovative, and performance driven. It does its best to build productive relationships with its partners and customers, aims for no accidents or harm to individuals or the environment, strives to develop new technology, and works to deliver on promises to build profit.17 However, all of these values are not equally prioritized in the company. BP manages its company with its shareholders in mind primarily meaning that it values performance the most. It is a company that is focused on the bottom-line and profits. Historically, it has been known to do everything in its power in order to maximize this profit. It has also been known for its poor communication and tendency to cut corners when it comes to fulfilling government regulations.18

BP does not have a clean record when it comes to safety issues. These safety issues go to the core of BP’s corporate culture. Many argue that the company has historically been more focused on deal-making than on safety. Other companies such as Shell Oil Company have been less aggressive on growth and more focused on their safety-management systems than BP.19 A U.S presidential commission’s report published in January of 2011 said that BP “did not adequately ensure that personnel fully considered the risks created by time and money-saving decisions.”20 For example, workers were often expected to work overtime on top of their normal schedule which often led to fatigue.21

The Deepwater Horizon spill is not the first time the government has recognized BP’s breaches of safety regulations and fined the company for the breaches. In 2005, a refinery in Texas City exploded killing 15 workers, injuring 180 people, and causing thousands of residents to remain in their homes. The U.S Chemical Safety and Hazard Investigation Board investigation placed blame on BP for the explosion citing organizational and safety deficiencies at all levels of the company. The board charged BP with a felony violation of the Clean Air Act and the Occupational Health and Safety Administration (OSHA) charged BP with the largest fine in its history ($87 million) after finding 270 previously found safety violations that had not been reported but not fixed and 439 new violations at the refinery.22

Key Failures of BP

1. BP’s management did not adequately identify or address risks created by the well design and procedures.23

2. BP did not have adequate controls in place to ensure that the blowout preventers were sound and that the drilling procedures were safe. The team made decisions without analysis of the risks involved.24

3. BP, Transocean, and Halliburton failed to communicate appropriately.25

BP did not share information with its contractors and often workers inside the company itself were unfamiliar with critical information. This led the uninformed, risky decision-making.

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4. Personnel did not fully consider risks created by time and money-saving decisions.26

There was no formal system for ensuring that money-saving decisions were equally as safe.

Exhibit Five: Examples of Decisions that Increased Risk at Macondo While Potentionally Saving Time

Exhibit Five: Examples of Decisions that Increased Risk at Macondo While Potentionally Saving Time

Final report. (2011 January 11). National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Retrieved fromhttp://www.oilspillcommission.gov/sites/default/files/documents/FinalReportChapter4.pdf.

United States GovernmentAt the time of the oil spill, the government’s regulatory agency was known as the Minerals Management Service (MMS). It was responsible for overseeing safe and responsible development of energy resources in submerged lands, subsoil, and seabed.27

Key Failures of the U.S. Government

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1. The MMS did not adequately monitor the blowout preventer (BOP).28 In 2003, the MMS decided that a remote-control shut-off switch would not

be required as a last resort against underwater spills. The MMS did not address the issues that were raised about the condition

of the BOP in the Deepwater Horizon well. 2. The MMS exempted BP from a detailed environmental analysis and instead

concluded that the spill risk in the Gulf was minimal or nonexistent. 29

The MMS did not challenge BP’s claim that there was no chance of an oil spill.

3. The MMS allowed BP to drill without a permit.30

4. The MMS was corrupt in its actions regarding BP and many other oil companies. 31

Many blame the affects of lobbying for the failure of federal oversight of oil companies.

Multiple scientists who worked for the MMS have said that they had to change their scientific findings to indicate that there were low risks of spills and that there would be no environmental impact if a spill occurred. Scientists reported that if the report concluded that the drilling would have an impact, the report would disappear and another scientist would redo the work.

5. The MMS ignored questions raised about its effectiveness. 32

Two months before the Gulf oil spill, a Representative Raul M. Grijalva of Arizona sent a letter to the agency to raise concerns about BP’s oversight of the Deepwater Horizon.33

This letter was ignored and surfaced during the investigation.

After the oil spill, the Secretary of the Interior announced that he would restructure the MMS to ensure that federal inspectors would be able to enforce laws and regulations34. The agency has since changed names to the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE). BOEMRE consists of three separate departments including the Bureau of Ocean Energy Management, the Bureau of Safety and Environmental Enforcement, and the Office of Natural Resources Revenue. Each is responsible for different aspects of regulation.

Conclusions and Leadership AnalysisThe United States Government ruled that BP was the responsible party for the oil spill. As a result, BP must lead the cleanup of the Gulf as well as pay for all the damages caused. The following questions will be used in the analysis of the case. Be prepared to discuss them.

1. Was BP the responsible party for the oil spill? Halliburton? Transocean? The United States Government?

2. How does each party exemplify the bad leadership theory and stakeholder/shareholder model?

3. Are there any other leadership models that you think may apply? 4. What were the leadership failures of each party?

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5. What kind of leadership is necessary in the future for BP, Transocean, Halliburton, and the United States government?

Exhibit Seven: Applicable Leadership Theories

Bad LeadershipBarbara Kellerman develops a theory on bad leadership and provides a

distinction between an unethical leader and an ineffective leader. An ineffective leader is one that “fails to produce the desire change.” 35 An unethical leader “fails to distinguish between right and wrong.” 36 She lists seven types of bad leaders. The first three are typical of ineffective leaders while the last four are typical of unethical leaders.

1. An incompetent leader is one who either lacks practical, academic, or emotional intelligence or is careless, dense, distracted, slothful, sloppy, or are easily undone by uncertainty and stress.” 37

2. A rigid leader is one who is “unable or unwilling to adapt to new ideas, new information, or changing times.” 38

3. An intemperate leader is one who “lacks self control.” 39 4. A callous leader is one who is uncaring or unkind. 40 5. A corrupt leader is one who lies, cheats, or steals.41 6. An insular leader minimizes or disregards the health and welfare of his or her

followers.42 7. An evil leader commits atrocities.43

Stakeholder/Shareholder modelThis model of business44 distinguishes between two different manners of management. The stakeholder model is operated for the benefit of its owners, meaning that profit is the main goal of the company. The stakeholder model is operated for the benefit individuals or groups that have an interest in or are affected by a company’s performance. It is possible for a company to use both styles of management.

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Shareholder Business owners Profit

Stakeholder Owners Employees Governments Customers Community Competitors Social Activist Groups

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Convergence of Both Models

1 Welch, W.M. & Joyner, C. (2010, May 25). Memorial service honors 11 dead oil rig workers. USA Today. Retrieved from http://www.usatoday.com/news/nation/2010-05-25-oil-spill-victims-memorial_N.htm.

2 Hoch, M. (2010, August 2). New estimate puts Gulf oil leak at 205 million gallons. PBS News Hour. Retrieved from http://www.pbs.org/newshour/rundown/2010/08/ new-estimate-puts-oil-leak-at-49-million-barrels.html.

3 Associated Press. (2010, September 10). Blown out BP oil well finally killed. WWL-TV. Retrieved from http://www.wwltv.com/news/Blown-out-BP-oil-well-finally-killed--103237684.html.

4 “110 Days of the BP spill: A timeline.” (2010, June 21). Time Magazine. Retrieved from http://www.time.com/time/interactive/0,31813,2006455,00.html.

5 Adam, D. BP oil spill: Death and devastation. (2010 May 31). The Guardian. Retrieved from http://www.guardian.co.uk/environment/2010/may/31/bp-oil-spill-death-impact.

6 Nelson, M. (2010 May 18). Gulf fishing: Oil spill to shut down 19 percent of area, more than double original closure. The Huffington Post. Retrieved from http://www.huffingtonpost.com/2010/05/18/gulf-oil-spill-to-shut-do_n_580302.html.

7 Urbina, I. (2010 June 5). In Gulf, it was unclear who was in charge of rig. The New York Times. Retrieved from http://www.nytimes.com/2010/06/06/us/

06rig.html?_r=2&pagewanted=1&sq=at%20issue%20in%20gulf&st=cse&scp=1. 8 Our history. Transocean. Retrieved from http://www.deepwater.com/fw/main/Our-History-3.html. 9 Final report. (2011 January 11). National Commission on the BP Deepwater Horizon oil spill and

offshore drilling. Retrieved from http://www.oilspillcommission.gov/sites/default/files/documents/FinalReportChapter4.pdf.

10 Transocean: BP probe self-serving and misleading. (2010 September 8). MSNNBC. Retrieved fromhttp://www.msnbc.msn.com/id/39046088/ns/us_news-environment/.

11 Final report. (2011 January 11). National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Retrieved from http://www.oilspillcommission.gov/sites/default/files/documents/FinalReportChapter4.pdf.





16 BP global: Who we are. BP. Retrieved from http://www.bp.com/subsection.do?categoryId=4&contentId=2006741.

17 Our values. BP. Retrieved from http://www.bp.com/sectiongenericarticle.do?categoryId=9002630&contentId=7005204.

18 Margolis, S. (2011 February 1). Why do companies like BP choose a culture of growth with cost-cutting rather than a culture of safety? Sheila Margolis. Retrieved from http://sheilamargolis.com/2011/02/01/why-do-companies-like-bpchoose-a-culture-of-growth-with-cost-cutting-rather-than-a-culture-of-safety/.

19 Chazan, G. (2011 February 1). BP’s safety drive faces rough road. The Wall Street Journal. Retrieved from http://online.wsj.com/article/

SB10001424052748704515904576075992850313426.html.20 Chazan, G. (2011 February 1). BP’s safety drive faces rough road. The Wall Street Journal. Retrieved from http://online.wsj.com/article/

SB10001424052748704515904576075992850313426.html.21 Chazan, G. (2011 February 1). BP’s safety drive faces rough road. The Wall Street Journal. Retrieved from http://online.wsj.com/article/

SB10001424052748704515904576075992850313426.html.22 Mauer, R. & Tinsley, A. M. (2010 May 8). Gulf oil spill: BP has a long record of legal, ethical violations.

McClatchy Newspapers. Retrieved from http://www.mcclatchydc.com/2010/05/08/93779/bp-has- a-long-record-of-legal.html.23 Final report. (2011 January 11). National Commission on the BP Deepwater Horizon Oil Spill and

Offshore Drilling. Retrieved from http://www.oilspillcommission.gov/sites/default/files/

documents/FinalReportChapter4.pdf.24 Final report. (2011 January 11). National Commission on the BP Deepwater Horizon Oil Spill and

Offshore Drilling. Retrieved from http://www.oilspillcommission.gov/sites/default/files/documents/FinalReportChapter4.pdf.



27 Who is BOEMRE. Bureau of Ocean Energy Management, Regulation, and Enforcement. Retrieved from http://www.boemre.gov/aboutBOEMRE/.

28 Urbina, I. (2010, May 13). U.S. said to allow drilling without needed permits. The New York Times. Retrieved from http://www.nytimes.com/2010/05/14/us/14agency.html.





33 Dunham, R.S. & Powell, S. (2010, May 8). Washington Bureau. Retrieved from http://www.chron.com/disp/story.mpl/business/deepwaterhorizon/6996736.html.

34 Salazar, Ken. (2010 May 19). Order 3299. The Secretary of the Interior Washington. Retrieved from http://www.doi.gov/deepwaterhorizon/loader.cfm?csModule=security/getfile&PageID=32475.

35 Kellerman, B. (2004). Bad leadership: What it is, how it happens, why it matters. Boston, MA: Harvard Business Press. p.33.









44 Gomez-Mejia L. R., Balkin, D. B., & Cardy, R. L. (2008). Management: People, performance, change (3rd ed.). New York, NY: McGraw-Hill Companies.

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