Table of content

Executive Summary ……………………………………………………………………………...2

1.0 Introduction ……………………………………………………………………………….…3

2.0 Identification of BP’s Ethical dilemmas……………………………………………...

………3

2.1 Deepwater Horizon oil spill………………………………………………………………..3-5

2.2 Prudhoe Bay oil spill……………………………………………………………………….5-7

3.0 Evaluation of BP’s Ethical Dilemmas………………………………………………….…..7-

9

3.1 Evaluation of Deepwater Horizon……………………………………………………….…7-8

3.2 Evaluation of Prudhoe Bay oil spill…………………………………………………..……8-

9

4.0 Evaluations of BP’s Best Practices……………………………………………………...10-

12

4.1 Alternative Energy Program………………………………………………………..……10-11

4.2 Emission Reduction Program……………………………………………………………11-12

Reference

1.0 Executive Summary

The focus of this report is an audit of BP’s actions,

identifying and evaluating its ethical dilemmas. It will include

general information about the company, identification and

evaluation of ethical dilemmas based on the recent oil spills

happened in Prudhoe Bay and Deepwater Horizon.

To achieve some clarity, both dilemmas will be observed from the

different stakeholders’ perspectives. Furthermore, in the

dilemmas evaluation phase utilitarian theory will be used to

determine whether BP’s actions were ethical or unethical, using

a relatively straightforward cost-benefit analysis.

Finally, BP programs for the preserving natural environment and

scarce resources for the future generations which were launched

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after company’s realization of its unethical behavior will be

discussed in the last part.

In summarizing, it could be said that the report will shed more

perspectives on these serious issues and could help the reader

to have a better understanding on the problem as well as options

for action to solve the issue.

2.0 Introduction

British Petroleum is one of the world’s largest integrated

energy companies, operating in all activities which are

connected with the oil and gas industry, which include exploring

and producing, refining, distributing and marketing these

products to the world market. It is also heedful of the

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renewable sources of energy, for instance, wind and solar power

(BP, 2012).

Every day, BP produces almost four million,3,8 million, barrels

of crude oil and natural gas, with market capitalization of 135

billion, revenue of 386 billion, and 83 thousand employees in

2011, operating in more than 100 countries and owning 27,800

service stations (BP, 2012). All of these attest that BP is

amongst the world’s most important multinational corporations.

Business ethics is a theory of how business and society are

interconnected, being observed from two points of views.

Regarding to business, the goal of any business is to become

involved in profitable activities. Contrarily, society considers

business as a part of society and its activities should be

acceptable according to society law and will not be harmful to

society. In situations, where it could be seen that some

business activities result in profits for the company, but it

could be damageable for the community who are of special

interest to business ethics. These kinds of situations lead

business individuals to make difficult decisions, called

“business ethical dilemmas” (Ghillyer, 2008).

3.0 Identification of BP’s Ethical dilemmas

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The definition of Ethical dilemma, states that it is a situation

that happens when two or more social work morals are in

conflict. BP scandals, like the environmental pollution and the

unsafely performance conditions discovered during the Prudhoe

Bay and Deepwater Horizon oil spills. These dilemmas have

impacted on BP stakeholders.

3.1 Deepwater Horizon oil spill

The Deepwater Horizon, BP’s Drilling platform in the Gulf

Mexico, had an explosion on April 20th, 2010, which caused the

largest oil spill catastrophe in the petroleum industry history.

In the accident 11 men working in the rig were killed, and 17

others suffered injuries. More than 150 thousand barrels of

crude oil gushed into the sea, every day, for almost 5 months.

Up to 68 thousand square miles of the  Gulf's surface were

covered (Burdeau, Cain, 2010).

There were many problems that contributed to the explosion on

the rig, discovered during the investigation of the oil spill by

many non-governmental and governmental organizations that proved

BP’s unethical behavior led to the disaster. But the main

reason, in spite of the recommended decision by Halliburton,

one of the largest multinational corporations, providing

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oilfield services, was not to install an oil platform.

Nevertheless, BP continued the installation of a drilling rig,

even using the cheaper well design that some investigators

considered as “risky”.

There is no doubt that many parties were affected, directly, or

indirectly, with this environmental disaster. Everyone who works

in the seafood or tourism industries was obviously affected. The

pollution that led to the mutating and the killing the fish, put

workers at the risk of losing their jobs, subsequently,

increasing seafood prices, affecting the restaurant and

supermarkets industry, as well. Moreover, the tourism sector was

affected because people refrained from going to the beaches

covered in oil, staying away from water sports, or other fun

attractions, meaning all those involved in tourism, such as

hotels, tour operators, restaurants, boat renting companies were

affected with the oil spill (BP, 2012).

Likewise, after the blow-out in the Deepwater Horizon, the

profit figures showed disappointing results, falling to 35

percent, as the result of increased expenditures and obligations

for individual compensation and penalties, thus losing revenue.

It has damaged BP reputation and finances, losing the “faith" of

investors and stockholders (Beam, 2010).

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Moreover, besides losing investors, the company also started to

lose customers. There was a boycott campaign that started in the

social media. Thus, the Facebook society gathered more than 75

thousand users who were negative towards BP. The massive oil

spill also had the negative influence on gasoline stations,

affiliated with the oil company. For example, petrol stations in

middle Tennessee were facing boycotts from clients who were

upset with the continuous spill (Hayslip, 2010). Another owner

of a BP station in Chicago had a 20-percent fall in sales at his

filling station during the disaster (Gutierrez, 2010).

Lastly, the absence of the professional behavior by Tony

Hayward, the CEO of BP at that time, could be observed,

prejudicing the ethical behavior of BP’s social responsibility.

People could see how he was enjoying a yachting holiday during

the crisis, which created a negative image on the whole

administration of the company (BBC, 2010).

3.2 Prudhoe Bay oil spill

In late February, 2006 an explosion and subsequently oil spill

happened in Prudhoe Bay, Alaska, releasing 267 thousand gallons

(1 million liters) of crude oil in the tundra of the Alaska’s

North Slope. However, it was discovered only after 5 days. The

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disaster was the largest oil spill in the history of this

region. A pipeline corrosion problem was a cause of the rupture

and leaking of oil. The corroded pipeline was detected two years

before the catastrophe and the London headquarters were

informed, however, they did not pay enough attention to correct

the problem (National geographic, 2010).

The oil spill significantly influenced many groups and

institutions whether positively or negatively.

Firstly, gasoline consumers were extremely affected, due to the

cleaning cost which have been paid by BP, thus increasing the

price of oil, since the petroleum companies, jumped to $2.22,

closing at US$76.98 for each barrel, because of the budget

cleanup expenditures and other costs injected in their sale

prices (CNN, 2010). Besides that, the accident created a

shortage on the Alaskan gasoline market because of the closing

Prudhoe Bay oil facility, which produced, approximately, 2.6% of

the US demand for petroleum, again affecting the oil-product

users negatively.

Moreover, oil spill caused other oil-producing companies,

because additional limitations were imposed on the areas where

companies can drill, reducing the total amount of demanded oil,

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requiring additional extraction from places where work

conditions are more difficult like, oil shares. Also, there are

numerous new restrictions on oil drilling and production in the

future and new regulation in Clean Water Act, the Clean Air Act

and the Pipeline Safety Act.

This spill damaged the corporate image of British Petroleum,

impacting the shareholders, employees and its technologist. BP

shares decreased in price, almost 2 percent. BP employees and

people in the nearest communities began to report about their

health, complaining on the symptoms such as often having

headaches and chest pains, resulting from the cleanup and

released chemicals into the environment (Taylor, 2010).

Furthermore, the cleanup techniques have not been useful at

cleaning up the pollution. Moreover, BP technologists were

criticized for oversighting the corrosion problem, giving them

incentive to find better and faster way of determine and

stopping leaks in pipelines (Klein, 2010).

Next, society has become more provocative in the support of

restrictions, like stricter limitations on coal mining and

carbon tax charges. Other party includes scientists because this

incident has given greater motivation for them to discover new

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ways of cleaning an oil spill, such as bacteria that eats the

oil and to research the renewable sources of energy.

Finally, knowing that North Slope region of Alaska is home to

thousands of migratory birds, caribou, and other habitants the

spill had an enormous effect on the environment. The oil spill

covered, approximately, over two acres of snow-covered tundra

and hard-frozen lake. Only the cold conditions made it easier to

clean up the area, affected by the oil spill (Rosen, 2006).

4.0 Evaluation of BP’s Ethical Dilemmas

4.1 Evaluation of Deepwater Horizon

Next, from BP oil catastrophe, the oil spill in the Gulf of

Mexico in 2010, arises the dilemma between the saving costs by

unnecessary risk taken and meeting safety criteria in the terms

of large number of fatalities on the platform rig. I am going to

use the utilitarianism theory to determine is BP actions were

moral or immoral towards the society.

The Utilitarian theory states that an individual’s actions

should be based on moral rules, defining whether an action, is

morally relevant, or not. This theory concentrates on the

consequences that bring about the utilities and person should

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sacrifice some cost from them, in order for larger group to gain

some benefits (Ghillyer, 2008).

BP’s oil spill minimizes the benefits of others who were

affected as much as possible.

The coastal beaches and people, who were in the tourism and

fishing industries, were damaged seriously by the spill. The

accident caused not only danger to people’s health, but it cost

the business millions of dollars. The oil that covered the

marine ecosystem had a negative impact for the decades to

recover. In addition, the cleaning caused negative impacts as

well, because of the utilization of chemicals and the burning

off the oil, led to creature’s mutations and increased mortality

because of the oil and water pollution. Although of these

attempts, the damage had already been and people are still

suffering from the negative consequences that will continue for

years. Furthermore, BP has been fined because of their

negligence.

Nevertheless, the BP’s disaster has positively influenced

people’s opinions of oil use, has had people to consider about

switching the alternative energy sources because they observed

the negative consequences to the environment from the oil spill.

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Moreover, the company’s representatives attempted to repair the

damage by taking charge and providing a cleaning campaign. These

actions created benefits and many people have been beneficial

from the cleaning up activity, because the devastation of the

marine and wildlife species being reduced, the fishing and the

tourism sectors could recover faster.

Alternatively, BP could be more concern about the construction

standards of oil drilling rig. Thus, it could save money on

cleaning and other fines and invest in future projects, such as

alternative energy. Moreover, it could allow the decrease of the

oil price by supplying more oil products to the U.S. market.

This would be beneficial for the economy, due to the fact that

today many industries include petrol in the list of their

expenses. Thus, if the expenses would have been less, the cost

of the products also would have decreased. This alternative

creates only positive consequences, excluding any costs, except

the some negligible expenses for the better platform’s

construction.

In summary, according to the benefits and cost mentioned above I

one can say that the utilitarian theory suggest this BP’s action

was completely unethical because the oil spill caused only

12

harmful effects and no real benefits were provided from the

disaster.

4.2 Evaluation of Prudhoe Bay oil spill

The Alaskan Oil spill arises the dilemma, the negligence of the

company’s board of directors, together with saving money and the

unnecessary risk that seriously affected the environment. Using

the utilitarian theory to comprehend, whether it was moral or

immoral.

No utilities were provided for this oil spill, neither to BP,

nor to the society.

Firstly, because BP’s negligent actions, cost the company a

large sum of money, up to $20 million dollar fine. Secondly, it

harmful affected the environment of the Alaska’s natural

environment, home to numerous animals and birds. In the long-run

could lead to the extinction of one of the species,

disinheriting future generations of seeing the beauty of our

world. Next, BP accepted the fine suffered damages of losing

the revenue because of the stopping the operation line and large

amount of oil wasting, together with the large expenses for the

cleaning up. Furthermore, it increased oil prices that are

harmful for the society and for the county’s economy as well,

13

because oil products, such as petrol are inelastic products that

are difficult to substitute.

The benefits, described are all indirect. First of all, because

people became more concern about the consumption of renewable

sources of energy, allowing to pay more attention and investment

in research and development actions. Moreover, it required the

technologist to find better methods to determine leakage in the

pipelines, that in long-term will play a significant role in the

preventing other oil spills. Finally, owing to the spill,

society and the government have become more aware of BP’s

negligence towards the environment, employees and the security

of their assets, thus implementing new policies, restriction and

rules for the gas and oil industries that will help to avoid

many environmental and safety performance issues of BP and other

companies.

The alternative actions that BP could have implemented in this

situation, were to consider employees concerns about the

corrosion in the pipeline and to take appropriate measures to

remedy the defects in it. In this case company could avoid many

problems, such as huge fines, damaged image, unnecessary

expenses, without hurting the environment and the US petrol

14

market. These could relate to the benefits of this action. The

only cost would be the expenditures to renew the pipeline.

To sum up, renovation the pipeline in the right time could

ensure BP in the consistent profit and supply for the American

market, making BP actions unethical.

5.0 Evaluations of BP’s Best Practices

5.1 Alternative Energy Program

After the serious disaster in the gas and oil, BP tried to

recover its image. Nowadays, stakeholders are more concerned

about toxic emissions, rising gas prices and pollution that

create a very unpleasant picture of the oil industry as a whole.

Therefore, BP has chosen the campaign to focus more on global

warming and greenhouse emissions, supporting the right of future

generations for the clean environment, together with the saving

the natural scarce resources for later uses.

First, British Petroleum changed its name to BP and raising the

range of alternative energy being offered to the market. John

Browne, ex-CEO of BP proclaimed (BP, 1998) that “we are all

citizens of one world, and we must take shared responsibility

for its future and for its sustainable development.” BP has

15

become the first world global energy company to acknowledge the

problem of climate change.

Secondly, in 2005, BP launched its alternative Energy program.

The company sees itself as a “going green” by expanding its

business and becoming more profitable to do so, going beyond the

oil and gas, investing money in the biofuels, wind and solar

production sectors. For example, in biofuels, BP produces

ethanol, using the feedstock of sugar cane from Brazil. In

addition, it is developing technologies in order to use the

energy of grasses as a source of the lignocellulose ethanol (BP,

2010). For this program BP investments constitute of $8 billion

until 2015, $5 billion of which has been already invested for

acquiring a Brazilian biofuel company and another Brazilian

producer of sugar and ethanol that can produce 480 million

liters of ethanol per an average of year (BP, 2012). Moreover,

the company invested over $500 million for the past 10 years in

the Energy Bioscineces Instituted, where leading scientists find

new and more efficient ways to produce biofuels (BP, 2012). All

of these enable BP to become the leader in the production of

biofuels.

Furthermore, BP embraces wind power, which is playing a

significant role in the recovering its image, because wind power16

is clean, safe, renewable and could remove approximately one

billions tons of carbon dioxide each year. Today, BP possesses

eight wind farms that generate more than 1,200 megawatts,

providing electricity to a city with a population of 700

thousand people (BP, 2012).

5.2 Emission Reduction Program

The world consumption of natural oil and oil products increases

every year, showing a growth of 2.7% on average every year and

the production of carbon dioxide, reaching 34 billion tones in

comparison to 23 billion in 2000 (Joint Research Center, 2012).

Therefore, in 1998, BP chose the strategy for reducing the

amount of greenhouse gases emitted in to the atmosphere from its

operations over the coming ten years, regardless of the

company’s growth. By the tackling the problem of global warming,

BP has the advantage to become more ethical in relating to

society, doing its moral duty of protecting the welfare and the

environment from its own harmful gases emission regardless of

its costs.

BP support policies stress the efficiency of the production and

use of energy, because the amount of energy used can have an

effect on carbon dioxide emissions. Also, BP concentrates on the

17

support of lower-carbon, high-ponetional energy methods, such as

solar and wind energy. Finally, BP invests in technology

research and innovations that could create lower-carbon options

for the future (BP, 2011).

In 2012, BP invested $3.4 million in the Clean Air Agency for

projects directed at emission reductions in Whatcom, Skagit or

Island counties of Washington state in the U.S. (Schwarts,

2012).

In 2011, BP participated in the Australian debate on climate

change, cooperating with other government and non-government

organizations, in order to realize and impose potential policy

solutions. BP actions led to creating the clean energy

legislative package, where they shared its analysis of world

energy projections, business impacts in nations where have been

already imposed carbon prices and knowledge of renewable sources

of energy.

To sum up, after 10 years BP could manage to achieve their

intentions and decrease the production of carbon dioxide by 10%

(BP, 2009). It can reduce emissions by almost 80 million tones,

owing to, combining better technologies, with simple operation

efficiencies, such as stopping leaks and eliminating the

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unnecessary burning of natural gas. The reduction can come from

various developments, which included the use of new technology,

clean and renewable sources of energy and the elimination of

flaring. All of these testify that BP does it duties towards the

society about caring the environment and preserving it to the

future generations.

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