Deepwater Horizon Oil Spill

The compromise of safety

Sanchez, Eduardo Javier

4/13/2012

Table of contents

Abstract....................................................................................................................................2

Introduction..............................................................................................................................2

Background Information.....................................................................................................3-4

Method of analysis...................................................................................................................4

A skewed cost/benefit analysis.............................................................................................4-5

Proper Cost/Benefit Analysis..............................................................................................5-6

The Whistleblowers approach.............................................................................................6-7

Engineering Decisions.............................................................................................................7

Results.......................................................................................................................................7

Recommendations....................................................................................................................8

Sources……………………………………………………………………………………......9

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The Deep-water Horizon Oil Spill

Abstract

The Deep-water Horizon oil spill is an example of a flawed cost benefit analysis. The

project was running a few weeks late, and instead of implementing the necessary tests and

analysis, the company adopted risky procedures to save time and money. These decisions

were made against the advice of the staff and contractors. These risky procedures included

cement placement error and lack of evaluation after the cement placement. These decisions

violated the engineering codes of ethics. Encouraging engineers and workers to speak up and

fight against such rash decisions can prevent similar incidents in the future.

Introduction

An engineer is hired by a company to design and make decisions on products based

on certain criteria. One of the most important criteria is the safety of the public. With the

safety of the public in mind, an engineer has control of his decisions that can ultimately

affect everyone that uses the product. Cost benefit analysis is a very important tool that any

company will use to optimize profits by calculating and comparing cost of a project to

determine whether or not it’s a good investment and if the benefits outweigh the costs. With

profits in mind, it can be assumed that this method can easily be misconstrued into a

dangerous tool to maximize profits which violates the engineering codes of ethics. BP’s

unethical decisions to “adopt riskier procedures to save time and money” [1] are ultimately

what caused this disaster to happen.

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Background Information

The Deep-water Horizon was an offshore drilling unit that was owned by Transocean.

At the time of the incident it was under lease to BP until September 2013. Due to the fast

paced development of this rig, costs were cut and that resulted in bad safety standards and

low quality work.

There were several problems which ultimately led to the explosion. For one, there

was a problem with the cement placement procedure and the blowout preventer. The blowout

preventer failed to engage due to a number of problems. A leak was found in the hydraulic

system that provides power to the shear rams. The underwater control was also installed in

the wrong place. Another big problem was that Transocean’s schematic drawings did not

correspond to the structure that was on the ocean bottom. Due to the faulty placement, it

seems that the explosion severed the communications line between the rig and the preventer

control so it led to miscommunication to engage. These problems led to the death of eleven of

the workers as well as seventeen injured and billions of dollars in damage to the Gulf of

Mexico. The damage that was caused by this incident is known as the biggest oil disaster

since Exxon’s Valdez oil spill.

The explosion killed eleven men and injured seventeen more before disappearing to

the bottom of the Gulf. More than 4.9 million barrels of crude oil leaked into the Gulf which

amounted to about 53,000 barrels a day. The daily flow rate diminished but plenty of crude

oil escaped before the oil well was finally capped on July 15th and the federal government

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finally declared the well “effectively dead” on September 19th, 2010. Extensive damage was

made to marine life, wildlife habitats, fishing and tourism in which BP set up a $20 billion

fund to compensate the victims of the oil spill. Up to July 2011, a total of $4.7 billion has

been paid in compensation but estimates done by the company to assess the damage has

brought the total up to $ 40 billion and is still rising. Recently financial world’s Raymond

Ray analyst Pavel Molchanov said “we think that this is too low” [9] as he infers that the $40

billion price tag should is not enough and that $63 billion reflects the damages better.

Method of analysis

There are many routes one can take when trying to establish an accepted ethical

analysis. Injuries, deaths, and damages to the environment show unprecedented disaster

brought by the negligence of the BP executives. In order to try and narrow down such issues,

this analysis will focus on the main facts that are relevant to the disaster. Things such as cost,

deadlines and procedures taken will take an important part in this analysis. The analysis will

ultimately focus on the decision making and will be backed up by the results from the

decisions.

A skewed cost/benefit analysis

This case provides an opportunity to analyze the skewed cost benefit analysis and

disregard to the environment. In what became known as “the largest marine oil spill in the

history of the petroleum history” [4], BP executives made unwise decisions to cut cost in

order to save time and money. According to a paper published in 2009 “The economics of

allowing more U.S oil drilling”, “allowing drilling at a faster pace for producing offshore oil

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greatly outweighs the costs.” [8] In this case, a cost benefit analysis was made where the

peak oil price would be 100 dollars per barrel (crude oil being 101 dollars per barrel at the

moment).

“At $100 per barrel, oil production of 11.5 billion barrels of oil would reap

$1.15 trillion in revenues, lower oil prices by $99 billion, and reduce the costs

price disruptions by $51 billion, resulting in total benefits of $1.3 trillion.

Drilling costs would be $238 billion, environmental costs and greenhouse gas

damages would total $2 billion, the costs of local air pollution, traffic

congestion, and traffic accidents would be $22 billion, $33 billion, and $38

billion respectively. So the total costs of producing 11.5 billion barrels of

offshore oil would be $332 billion. Hahn and Passell calculate that at $100

per barrel, the net benefits of producing offshore oil would come to $967

billion or a trillion dollars” [8]

Taking this into consideration, even if you double work cost, the benefits will still

prevail. So it is very clear why BP executives adopted riskier procedures to set this rig up

since it was already five weeks late. The rig was first priority and “workers could get fired

for raising safety concerns that might delay drilling” [1].

Proper Cost/Benefit Analysis

The primary problem with the Deep-water Horizon case is that the BP executives

made decisions to cut cost and save money regardless of possible malfunctions in the design

which could have saved 11 lives and billions of dollars in repairs to the environment. A

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proper cost/benefit analysis with safety in mind should be established to avoid such incidents.

The first consideration should deal with the promoting safety rather than diminishing it. This

means that the “insufficient testing done on the foam cement slurry before the actual usage”

[1] would be unacceptable. If other procedures are to be adopted, they will only be applied if

the probability of risk is at a minimum. You cannot justify that adopting riskier procedures

were done to raise production and lower the price of crude oil. If production is lowering due

to time constraints then price should go up but at a reasonable rate. All these considerations

are modeled after the Utilitarian approach which means that ethically speaking, the priority

would be to protect the public.

The Whistleblowers approach

A very important ethical question that can be derived from all this would be: "Should

oil companies such as BP be allowed to adopt risky procedures in order to save time and

money?" Tony Hayward states according to the BP code of conduct that “If you are unsure of

what to do in a particular circumstance or concerned that the code is being broken, you have

the responsibility to speak up. The code explains the mechanisms to do this…and protections

to ensure that retaliation against those who do speak up will not be tolerated.”[1] Initially

the organizational system provided that any worker raising concerns which might have

delayed drilling would cause this worker to get fired. Whistleblowing is a very important

element which can help prevent such disasters. It is encouraged but anyone with such

concerned is faced with the ultimatum of staying quiet and keeping their job or

whistleblowing and losing their job. Overall, more laws need to be enacted to protect

whistleblowers.

6

Engineering Decisions

BP’s management decisions to put forth a project with such a great risk are a

pronounced example of how greed influenced the compromise of safety. In a business it is

always the goal to maximize profits as much as you can. Surely there has to be a limit when

the safety of the public becomes a factor. Engineers and other workers should have a greater

authority to be able to voice their opinions when there is a possible problem in the design or

procedure of a project. Whistleblowing should not be frowned upon if the number one

priority is the safety of the public.

Results

In today’s society, the Deep-water Horizon oil spill is a prime example of how risky

procedures to maximize profits can lead to the loss of human life and irreparable damage to

the environment. Taken into account the amount of money the company sought to lose if they

redid some testing and slowed production down, it would not have amounted to the billions

they are spending now. Not only is BP losing money but their credibility is shot and there is

an ignited antagonism towards them. This issue is not just a public issue but a political issue

as well. The biggest hit was to BP and their public relations and as a result of this incident,

BP’s share prices were reduced dramatically. This led to BP freezing their dividends which

angered a lot of their stockholders. There is an infinite loop of problems that BP is facing at

the moment that could have possibly been avoided had they done a correct cost/benefit

analysis.

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Recommendations

BP’s influence on the design and placement of the rig and its components were done

with disregarded to engineering decisions. An engineer has the competency of knowing if

there is a flaw in the design and it is their duty to uphold the highest standards in safety. In

order for incidents like the Deep-water Horizon to not happen again, I propose that the

revision of the engineering codes of ethics to protect engineers. Whistleblowing can be a

very helpful factor in avoiding these incidents if it was not frowned upon and

engineers/workers risked losing their jobs and credibility. Standards for whistleblowing

should be set to protect the engineer that is trying to preserve safety. This would cover both

the engineers and the corporations from going public and without becoming a political issue.

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Sources

[1] Deepwater Horizon Oil Spill Ethical Issues [Online]. Available:

http://www.slideshare.net/mengkiat/deepwater-horizon-oil-spill-5539058

[2] Ethical Issues of BP Oil Spill Explored in Lecture [Online]. Available:

http://www.thepeninsulaqatar.com/qatar/128234-ethical-issues-of-bp-oil-spill-explored-in-lecture.html

[3] BP. Deepwater Horizon Accident [Online]. Available:

http://www.bp.com/sectiongenericarticle800.do?categoryId=9036575&contentId=7067541

[4] Cleveland, Culter. Deepwater Horizon Oil Spill. [Online]. Available:

http://www.eoearth.org/article/Deepwater_Horizon_oil_spill

[5] Deepwater Horizon Oil Spill [Online]. Available:

http://en.wikipedia.org/wiki/Deepwater_Horizon_oil_spill

[6] CRUDE OIL PRICE Oil [Online]. Available: http://www.oil-price.net/

[7] Bailey,Ronald.ReasonMagazine4[Online]. Available: http://reason.com/archives/2010/05/04/weighing-

the-benefits-costs-of

[8] Hanh, Robert, and Peter Passel. (2012 Apr 10) The Economics of Allowing More U.S. Oil Drilling

[Online]. Available: http://www.sciencedirect.com/science/article/pii/S0140988309002461

[9] Corkery, Michael. (2010 June 16) BP Oil Spill Costs: $20 Billion? Try $63 Billion. [Online]

http://blogs.wsj.com/deals/2010/06/16/bp-oil-spill-costs-20-billion-try-63-billion/

[10] Harris, Pritchard and Rabins, Engineering Ethics, Concepts and Cases, 4th edition.

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