British Petroleum (BP Deepwater Horizon)

Table of Content

British Petroleum (BP Deepwater Horizon) 1

Table of Content 2

Executive Summary. 3

BP Deep Water Horizon Incident 4

Public Events. 4

Company Actions: 5

Was it effective? How would you define ‘effective’?. 7

What could have done differently?. 8

Conclusion. 10

Reference. 10

Appendix A – BP Financial Statements. 12

 

 

Executive Summary

 

This paper talks about British Petroleum, a UK based global oil and Gas Company, the third largest energy company and the fourth largest company in the world suffered an image impact from a national wise disaster.

 

It talks about public affairs related to the disasters, the image and financial impact to the company, and how the company turnaround the situations. It also discusses about the effectiveness of the action plan.

 

In general we conclude that this has been effective but from the crisis management perspective, 5 things they could have done differently if something happened again.

BP Deep Water Horizon Incident

Rig Explosion and Oil Spill

On April 20, 2010. BP PLC’s (BP) Deepwater Horizon, a floating oil rig located in the Gulf of Mexico (Gulf) some 50 miles off the coast of Louisiana, had a blowout. Natural gas pushed up the drill pipe, the well’s blowout preventer failed, causing an explosion and a horrific fire. Eleven workers perished. (Hawkins, 2011)

 

The spill caused extensive damage to marine and wildlife habitats and to the Gulf’s fishing and tourism industries.

BP’s stock fell by 52% in 50 days on the New York Stock Exchange, going from $60.57 on 20 April 2010, to $29.20 on 9 June, its lowest level since August 1996.

 

On 27 July 2010, BP announced a net loss of $16.97 billion during the second quarter of 2010, with the oil spill costing $32.2 billion up to that point. (CNBC.com, 27 July 2010).  Also on 27 July 2010, BP confirmed that CEO Hayward would resign and be replaced by Bob Dudley on 1 October 2010. (CNBC.com, 27 July 2010).

Public Events

On 30 April President Barack Obama ordered the federal government to hold issuing new offshore drilling leases until a thorough review determines whether more safety systems are needed (Johnston, Nicholas; Nichols, Hans, 2010-05-01).

 

The Obama administration has been aggressive and often excessive rhetoric in criticizing BP, which some investors saw as an attempt to deflect criticism of his own handling of the crisis. A White House spokesman said the President’s job was to keep his “boot on the throat” of the company.

 

Republicans such as Rand Paul and Joe Barton have accused President Obama of being anti-business and “un-American”, with Paul stated that said he had “heard nothing from BP indicating it wouldn’t pay for the spill”.

 

British pension fund managers (who have large holdings of BP shares and rely upon its dividends) accepted that while BP had pay compensation for the oil spill and the environmental damage, they argued that the cost to the company’s market value from the President Obama’s criticism was far outweighing the direct clean-up costs. (Johnston, Nicholas; Nichols, Hans. 2010-05-01) (CBS/AP, 2010-04-29).

 

On 30 April President Barack Obama ordered the federal government to determine the cause of the disaster. That same day he announced that he had dispatched the Secretaries of the Department of Interior and Homeland Security, as well as the EPA Administrator and NOAA to the Gulf Coast to assess the disaster. (Office of the Press Secretary. 2010-04-30).

 

The Obama administration sent a $69 million bill to BP for the U.S. government’s clean up effort. The bill was also sent to Transocean, Anadarko, Moex Offshore and QBE Underwriting. (Blake Ellis. 2010-05-03).

 

Company Actions:

 

After the oil spill incident, BP spent $7 million a day with its partners to try to battle the oil spill and contain the disaster. (White, Ronald D, 30 April 2010). In comparison, BP’s 1st quarter profits for 2010 were approximately $61 million per day. (British Petroleum, 27 April 2010)  BP has agreed to create a $20 billion spill response fund administered by Kenneth Feinberg. (Brenner, Noah, 17 Jun. 2010)(NPR. 16 Jun. 2010) (Weisman, Jonathan; Chazan, Guy, 16 Jun. 2010). The amount of this fund is not a cap or a floor on BP’s liabilities. BP will pay $3 billion in third quarter of 2010 and $2 billion in fourth quarter into the fund followed by a payment of $1.25 billion per quarter until it reaches $20 billion. In the interim, BP posts its US assets worth $20 billion as bond. For the fund’s payments, BP will cut its capital spending budget, sell $10 billion in assets, and drop its dividend. (Brenner, Noah, 17 Jun. 2010) (BBC News, 16 Jun. 2010). 

 

Action Plan Calendar (Hawkins, 2011)

April 20, 2010 Blowout at Deepwater Horizon.
April 30, 2010 Analysts estimate the cost of containment and cleanup to be about $3 billion.
May 10, 2010 Bloomberg estimates a worst-case pretax cost to BP of $8 billion.
June 15, 2010 One consulting firm to the oil and energy industry estimates cost to BP to be between $17 billion and $29 billion (assuming Macondo well capped 90 days after explosion); another says cost to be between $20 billion and $60 billion.
June 16, 2010 BP agrees to $20 billion trust fund.
June 25, 2010 BP reports it had spent $2.4 billion to date for containment, cleanup, and claims.
Summer 2010 Several Wall Street firms, including Goldman Sachs, suggest the total cost to BP could reach $200 billion.
July 15, 2010 Macondo well capped
July 17, 2010 One consulting firm revises its estimate of the cost to BP from $17 billion–$29 billion to $15 billion–$39 billion.
July 27, 2010 BP names a new CEO.
September 19, 2010 Macondo well “officially killed.”
October 4, 2010 BP announces plans to raise $2.7 billion via a bond issuance to help cover costs associated with the Gulf accident.
October 11, 2010 RBSa estimates a worst-case cost to BP of $42 billion if the explosion and spill were caused by gross negligence.
December 15, 2010 U.S. Department of Justice files civil lawsuit against BP and 8 other firms; does not, however, specify damages sought.
December 29, 2010 The Associated Press estimates costs to BP to be between $38 billion and $60 billion.

 

January 5, 2011 National Commission on the BP Deepwater Horizon Oil Spill reports its findings; BP alone not to blame

 

 

Was it effective? How would you define ‘effective’?

We are going to evaluate the effectiveness from first on the financial perspective. Stock price is one of the easiest indicator we can get to have a rough analysis. First there is sharp drop within 5 months from (from $60 to $30). This is understandable because a lot of debt BP has to bear from the crisis. The income statement has large negative items from the oil spill in the first few quarters. (See Appendix A for financial statements for the details).

 

On the other hand, from the stock trend, you can see the stock price bounds back to $40 within 1 year, implying it has a reliable and sustainable recovery. The company manages to pay the debt and investors are still optimistic about the future of this company.

 

For the image lost, or brand devaluation, somewhat it can be reflected from the stock price decrease. However from the financial data, the money compensates the disasters. It seems that not too many customers leave the brand because of the blowup (please check the revenue after the disasters). Perhaps because oil industry depends heavily on the infrastructure and physical assets, the company does not depend solely on the brand. Also from their action plans after the disaster, BP gave an image to the public that they are willing to ne responsible and turnaround the situations. The brand did not devalue as much as some other companies do after disasters.

 

After the incident happen, BP delivers an public image that  they have good will of bearing most of the responsibilities on cleaning up the mess and paying the losses. In general the action plan is quite effective.

 

What could have done differently?

 

On the other hand there are many things they could have done to prevent things happen. Some of them are on the proactive side. There are some suggestions and feedback from crisis management and business continuity perspective. (Heineman, 2011)

 

Response Plan

 The Gulf spill was not unthinkable. The possibility of a well blow-out was explicitly addressed by systems, processes and technology. Yet, BP and the U.S. had no response plans which addressed the sequence of events that, though remote, were arguably foreseeable in environments where dangerous technology was located and which, in particular, addressed the additional issues outlined below.

 

Public or Private Responsibility?

The U.S. government initially left many dimensions of crisis management and response to BP. But, the Gulf spill was a national issue, which required governmental direction, responsibility and accountability. The BP Commission properly criticized the federal government for failing to assume leadership soon enough or to act effectively in coordinating the private sector and public sector (federal, state and local) actors.

 

Confusing Information

 A host of factual questions were raised by Gulf Spill: How much oil was flowing? How could the flow be stopped? Where was the oil going (surface/sub-surface)? How could it be contained or removed? How could damage to environment/people/property be eliminated or mitigated? But for a significant period of time, responses from the company and the government were confusing. The U.S. government needed a central authority which used expert working groups, and which made clear to the public what was known, what was unknown, what process was in place for improving knowledge, and when there would be regular updates on those issues. Again, a single central authority needs to have seized control of the information flow and been as candid and explicit as possible about what is known, what isn’t known, and how information gaps are being filled.

 

Decision-Making Processes

 As noted, there was substantial confusion for weeks after the Gulf spill about whether the company or different parts of government were making decisions. The decision-making processes on a host of crisis response issues (see preceding paragraph) were not set out clearly for the public — including comparison of options — and led to a perception of drift and lack of direction during a major national catastrophe

 

Implementation and Resources

In the Gulf, there were also serious issues about which private and public sector actors would implement which decisions — and about what resources were necessary. Indeed, just the lack of resource preparedness increased the severity of problems of containment and damage mitigation.

 

Conclusion

 

This paper talks about British Petroleum, a UK based global oil and Gas Company, the third largest energy company and the fourth largest company in the world suffered an image impact from a national wise disaster.

 

It talks about public affairs related to the disasters, the image and financial impact to the company, and how the company turnaround the situations. It also discusses about the effectiveness of the action plan.

 

In general we conclude that this has been effective but from the crisis management perspective, 5 things they could have done differently if something happened again.

 

Reference

 

BBC News. (16 Jun. 2010).  “BP to fund $20bn Gulf of Mexico oil spill payout”. Retrieved 16 Jun. 2010.

 

Blake Ellis (2010-05-03). “White House sends BP a $69 million bill”. CNNMoney.com. Retrieved 2010-05-03.

 

British Petroleum (BP p.l.c.). (27 April 2010). “First quarter 2010 results”. . Retrieved 19 May 2010.

 

Brenner, Noah (17 Jun. 2010). “Hayward says spill ‘never should have happened'”. Upstream Online (NHST Media Group). Retrieved 17 Jun. 2010.

 

CBS/AP (2010-04-29). “Oil Spill Reaches Mississippi River”. CBS News. Retrieved 2010-04-29.

 

CNBC.com. (27 July 2010). “BP Launches Image Overhaul, Ditches CEO. Retrieved 19 December 2010.

 

Drake, Bruce (2010-05-27). “Public Pans Obama’s Response to Oil Spill, But Gives Worse Marks to BP”. Politics Daily. Retrieved 2010-05-27.

 

Hawkins. (2011).Accounting for Catastrophes: BP PLC and Union Carbide Corporation, Harvard Business Publishing.

 

Heinema. (2011). Crisis Management Failures in Japan’s Reactors and the BP Spill HBR BLOG POSTS

 

Johnston, Nicholas; Nichols, Hans (2010-05-01). “New Offshore Oil Drilling Must Have Safeguards, Obama Says”. Bloomberg. Retrieved 2010-05-01.

 

Office of the Press Secretary. (2010-04-30). Statement by the President on the Economy and the Oil Spill in the Gulf of Mexico. . The White House (The White House). Retrieved 2010-05-05.

 

NPR. (16 Jun. 2010). “White House: BP Will Pay $20B Into Gulf Spill Fund”..

 

Weisman, Jonathan; Chazan, Guy (16 Jun. 2010). “BP Halts Dividend, Agrees to $20 Billion Fund for Victims”. The Wall Street Journal (Dow Jones & Company). Retrieved 16 Jun. 2010.

 

White, Ronald D. (30 April 2010). “For BP, oil spill is a public relations catastrophe”. Los Angeles Times. Retrieved 1 May 2010.

 

Eric Tse, Richmond Hill, Toronto
Tse and Tse Consulting -Security, Identity Access Management, Solution Architect, Consulting
http://tsetseconsulting.webs.com/index.html
https://tsetseconsulting.wordpress.com/
http://erictse2.blogspot.com/

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