1. What do you conclude to be the central issues in the BP Deepwater Blue Horizon disaster?

2. What do you conclude to be the central issues related to the four frames of the organization and leadership?

The environmental damage from the oil spill was extensive, with 25 national wildlife refuges in its path.68 Oil was found on the shores of all five Gulf States,69 and was responsible for the death of many birds, fish, and reptiles. The total amount of impacted shoreline in Louisiana alone grew from 287 miles in July to 320 miles in late November 2010.70 Unlike conditions with the Alaskan Exxon- Valdez oil spill, the contaminated Gulf shoreline was not rock but wetland. Grasses and loose soil, a perfect sponge for holding oil, dominated wetland ecosystems. The spill also occurred during breeding season for pelicans, shrimp, and alligators, and most other Gulf coast species. Ecologists anticipated that entire generations of these animals could be lost if they were contaminated with oil.71

In terms of direct economic damages, the sinking of the Deepwater Horizon rig represented a $560 million loss for Transocean and Lloyds of London, the insurance company which had unwritten the rig.72 The unprecedented loss of an entire semi-submersible rig was predicted to change underwriting policies for all oil rigs. As one underwriter noted, Its never happened that a semi could burn into the sea and completely sink. Now underwriters have to include that as a risk. Thats probably $10,000 to $15,000 more per day in rig insurance. Theyll make it up by charging more on a per-rig basis.73

BPs price tag for the lost oil five million barrels at the average market crude oil price (for April 20, 2010 through July 15, 2010) of $74.81 per barrel74 was $374 million. In addition, if a federal court ruled that the company was grossly negligent, BP could face up to $3.5 billion in fines, or $4,300 per spilled barrel.75 Of course the companys losses didnt end there. On April 15, five days before the disaster, BPs stock was trading on the NYSE at $60.57 and on June 25, it hit a 14-year low of $27.02.76 In addition to the frustration felt by shareholders and the public at large that the company had failed at several attempts to stop the leak, they were also unimpressed with BPs PR strategy, citing skepticism over the companys offer to pay fishermen if they signed a waiver promising not to sue the company.77

Alongside those companies directly involved with the Macondo well project, the Deepwater Horizon disaster affected the oil industry as a whole. On May 28, 2010, Secretary of the Interior Ken Salazar issued a moratorium on all deep water oil drilling in U.S. waters.78 The purpose of the moratorium was to allow time to assess the safety standards that should be required for drilling, and to create

strategies for dealing with wild wells79 in deep water. Government analysts estimated that about 2,000 rig worker jobs were lost during the moratorium and that total spending by drilling operators fell by $1.8 billion. The reduction in spending led to a decline in employmentestimates indicated a temporary loss of 8,000 to 12,000 jobs in the Gulf Coast80and income for the companies and individuals that supplied the drilling industry. The moratorium also reduced U.S. oil production by about 31,000 barrels per day in the fourth quarter of 2010 and by roughly 82,000 barrels per day in 2011. This loss, however, was not large relative to total world production, and was not expected to have a discernable effect on the price of oil.81 The moratorium, originally intended to last until the end of November, was lifted in mid-October 2010.82

The economic losses also extended to the thousands of coastal small business owners including fishermen, shrimpers, oystermen, and those whose livelihood depended in whole or in part on fishing or tourism. The tourism industries in Alabama, Louisiana, and Florida were particularly hard hit. Ironically, analysts had previously predicted that tourism in the Gulf region, which was devastated by Hurricane Katrina in 2005, would return to pre-Katrina levels in 2010.83 Between the energy, fishing, shrimping, and tourism industries, the Gulf region lost an estimated 250,000 jobs in 2010.84

In anticipation of the economic aftershocks that would be felt from the oil spill, BP pledged to compensate those individuals whose livelihoods would be affected. On June 16, 2010, in agreement with the U.S. government, the company established the Gulf Coast Claims Facility (GCCF), an escrow fund of $20 billion to pay for the various costs arising from the oil spill. GCCF staff evaluated the claims of companies and individuals who suffered demonstrable damages from the oil spill. The fund was also intended to pay municipalities, counties, and state organizations for lost tax revenue or additional clean-up costs.85 Kenneth Feinberg, who led the September 11 Victim Compensation Fund, was appointed to oversee the GCCF.

By February 28, 2011, the GCFF had received over 500,000 claims, and 170,000 people and businesses had been paid over $3.6 billion. Some people accused the facility of not acting quickly enough to process claims and make payments. In response, the GCCF increased transparency of the system and hired staff in the Gulf to answer questions from applicants in person.86 The GCCF was scheduled to remain in place until August 2013.87

Conclusion

As of early 2011, investigations into the actual causes of the Deepwater Horizon disaster were ongoing, and the various parties involved in the Macondo well project were engaged in a highly publicized finger pointing exercise. The three major decisions on closing the Macondo well involving the well casing, the number of centralizers used, and the decision not to perform a cement bond log may have contributed to the conditions that caused the well to blow out.

Regardless of what the ultimate causes are found to be, the conditions on the Deepwater Horizon, and the culture and organizational architecture of BP and its relationships with its contractors is worth examining. Each of the three decisions discussed above, as well as decisions on how to convey dangerous model results and earlier decisions about how best to structure incentive systems, may have played a role in the outcome. Throughout the decision making process, we see some actors who were advocates of caution over cost, for fixing problems even when inconvenient. Yet court testimony indicates that the three key decisions, and perhaps others as well, came down on the side of cost-reduction and expediency, over caution.