British Petroleum Oil Spill Crisis and Aftermath

The British Petroleum Oil Spill Crisis and Aftermath

Introduction:

BP (British Petroleum), the world’s one of the well known and largest companies in the field of Oil & Gas, very recently came across an unforeseen event - the massive oil spill in U.S Gulf of Mexico area. BP’s this incident led into shattering events with major environmental and financial implications. This further led to the series of questions being raised by the experts and the corporate citizens of the world, about the long term repercussions from BP’s oil spill crisis.

One of the greatest challenges we face in today’s competitive world is when we have to deal with any unforeseen crisis. How proactive we need to be in this situation - whether to act or to hold back is the biggest challenge for any responsible manager while tackling the crisis. For example, whether to call the media or not, do we need to talk internally or only with group of people, do we need to talk to the media through press conference or with individually, or do we do nothing and let the crisis take its own course of action, these are the questions arise out of crisis for any organization. Having said this, BP has been very well managing its crisis since from the day one. However, critics say that this crisis could have been avoided if the regulators had addressed risks in Oil Rig Fail-Safe Device. As per my research, it was found that the U.S regulators currently do not mandate the installation of Remote Control device(s) on the offshore rigs to trigger Blowout Preventer (BOP) and worth to mention; BP did not have such device in place.¹ I shall further demonstrate my findings on this in the later stage of this essay.

BP’s Oil Disaster:

After the Exxon oil spill in 1989, BP’s oil spill is considered to be the largest and shocking environmental disaster ever hit the U.S. BP’s Deepwater Horizon oil spill crisis begun on 20th of April 2010 in Gulf of Mexico area where BP had been engaged in dangerous deepwater drilling activity. The explosion on the deep-water drilling rig led a continuous flow of millions of gallons of crude oil per day into the sea. Since BP is the principal developer of the oil in this field, the company is being targeted as the responsible party of this event. In the recent statement made by United States Government spokesman, it was made clear that BP was held responsible for all the costs and damages resulting from the oil spill. This was because of the enormous consequences arising out of the crisis including posing a threat to over 400 species. As per the latest media report, this disaster has resulted into more than $2.5 billion damage to the entire fishing industry alone in the affected area.

From the day one of the crisis, BP made series of attempts to stop the oil spill. As stated by Interior Secretary - Salazar K., of U.S. on 15th of May 2010, BP’s effort to stop oil spill failed when attempted with the help of insertion tube. However on 18th of May 2010, BP adopted the alternate route to minimize the oil spill i.e. by capturing oil from the sea and claimed that it captured 2,000 barrels of oil per day. But this was not enough to control such a gigantic disaster as by this time the size of slick was almost 30,000 sq miles.

As a result of this crisis, on 1st of June 2010, BP’s stock took a 17% plunge in just one day, wiping close to $23 billion of its entire market value when it was still battling to shut down its massive oil leak. Its impact on share price wiped off billions of pounds in value of pension funds, which made the Britain’s pensioners poorer by significant amount; this was due to almost every pension fund in Britain owning BP stock. But despite of this sudden plunge in BP’s share value, the company was still promising its shareholders their annual dividend. This shows the commitment towards its shareholders even during such crisis. Worth to mention, last year the company paid out a dividend of more than £10 billion.

BP’s stock had a narrow recovery when the CEO Tony Hayward vowed to clean up every drop of spilled oil. Furthermore, it’s important to note that during BP's crisis the global equity portfolio represented by MSCI ACWI was not really changing significantly, but wherein the concentrated domestic equity portfolios in UK had a lot of impact. This shows that the stock specific events usually have more impact on the risks of concentrated domestic equity portfolio(s) containing home-based equity allocation, than on portfolio with global allocation. On 15th of July 2010, BP in its press conference confirmed about the stoppage of oil leak in the Gulf of Mexico area. Although this was a great relief for BP personnel and the citizens, BP Senior Vice President Kent Well, during a briefing described that this is just the start of our test. This somehow showed BP’s commitment towards effective crisis management.²

BP’s Crisis Management Cell:

Shelley Moore (2010, pp.51) states that “in times of crisis, the company ’ s priorities are clear, people first; environment second; property third; business fourth. But when tragedy strikes, BP people have shown they do not need to check the list to remember where to begin.” This statement is analyzed throughout this essay including the analysis of BP’s crisis management.

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¹ As described in Wall Street Journal; available at : http://online.wsj.com - regulators in United States by 2003 decided to keep away from Remote Controlled devices primarily used to safeguard. As it required further study and this device also involved huge cost of installation.

² As described in World Oil Press, available at: http://worldoil.com - BP Senior Vice President Kent Wells during a briefing “what I ’ m trying to do is maintain my emotions. This is the start of our test.”