Abstract
The previous chapter studied an organization exploring a complex frontier: space. This chapter is about the exploration of another largely uncharted territory: the deep sea. Offshore oil extraction and deepwater drilling are relatively new phenomena to the oil industry; the companies involved have continued to break new depth records.
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- 1.
There are still disputes regarding the boundary between shallow water and deepwater. Some considered 500 feet as the boundary, while some others defined 1000 feet.
- 2.
A blowout is an uncontrolled release of hydrocarbons from the reservoir when the reservoir pressure goes beyond that of the injected mud in the well control. Drilling mud is a mixture used to balance the well pressure during the drilling process.
- 3.
The company was formerly known as British Petroleum.
- 4.
Although Browne quitted BP because of problems in his private life, his contribution to the institutionalization of this global corporate organization remains undeniable.
- 5.
The arrogant organization has a high degree of internal institutionalization whereas its external institutionalization is low. This is defined in Sect. 3.2 in Chap. 3.
- 6.
For instance, from February 13 to 14 of 2013, 13 dolphins were found dead on the beaches of Gulf in two days, while the average death rate had been 25–30 per year from 2000 to 2009 (Rushe 2013a).
- 7.
According to the Oil Pollution Act of 1990, the Coast Guard served as the coordinator in offshore oil spill response, while the Environmental Protection Agency was responsible for inland oil spill response.
- 8.
According to Birkland and DeYoung (2011), the limited use of OPA in the Gulf oil spill is related to at least four aspects: OPA had been designed to cope with spills above the surface, while the Gulf oil spill happened in deepwater; OPA had been designed to handle a fixed amount of oil spill, while the spill in the Gulf coast continued for a long period; the Gulf oil spill impacted several states along the Gulf coast, while OPA assumed that an oil spill would only influence a single state; OPA hardly addressed mental health or rehabilitation issues, but, these issues became salient in the current response. The NCP was created in 1968 after the Torrey Canyon tanker spill and was last updated following the establishment of OPA after the 1989 Exxon Valdez oil spill.
- 9.
http://money.cnn.com/magazines/fortune/global500/2010/full_list/ (accessed on August 10, 2011).
- 10.
http://www.BP.com/sectiongenericarticle.do?categoryId=488&contentId=2000734 (accessed on August 10, 2011).
- 11.
The oil production from deepwater in the Gulf of Mexico surpassed that from shallow water for the first time in 1998. The deepwater oil production experienced a quick expansion in the 2000s, increasing twofold (NAE and NRC 2011).
- 12.
Major multi-national corporations faced intense competition in the global market and a low oil price at the end of the 20th century (Steffy 2010). In that period, the oil price had reached a low point, falling from $25 dollars per barrel in the 1980s to around $10 dollars (The Economist reporter 1999). Major international oil giants responded with oil exploration budget cuts in order to reduce output. Moreover, the privatization waves in oil producing countries brought in more private oil companies, which increased competition. In 1988, there were around 22 state-owned companies among the top 50 globally. The number fell to 19 in 1998. The number of companies with more than 50% state ownership fell from 28 in 1988 to 21 in 1998 (Energy Intelligence Group 1999). The remaining state-owned companies expanded their business from the domestic to the international market. Major companies dropped their non-oil related business and concentrated on petroleum and gas-related activities (Stonham 2000).
- 13.
BP had carried out some mergers and made acquisitions before the 1990s. For instance, starting from the 1970s, BP bought in shares of Sohio. At the beginning of the 1980s, BP held about 55% of Sohio’s shares. Later in the 1980s, BP acquired the British government owned oil company Britoil. However, the integration of three companies did not go well (Browne and Anderson 2010).
- 14.
The major mergers and acquisitions in this period included Chevron and Gulf, Exxon and Mobil, Texaco and Getty, and Mobil and Superior.
- 15.
Amoco was the fifth largest oil company in the US, originating from the Standard Oil Company (Indiana).
- 16.
More about the merging of companies in the energy market can be found in United States General Accounting Office (2004).
- 17.
For a detailed analysis of the merger process, see Bulow and Shapiro (2002). Bulow and Shapiro are both insiders of the merger process. Bulow was then Director of the Bureau of Economics at the Federal Trade Commission, while Shapiro was a consultant and expert on the BP and ARCO side in the review of the merger process.
- 18.
The offshore oil drilling was regulated by the federal government ever since the 1950s. The legal framework for the ownership and responsibility of offshore oil drilling was initially formulated under the Eisenhower Administration (Freudenburg and Gramling 2011). In the 1953 Submerged Lands Act, States were given jurisdiction over any natural resources within 3 nautical miles (3.45 miles) (with the exception of Texas and Florida’s west coast where the States’ Gulf of Mexico jurisdiction was extended to 9 nautical miles after years of legal fighting). In the 1953 Outer Continental Shelf Act, the federal ownership and responsibility for environmental protection and safety management was reaffirmed in the Outer Continental Shelf outside state jurisdiction.
- 19.
Under the “energy independence” idea, federal governments expanded exploration in the Gulf deepwater to increase domestic oil supplies. In 1974, the Nixon Administration decided to reduce reliance on oil imports with “Project Independence” which aimed to make the United States independent from oil by 1980. Several subsequent presidents insisted on a similar policy to increase energy independence (Freudenburg and Gramling 2011). However, the percentage of oil imports still has been rising, to 66.2% in 2009 as compared to 36.1% in 1974 (Vega 2010).
- 20.
With the expansion of oil drilling in the outer continental shelf, then secretary of the Department of Interior James Watt promoted a new leasing method: named Area-Wide Leasing (For a comprehensive review of area wide leasing method, see Jones 1990; Gramling and Freudenburg 2009). Area-Wide Leasing means the bid sale can offer the whole planned areas instead of splitting into small areas. This method put small and medium-sized companies involved in the exploration process at a disadvantage because of limited economical resources and technology to conduct exploration activities in such a broad area (Jones 1990; Gramling and Freudenburg 2009; Freudenburg and Gramling 2011). For instance, companies need to hire ships to gather geological data in the ocean, and need a supercomputer to analyze collected data (Banerjee 2002).
- 21.
The MMS became the Bureau of Ocean Energy Management, Regulation and Enforcement in October of 2010.
- 22.
On March 23, 2005, BP’s Texas City Refinery experienced an explosion during the startup of an isomerization unit. The explosion and subsequent fires led to 15 deaths and 180 injured people, and ranked as “one of the worst industrial disasters in the US” (CSB 2007).
- 23.
In March 2006, BP’s Alaska pipelines in its Prudhoe Bay oil field experienced a corroded leak, which affected the tundra. The amount of leaked oil reached 200 thousand gallons. After the leak, BP closed its pipeline and the US government closed the oil production in the region which caused the rise of oil prices on the international oil market.
- 24.
After the passage of Hurricane Dennis on July 11, 2005, BP’s Thunder Horse oil platform in the Gulf of Mexico titled to one side (nearly sank) due to an error in the installation of a valve in the bilge and ballast system. The subsequent investigation found other problems, such as a broken weld. The Thunder House platform did not resume production until 2008, which was three years behind schedule.
- 25.
Whether cost cutting caused the safety erosion leading to the disaster became a central dispute during the civil trials in February 2013. Then BP CEO Hayward denied the casual relationship, while BP’s former senior vice president for drilling operations in the Gulf Lacy acknowledged the pressure to reduce costs, and resigned four months before the Gulf oil spill disaster because the company was not committed to improving safety procedures (Thompson 2013).
- 26.
President Obama supported offshore oil production to win votes for climate legislation in Congress.
- 27.
The blind shear ram is a component of BOP used for cutting the pipeline when BOP is activated. However, sometimes BOP cannot cut through the pipeline in an emergency due to the increasing strength of the pipe, which has been recorded in three cases in the Gulf of Mexico in the 1990s. Therefore, the industry usually equips the BOP with two blind shear rams to increase the reliability. The rig owner of Deepwater Horizon, Transocean, equipped 11 of its 14 rigs with two blind shear rams, but not the Deepwater Horizon. The reliability of the BOP had not been tested regularly as required because of the high cost of losing productivity (around 193 million dollars a year for the test). MMS staff failed to inspect BOP operation as well (Barstow et al. 2010).
- 28.
Actually, 260 failure modes were detected in the BOP in 2001 (Hoffman 2010).
- 29.
Transocean and the governmental investigation committee did not agree on whether BOP was operational after the explosion. The former insisted that BOP was still functional and the leak was caused by the high flow rate so that BOP could not seal off the flow. The US governmental investigation identified a flaw in BOP’s design which leads to a failure in the sealing process.
- 30.
BP started to consider drilling a relief well as early as April 21, which was deemed a standard operation in the industry by BP’s Chief Operating Officer for Exploration and Production Doug Suttles (National Commission Staff 2010a).
- 31.
Interior Secretary Salazar insisted on drilling another well as a back-up (National Commission Staff 2010a).
- 32.
The oil removal technology did not make much progress. For details, see Anderson et al. (2011).
- 33.
The estimated worst-case flow rates (162,000 barrels per day) were far below the claimed oil collecting capacity in BP’s plan. Moreover, the Coast Guard created a 5-mile safety zone around the Macondo well to ensure the safety of response teams, which prevented the responders from entering the zone. The establishment of the safety zone consequently reduced the skimming productivity. For details, see Coast Guard (2011: 26–28).
- 34.
The casing system is sections of steel pipe that are put into the drilled hole to withstand pressure from the rock formation.
- 35.
Actually, BP and National Incident Commands simply lacked facilities to collect spilled oil. Therefore, providing an accurate estimate of the oil spill rate was not very helpful in collecting the oil.
- 36.
Until March 11, 2013, BP had paid $2.4 billion to 30,589 claimants (Schleifstein 2013).
- 37.
Louisiana announced a state of Emergency, and Coast Guard set up a unified area command on April 30. On May 1, DHS secretary appointed the Coast Guard Commandant Admiral Thad Allen as the National Incident Commander. Thad consequently appointed Rear Admiral Peter Neffenger and Assistant Secretary for Intergovernmental Affairs at DHS Juliette Kayyem as his two advisors.
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Lu, X. (2017). BP and the 2010 Gulf Coast Oil Spill Disaster: An Arrogant Organization Coping with a “Known Unknown”. In: Managing Uncertainty in Crisis. Springer, Singapore. https://doi.org/10.1007/978-981-10-3990-4_6
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