Deepwater Horizon oil spill case


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Philippe kunz – global operation – george kastner emba london - dickens cohort, This case try to explain the miss-function and give some theoretical advice

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Deepwater Horizon oil spill case

  1. 1. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George KastnerDeepwater Horizon oil spillFor an another tragedy as the Deepwater Horizon doesn’t happened again anymore( 20 April 2010 explosion on BPs offshore drilling rig in the Gulf of Mexico resulted in the deathsof 11 people and injured 16 others. It caused the Deepwater Horizon to burn and sink, and startedthe largest accidental offshore oil spill in the history of the petroleum industry. Page 1
  2. 2. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George KastnerAn environment conducive to a disaster.In the late twentieth century, the demand for oil increases continuously, but oil and gas drilling in theGulf of Mexico deepwater, but mostly water "shallow" experiencing a sharp decline in output. Thetotal proven reserves to fall dramatically in 1986.Production is maintained through new drilling in deeper water, but these reserves are depletedquickly and are more dispersed and poorer than expected.In 2001, the Bush administration and the NEP (National Energy Policy) push the MineralsManagement Service to adopt strong fiscal or financial incentives to encourage offshore drilling deepthat otherwise would not be profitable.These incentives are reinforced January 26, 2004, with a decrease or elimination of royalties whendrilling deep and very deep, and in August 2005 through the Energy Policy Act always to promotedeep drilling more than 4,500 meters below the sea surface.Complacency of security controls.MMS also seems to be less demanding on impact studies and monitoring of safety procedures,exploiting While admitting wells at this depth was still a technological challenge. MMS relies mainlyon an increase in gas production in exchange for exemption of royalty on gas production.BP then proposes to offshore drilling the worlds deepest. He rented until September 2013, the oil rigDeepwater Horizon ultra-modern, built in 2001 and owned by Transocean. September 2, 2009, itdrilled the deepest oil well and gas ever made, until the fatal accident.Edward J. Markey, a Democratic senator from Massachusetts, believes that relations climate andproximity mixture of interests uniting oil and supervisors was conducive to a serious accident: "Theaggressive promotion (" boosterism ") feeds complacency and complacency which are causingdisasters.MMS had authorized BP to rent and use the Deepwater Horizon, while exempting a "specialexception" ("categorical exclusion") dated 6 April 2009 from the obligation to comply with NEPA (Acton the environment called "National Environmental Policy Act"). BP, just 11 days before theexplosion, was still lobbying to expand exemptions for oil tankers in the Gulf region.No independent oversight organ.MMS was placed by its supervisory authority in a particularly ambiguous: it had to collect royalties,check the feasibility and safety of drilling, while being ordered by law to encourage increasedproduction by drilling very deep .Low risk assessment.MMS has produced three environmental assessments in 2007, one of which concerned the lease toBP Deepwater Horizon. In each case, it seems to have downplayed the prospect of a major leak. Page 2
  3. 3. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George KastnerOutsourcing without follow-up and controls.MMS seems to mandate companies drilling in some areas, to identify what might under NEPA reducethe environmental impact of a project or takes up - without checked by expert-cons - their assertionsand arguments.Vertical integration (taken from the oil started to flow from Alaska, no BP refineries or stations in the United States were thereto take it. Instead a 25% stake in Standard Oil of Ohio (Sohio) ensured that Sohio facilities werestanding by to bring the first Alaskan gasoline to market. BP’s stake in Sohio grew over the years, andin 1987 BP bought the company outright, incorporating it into a new national business, BP America.That same year the British government sold the last of the shares it held in BP. Fully privatized and ina period of intense self-scrutiny, BP accelerated its sell-off of businesses – minerals, nutrition – thatweren’t core to what the company had always done well: find, refine, transport and sell fuel.In the late 1990s, with stiff competition in the energy industry setting off a string of prominentmergers, BP and Amoco joined (1998) to form BP Amoco. Then ARCO in 2000, BP’s old rival on theNorth Slope of Alaska, joined the portfolio. Later, Castrol’s motor oils in 2000 and Aral’s distinctiveEuropean operation would also join the group.In 2000, after a period in which the group grew to include Amoco and ARCO and Castrol (with Aralsoon to follow in 2002) BP unveiled a new, unified global brand. Its identifier was a green, yellow andwhite sunburst, symbolizing energy in all its dynamic forms.Two factors for a catastropheSince 2007, BP has started to modify its company structure to a flat structure, and secondly therelationship between BP and its subcontractor management for this industry could not be the rightway. These 2 factors have contributed to the Deepwater catastrophe. Nobody was ready for a sohuge event and without a clear and global rescue plan, this catastrophe and the ravages could notbeings avoided.BP Accuses Halliburton of Destroying Evidence of Wrongdoing in Gulf Oil Spill (taken from is coming to fists again over the Deepwater Horizon oil spill in the Gulf of Mexico. This time,however, it isn’t the people of the gulf against big oil, it is the oil companies against each other. BP isaccusing Halliburton of knowingly destroying the results from a test on cement slurry at the site andseemingly losing computer modeling of the cement at the Deepwater Horizon oil spill. Both areconsidered pieces of evidence that could prove Halliburton installed faulty cement at the site of theDeepwater Horizon oil spill, causing the well to rupture and spill 4.9 million barrels of oil into the Gulfof Mexico. Page 3
  4. 4. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George Kastner5 years of a black series, with 48 death or injured persons due to systematic, serious securityproblems (taken - 2005 Texas City Refinery explosion - 2006–2010: Refinery fatalities and safety violations - 2010 Deepwater Horizon well explosionChronology of the Deepwater Horizon crisis (taken from understand how BP has communicated during this crisis and the frequency of each press releasewhich was every weeks in plus of decision or special communications.21 April 2010, BP confirms that Transocean Ltd issued the following statement today"Transocean Ltd. Reports Fire on Semisubmersible Drilling Rig Deepwater Horizon"“Transocean Ltd. (NYSE: RIG) (SIX: RIGN) today reported a fire onboard its semisubmersible drillingrig Deepwater Horizon. The incident occurred April 20, 2010 at approximately 10:00 p.m. centraltime in the United States Gulf of Mexico. The rig was located approximately 41 miles offshoreLouisiana on Mississippi Canyon block 252.”04 May 2010, Work Begins To Drill Relief Well To Stop Oil SpillBP today announced that work has begun to drill a relief well to intercept and isolate the oil well thatis spilling oil in the US Gulf of Mexico. The drilling began at 15:00CDT (21:00BST) on Sunday May 2.25 May 2010, BP Briefs US Government on Initial Perspectives of Deepwater Horizon Investigation -Focus is on Seven Control MechanismsBP announced today that its internal investigation team began sharing initial perspectives of itsreview of the causes of the tragic Deepwater Horizon fire and oil spill. The investigation is a fact-finding effort that has not reached final conclusions, but has identified various issues for furtherinquiry. BP has shared these early perspectives with the Department of the Interior and will do sowith all official regulatory inquiries into the accident as requested.The investigation team’s work thus far shows that this accident was brought about by the failure of anumber of processes, systems and equipment. There were multiple control mechanisms—procedures and equipment—in place that should have prevented this accident or reduced the impactof the spill: the investigation is focused on the following seven mechanisms. 1. The cement that seals the reservoir from the well; 2. The casing system, which seals the well bore; 3. The pressure tests to confirm the well is sealed; 4. The execution of procedures to detect and control hydrocarbons in the well, including the use of the BOP; Page 4
  5. 5. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George Kastner 5. The BOP Emergency Disconnect System, which can be activated by pushing a button at multiple locations on the rig; 6. The automatic closure of the BOP after its connection is lost with the rig; and 7. Features in the BOP to allow Remotely Operated Vehicles (ROV) to close the BOP and thereby seal the well at the seabed after a blow-out.26 May 2010, BP to Appoint Independent Mediator to Ensure Timely, Fair Claims ProcessToday, BP announced that it will appoint an Independent Mediator to review and assist in the claimsprocess for the spill associated with the exploratory well that was being drilled by the TransoceanDeepwater Horizon in Mississippi Canyon, Block 2516 June 2010, BP Confirms Scheduled White House MeetingBP notes the comments made by President Obama last night.23 June 2012, effective appointment of Bob DudleyEffective immediately, Bob Dudley has been appointed President and Chief Executive Officer of BP’sGulf Coast Restoration Organization. Mr. Dudley will report to Tony Hayward, BP’s Group ChiefExecutive.27 July 2010, BP CEO Tony Hayward to Step Down and be Succeeded by Robert DudleyBP today announced that, by mutual agreement with the BP board, Tony Hayward is to step down asgroup chief executive with effect from October 1, 2010. He will be succeeded as of that date byfellow executive director Robert Dudley.30 July 2010, After the tragedy, BB hired James Lee WittBP announced it has hired Witt Associates, and its CEO James Lee Witt, to support BP’s work torestore Gulf Coast communities in the wake of the oil and gas spill in the Gulf of Mexico.Witt Associates, a public safety and crisis management consulting firm, founded by former FEMADirector James Lee Witt, has unrivaled experience in emergency response, recovery, and mitigation.The firm has successfully worked in the Gulf region and across the nation to engage with keystakeholders and manage transparent and accountable long-term recovery efforts. BP will draw onWitt’s expertise and strategic counsel on all aspects of BP’s long-term recovery work.Misleading and bad communication without assuming the responsibilities (taken company originally estimated the size of the leak at about 1,000 barrels a day but later acceptedgovernment estimates of a leak of at least 5000 barrels per dayLamar McKay, chairman of BP America, told the Senate Energy and Natural Resources Committee,that his company was focused on a critical safety device that was supposed to shut off oil flow on the Page 5
  6. 6. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George Kastnerocean floor in the event of a well blowout but which "failed to operate." Of the 126 people on theDeepwater Horizon rig when it was engulfed in flames, only seven were BP employees, said McKayBut Steven Newman, CEO of Transocean, which owns the rig, suggested it wasnt his company atfault. "The most significant clue is that these events occurred after the well construction process wasessentially complete. Drilling had been finished on April 17 as the well had been sealed with casingand cement. For that reason, the one thing we do know is that on the evening of April 20 there was asudden, catastrophic failure of the cement, casing or both," Newman said.But Tim Probert, an executive with Halliburton Inc., the subcontractor responsible for encasing thewell pipe in cement before plugging it -- a process dictated by BPs drilling plan -- said his companyfinished its work "in accordance with the requirements" set out by BP. He said pressure tests wereconducted after the cementing work was finished to demonstrate well integrity.Main problems finding (taken from Macondo well - Chief Counsels Report – 2011)Technical FindingsThe root technical cause of the blowout is now clear: - The cement that BP and Halliburton pumped to the bottom of the well did not seal off hydrocarbons in the formation. While we may never know for certain the exact reason why the cement failed, several factors increased the risk of cement failure at Macondo. - They include the following: First, drilling complications forced engineers to plan a ―finesse‖ cement job that called for, among other things, a low overall volume of cement. - Second, the cement slurry itself was poorly designed—some of Halliburton‘s own internal tests showed that the design was unstable, and subsequent testing by the Chief Counsel‘s team raised further concerns. Third, BP‘s temporary abandonment procedures—finalized only at the last minute—called for rig personnel to severely ―underbalance‖ the well before installing any additional barriers to back up the cement job. - BP missed a key opportunity to recognize the cement failure during the negative pressure test that its well site leaders and Transocean personnel conducted on April 20. The test clearly showed that hydrocarbons were leaking into the well, but BP‘s well site leaders misinterpreted the result. It appears they did so in part because they accepted a facially implausible theory suggested by certain experienced members of the Transocean rig crew. - Transocean and Sperry Drilling rig personnel then missed a number of further signals that hydrocarbons had entered the well and were rising to the surface during the final hour before the blowout actually occurred. By the time they recognized a blowout was occurring and activated the rig‘s blowout preventer, it was too late for that device to prevent an explosion. By that time, hydrocarbons had already flowed past the blowout preventer and were rushing upward through the riser pipe to the rig floor. Page 6
  7. 7. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George KastnerManagement FindingsAll of the technical failures at Macondo can be traced back to management errors by the companiesinvolved in the incident. - BP did not fully appreciate all of the risks that Macondo presented. - It did not adequately supervise the work of its contractors, who in turn did not deliver to BP all of the benefits of their expertise. - BP personnel on the rig were not properly trained and supported, and all three companies failed to communicate key information to people who could have made a difference.Among other things: - BP did not adequately identify or address risks created by last-minute changes to well design and procedures. BP changed its plans repeatedly and up to the very last minute, sometimes causing confusion and frustration among BP employees and rig personnel. - When BP did send instructions and procedures to rig personnel, it often provided inadequate detail and guidance. - It is common in the offshore oil industry to focus on increasing efficiency to save rig time and associated costs without affection risks. BP‘s management processes did not do so. - Halliburton appears to have done little to supervise the work of its key cementing personnel and does not appear to have meaningfully reviewed data that should have prompted it to redesign the Macondo cement slurry. - Transocean did not adequately train its employees in emergency procedures and kick detection, and did not inform them of crucial lessons learned from a similar and recent near- miss drilling incident. - What the men and women who worked on Macondo lacked—and what every drilling operation requires—was a culture of leadership responsibility. In remote offshore environments, individuals must take personal ownership of safety issues with a single- minded determination to ask questions and pursue advice until they are certain they get it right.Regulatory Findings - The MMS regulatory structure in place in April 2010 was inadequate to address the risks of deepwater drilling projects like Macondo. - Then existing regulations had little relevance to the technical and management problems that contributed to the blowout. - Regulatory personnel did not have the training or experience to adequately evaluate the overall safety or risk of the project. Page 7
  8. 8. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George KastnerList of problem related to process or company culture 1. Too many incidents in 5 years due to a reactionary management culture that puts an emphasis on cutting costs and efficiency while neglecting preventative maintenance 2. Quality control of the subcontractors and equipment: many concerning faulty valves, which are critical for safety given the high temperatures and pressures. 3. Security process: The company trains contractors to recognize risky behavior and asks employees for suggestions on how to improve safety. It says it has cut time lost to safety incidents by 12 percent each year since 2000. 4. Engineering procedures: people are bad inform or with insufficient or incomplete procedures 5. Maintenance prevention: routine maintenance that might have averted the accident had been delayed because of pressure to reduce expenses. 6. Management process: it must ensure that measures taken to save time and reduce costs do not adversely affect overall risk 7. Lake of coordination management before the crisis 8. Insufficient trained personnel, equipment, and response resources 9. Operation competence training process 10. Improvement of company vertical Integration for a better involvement 11. Communication process, with a minimization of the dramatic situation or liesThe main problem is related to quality and the relationship with subcontractorsi.e to express it:Halliburton, Transocean and BP return the mutual fault of the disaster. The lightness of the controlsafter execution of tasks and the lack of follow-up. The fact is that better management of the qualityof the process for the construction of this well could have prevented the disaster. Page 8
  9. 9. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George KastnerRecommendation is to improve qualityThis improvement is from my point of view a key element of the well-functioning of each operationas dangerous as oil prospection and industrialization. It will affect the way of how each steps ofprocedure will be done, it will affect the employees implication and the way how they will do thework, it will affect the equipment and how the maintenance will be done, and the most important,the quality of all these components will reduce the number of incident and at the end, the number ofdeath.The following points are to identify and to improve: - All process management should be improved in term of efficiency to avoid money saving argument of cost reduction which affect the time spent on quality control. Better improve efficiency instead of cutting control steps - Management of subcontractors strict with building contracts defining precise responsibilities, task and procedures respect. - Increase quality control on security elements of well: setting-up a common management system with precise safety rules and training for all facilities - Quality control subcontractors work, procedure of controls should be done - One independent agency should be charged with inspecting oil rigs, investigating oil companies and enforcing safety regulations, while the other would oversee leases for drilling and collection of billions of dollars in royalties. - Train technician on protocols and add more resources to be dedicated to improve technology and response protocols to adequately. - Better and transparent communication between stakeholders (population, government, subcontractors, NGO, employees) - Create an IT system which collects idea, comment or suggestion of employees willing improve the process, the quality or the security of equipment, and motivate them to add comments with rewards Page 9
  10. 10. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George Kastner Page 10
  11. 11. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George KastnerProcess that would be followed-upStandard Operating Procedure for DrillingEach of these steps have to be improve and taken in account seriously by the company to avoid amaximum the risk of an incident with the following cycle.Analyze – implement – train – control - correct 1. Definition And Introduction 2. Operator Pre-Qualification 3. Training 4. Supervision 5. Personal Protective Equipment (Ppe) 6. Communication 7. Emergency Response Plan (Erp) 8. Site Location 9. Housekeeping 10. Health And Hygiene 11. Environment 12. Drill Rig Safety Devices 13. Fire Protection Page 11
  12. 12. EMBA LONDON DICKENS COHORT FINAL EXAM, Dec 2012 Philippe Kunz – Global Operation – George Kastner 14. Electrical 15. Fuel Handling 16. First Aid 17. Maintenance 18. Storage/Stacking/Handling 19. Community Relations 20. Security And Safety Precautions 21. Incident Reporting And Suspension Of Work 22. Meetings And DocumentationReferences well - Chief Counsels Report – 2011 – pdf document Page 12