Who’s Responsible? Gulf Oil Spill

Who’s Responsible? Gulf Oil Spill

Okay, folks, the topic for today is the BP oil rig catastrophe in the Gulf of Mexico that occurred on April 20.

DIRK OLIN, Editor-in-Chief, Corporate Responsibility Magazine

Our knowledge is sketchy: The explosion itself killed 11 people. Since then, at least 5,000 barrels of oil per day (see below) have erupted from the broken well pipe, which is 5,000 feet under water, 40 miles off the coast of Louisiana. Beyond the immediate deaths, it’s a disaster of broader existential proportions because of the threat it poses to the ecosystem (marshes and wetlands) and an part of the world that is heavily dependent on fishing and tourism.

The first comparisons cited the 1989 Exxon Valdez disaster. That was the previous benchmark for American oil spills, and it garnered soap-operatic coverage. Why? For one thing, the captain was drunk and AWOL, cluelessly running his ship onto a reef in Alaska’s Prince William Sound. For another, it spewed about 11 millions barrels of oil onto a pristine coastline that in many or most ways hasn’t recovered to this day.

But an arguably more apt analogy has arisen, as we’ve tracked at thecro.com: the Challenger space shuttle explosion. Like the 1986 NASA disaster, investigations of the BP spill are starting to point toward complex and sophisticated technical systems that failed because of overlooked problems, which, in turn, exacerbated the situation in unanticipated ways. And there’s a string of causation that by now is almost as murky as the oil-soaked gulf itself.

BP LLP owned the well that blew. Transocean Ltd. owned the rig. And everybody‚s favorite government contractor, Halliburton Co., conducted key tests right before the event.

The parallel to the Challenger’s famously failed O-rings? Congressional investigators revealed last week that a key safety system, known as the blowout preventer, used in BP’s oil-drilling rig in the Gulf had a hydraulic leak and a failed battery that probably prevented it from working as designed.

Oh, and one more player: The Interior Department announced last week that it was breaking up its Minerals Management Service. Why? Because that agency has the dual role of ensuring oil drilling safety in federal waters and royalties from oil and gas companies. This isn’t a fox guarding the henhouse. This is a heroin addict running a pharmaceutical manufacturer.

Worse, according to reports over the weekend, MMS overrode strong warnings from the National Oceanic and Atmospheric Administration, about the potential impacts of gulf drilling. And worse still, academic oceanographers are suggesting that the government might be seriously underestimating the amount of daily spillage.

So, at the risk of undermining our system’s presumption of innocence: Who’s responsible? Elliot Clark, your thoughts?

ELLIOT CLARK, CEO Corporate Responsibility Magazine

BP is responsible, and they have admitted it. But it is very possible that a lot of others are as well.

I am trying to remember the English translation for the phrase "stupid and foreseeable" and, oh, it’s coming to me now: Stupid and Foreseeable. If you Google, "international standards for oil drilling platforms" or "international standards for oil drilling rigs," you are taken either to a University of Dundee website that has a policy center or a jobs opportunity list. How reassuring.

It seems that these mammoth structures are considered ships, and this one was flying the flag of the Marshall Islands, a country of roughly 70,000 people. Can anyone send the rigorous standards of getting a flag from the Marshall Islands? I could not find them online.

Which raises this question: Who is regulating the standards of these platforms? Is it the oil industry, the ship builders, the flag issuers or the insurers who issue the policies? Are these standards mandatory and international? If they do exist were they just not enforced? This is probably something that needs to be sharply examined (res ipsa "stupid and foreseeable," above).

The U.S. Minerals Service is investigating and has now been reorganized so that the watchdog agency and the licensor are not the same bureau. And Congress is holding its hearings. But it is nonetheless a fact that this occurred in international waters, though the U.S. claims jurisdiction over mineral rights out to 200 miles under a 1953 act that was amended in 2000.

So while BP had to admit liability under both moral and civil law, there is plenty of finger wagging that can still take place about the “who else.” This debacle could become an endless round of litigation, while shrimpers, farmers, and small business owners go bankrupt, and the whole ecosystem collapses a la Prince William Sound.

So it might very well be that everyone including the government, the regulatory agencies, the international community and the oil industries have not established sufficient global standards filling in the "who is responsible" blank. While it was Halliburton’s assessment team and BP’s license and Transocean’s platform, this was going to happen to someone. I know I would feel a lot more comfortable answering this question if rules of responsibility were transparent and easy to answer when something of this magnitude can have these kinds of consequences for the health of the planet.

DIRK OLIN: Richard Crespin, you talk with corporate responsibility officers and federal policy makers every day, how do you see things from where you sit in the Nation’s Capital?

RICHARD CRESPIN, executive director of the Corporate Responsibility Officers Association

I can only imagine the nightmare. Riding the dark ocean in the pitch of night before all hell breaks loose sending up a cloud of heavy "black rain" and fire, casting men and equipment into the icy water, ultimately to their deaths at the bottom of the sea. Even in the best of times, the open ocean is one of the harshest, most unforgiving environments on earth. It takes a particular kind of person to risk their life on a daily basis, facing incredible dangers at almost every turn.

Dirk, your allusion to the Challenger is apt. We can recall the term "groupthink" from the analysis of the Rogers Commission report. NASA, its people, contractors, and leadership, shared a "culture of go," in which dedication to the mission (the desire to send humans into space) ultimately crowded out safety concerns.

It takes a particular kind of person to go into space and a particular group of people to send them hurdling into space. It’s not a job for the feint of heart or the risk averse. In hazardous occupations, from soldier to miner to offshore oilrig worker, acts of bravery get celebrated. Almost by necessity, a culture of risk, a "culture of go" can elevate acts of bravado over acts of risk mitigation.

Elliot makes a good point about standards, but unfortunately this situation has devolved into finger-pointing; compliance has become all people do. There’s so much to comply with that’s all people have time to do, and that’s all they aspire to do.

Halliburton’s Tim Probert testified before the Senate that they were "contractually bound to comply with the well owner’s instructions." BP exec Lamar McKay said “he wasn’t familiar with the procedure on that particular well.” Frank Patton, MMS drilling engineer, who approved BP’s drilling permit said he was never told to check if blowout preventers, the last line of defense in catastrophic failures like this, are adequate.

While the finger-pointing is disappointing on its face, it highlights something we’ve said in the CROA for a while: you can’t comply your way to greatness. When compliance becomes the goal, no one takes responsibility. When compliance becomes the goal, no one goes above and beyond. If you want a smoking gun, here’s what to look for: If Mr. Probert and his colleagues at Halliburton knew to countermand Transocean’s order but didn’t, or BP knew to test the blowout preventer but didn’t, or if Mr. Patton and the folks at MMS knew they needed to check testing certificates but didn’t. Indeed, if any of a thousand people involved knew to speak up but didn’t, we’ll see that once again groupthink conspired with a culture of risk to bring catastrophe. Unless and until leaders lead, and we hold ourselves to a higher standard, more regulations will close this barn door, but not prevent a future calamity.

DIRK  OLIN:Jay Whitehead, as author of The Post-Carbon Economy, you’ve thought about this industry for a long time.

JAY WHITEHEAD, Publisher, Corporate Responsibility Magazine

Two facts: Elliot’s reference to the black hole in drilling standards, and the reality that BP had no contingency plan for a catastrophic blowout but will be nevertheless partially rescued by government clean-up operations and court limits on plaintiff settlements have created a perfect storm of irresponsibility.

And that perfect storm will result in two ironic and unintended financial consequences:

First, the lack of standards for deep water drilling risk management will spawn a litter of over-reaching regulation (Sarbox for oil explorers…Tarbox?) that will make fossil fuel exploration and exploitation in American waters and soil horrendously expensive and risky. That increased expense will boost the price of energy. And that will result in new markets for alternative energy investments. Already the venture capital community is abuzz with activity, enjoying the chance to (finally) dance on the grave of the age of cheap oil.

Second, BP is one of the oil equivalents of the American financial institutions deemed too big to fail in the recent financial crisis. Government emergency response teams are helping to bail it out to clean up the spill. And last week federal court rulings limited plaintiffs’ damage settlements in the case, relegating plaintiffs to class-action remedies in the federal court system, rather than by jury in the state courts. (State juries typically will award much larger settlements than do judges in federal courts.) The ceiling on remedies will result in wails from plaintiff attorneys.

Interestingly, the two-pronged governmental reaction (federal clean-up and court remedy limits) will help Gulf-exposed financial institutional lenders and property insurance companies avoid gigantic liabilities, which will obviate the US government’s need to pursue a second bailout to cover oil spill costs.

As I said: a perfect storm

Posted May 17, 2010 in Blog