BPs Macondo Spill and Response

BPs Macondo Spill and Response

In 2010, the disaster at BP’s Macondo well in the Gulf of Mexico had compelled the government to review the U.S regulatory system of offshore oil exploration. It was one of the largest offshore oil spills in the history of the country and everyone was demanding to change the regulatory setup for offshore oil exploration. The blowout was occurring on the evening of April 20, 2010, when the company had reached its goal of digging 13,000 feet starting at a depth of 5,000 feet and had found oil 41 miles off the coast of Louisiana. When the company was plugging the well: a column of methane had travelled up the well and exploded. As a result of that blowout 11 out of 126 members of the crew had died and 17 were seriously injured. Oil had spread out rapidly in the sea water and reached shore around May 1, prompting Florida, Mississippi, Louisiana and Alabama to declare state of emergency. Lots of tourist companies and the state governments had started to file lawsuits against BP. Hayward had accepted that their company would compensate everyone who faced losses as a result of that blowout and would pay for all the cleanup operations as well.

As a result of the crises that had been raised due to the blowout, the Obama’s administration had instituted a moratorium on all deepwater drillings. They had also divided the Minerals Management Services (MMS) into three offices i.e. One would lease oil resources, one would collect royalties and the last one would regulate drilling. On 16^th June, Obama’s Administration met BP’s executives in the white house; where an agreement was signed under which BP would put $20 billion in an escrow account to compensate the victims of the spill. Both the parties were agreed that the fund would be administered by a third person Kenneth Feinberg. BP was directed to deposit $3 billion into the fund by the end of 2010.

Would you have asked for the $20 billion?    

Of course, yes, because the spill had caused lots of damages to the environment and losses to other industries as well i.e. The tourism industry, government tax revenues and other oil exploring companies. According to the regulations set by MMS, BP was directly liable to bear the clearance charges and pay penalties under the environmental management system rules, but it was also sued by lots of other people claiming damages for their losses. As a result of the spill government had instituted a moratorium on all deep water drilling due to which lots of other oil exploring companies had to stop their operations and faced heavy losses (see appendix). Number of bills had been presented in the congress, sought to punish BP for their negligence and some of them had stated that the government should increase the liability limit of the offshore accidents from $75 million to $10 billion to prevent such sort of negligence in future. Therefore, to avoid all sorts of public strikes and an expected negative response of labor unions, it was necessary to ask the company for heavy compensatory amounts.

As Tony Hayward, would you agree to $20 billion?   

Yes, I would agree to this deal because it would take off number of lawsuits from the company and promote its positive image in the industry. The company would not be held personally liable to the outsiders and all the affected persons would be compensated directly from the fund. By doing this deal the company could also change the anti-American perception that had been raised about them by different policy makers of America. After the incident of the Macondo blowout the company’s share value was gradually decreased in the stock market till 16^th June. But with the announcement of this deal the share value of the company in the stock market rose slightly and the vacuum of uncertainty had been vanished. (See appendix)

Should the US government change the way it regulates this industry??

After the incident of Macondo Oil Spill, people raised a lot of questions about the efficiency of MMS and the effectiveness of the drilling regulations of the USA. MMS had been blamed that it had exempted BP’s drilling plan for the Macondo well from having to spell out its environmental impact, but later on it was clarified by the white house that MMS had followed all the standard procedures in approval of BP’s Plan.

I think the existing drilling regulations of the USA are inefficient to deal with such high magnitude spills; therefore US should review their regulations and improve them according to the modern age requirements. Government should strictly require all the firms to have a Safety and Environmental Management System (SEMS) and should improve the current regulations regarding this system. The system should focus upon the following four areas

• To determine all the possible adverse environmental consequences of the modifications.
• Study rigs to minimize uncontrolled releases of oil and gas.
• Periodic review of all the operating procedures and technical complications.
• To set up such procedures that can promote the use of environmentally sound equipments.

The government should make it compulsory for all the firms to conduct a periodic review of all their equipments regularly and submit a detail report regarding their condition to the newly established Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE). Government should increase direct penalties for violation of any regulation regarding the offshore drilling so that all the oil exploration firms will keep extra care during future drilling.

Appendices

Companies Affected by the Gulf Deepwater Moratorium, 2010

 BP Stock Price (Daily Close), April 17 to September 9, 2010