The oil and gas industry is responsible for excavating and delivering roughly 60% of the world’s energy resources, making it one of the most lucrative and profitable enterprises. The construction of oil rigs on the land and far in the seas is a significant investment with an expected payoff rate of 15-20 years. At the same time, the long-term nature and various negative impacts of oil drilling make it a high-risk venture for the workers and the surrounding environment.
The gas and petroleum industry is one of the slowest ones to adopt new practices and technologies, which exposes the oil rigs to significant risks. For example, the re-suspension and seafloor digging for the pipelines typically cause a localized discharge up to two kilometers in width.
The Deepwater Horizon oil spill of 2010 is one of the most famous incidents revolving around the use of oil-digging platforms. The catastrophe resulted in the largest oil spill in humanity’s history, with over 5 million barrels dumped into the ocean. In addition to the deaths of 11 workers and several dozens injured, the oil spill caused ecological turmoil, killing millions of fish, birds, and other marine lifeforms. In addition to that, the scope of the spill was large enough to facilitate worldwide climate changes and alter the Gulfstream flow.
The case study reviewed in this paper examines various economic, organizational, engineering, and construction issues that led to the disaster. The complete disregard for risk-planning, the lack of safety culture, and the poor and piece-meal implementation of Just-In-Time and lean management techniques were the root causes behind the disaster.
Case Study Summary
The case study provides the reader with the relevant statistical information about the Deepwater Horizon disaster to help realize the scope of the tragedy. The author compares it to the previous largest oil spill in history, which was the Exxon Valdez oil spill of 1989. Deepwater Horizon surpassed the amount of oil discharged from Exxon Valdez every 4-5 days. Over 62,000 barrels per day were spilled into the gulf daily before the ecologists, rescuers, and the local authorities managed the situation. The article does not focus on how the situation was handled, as it was not its main purpose. The focus of the text is on why it happened.
The next chapter is dedicated to the British Petroleum company, which owned Deepwater Horizon and was responsible for its construction. There is a brief snippet of the company’s history, covering its conception and expansion since 1909 and until 2010. Various milestones on its way to the top included its government ownership, privatization, aggressive expansion during the 1990s, and the promotion of Tony Hayward as the new company CEO in 2007. It must be noted that for the majority of the company’s history, the venture had not been successful. It reported significant losses and was kept afloat by the government’s donations.
Mr. Hayward was the one to try implementing new organizational and management strategies into the business, including the promotion of local leaders and managers and granting them a greater array of authorities and responsibilities. He also significantly reformed the command and decision-making structure, reducing the number of pointless bureaucratic features and streamlining the decision-making process. Nevertheless, his reforms of BP, though fruitful, were inconclusive.
The article mentions that BP always had issues with worker safety, mostly because of the organizational structure that prioritized profit over safety as well as a poor set of corporate values, none of which were dedicated to promoting effective safety measures. The last incident struck the company in 2005 when an explosion on a Texas refinery plant killed 15 and injured 180 workers. In the report of the aftermath, it was noted that the incident was caused by a poor safety culture, which could have only developed due to the inaction of the management staff and a complete disregard of the situation by the company’s leadership.
After the tragedy, BP took actions to improve its safety culture, though it was obvious that the majority of these actions were centered on the Texas refinery plant. They did not translate too well into other regions. The reason for that was because of the company’s focus on generating profit rather than on ecological or worker safety. The managers in charge of their sectors were allowed to make their conclusions.
From this point on, the article shifts to the events that led to the Deepwater Horizon oil spill. The article outlines the reasons why BP even dared to drill at such extreme depths. The oil rig promised to yield 5 times more than the average shoal drilling operation, thus promising greater short-term revenues. Besides, the competitive nature of the oil industry and the extreme costs of construction were forcing Deepwater Horizon to be constructed and operated in haste. The article then describes the main reasons why Deepwater Horizon suffered a catastrophe, the majority of which were connected to poor safety measures, haste, harmful economy, and poor engineering choices. The particular decisions that influenced the safety of the platform were as follows:
- The decision to use a good design with few barriers to gas flow;
- The failure to use a sufficient number of “centralizers” to prevent channeling during the cement process;
- The failure to run a cement bond log to evaluate the effectiveness of the cement job;
- The failure to circulate potentially gas-bearing drilling muds out of the well;
- The failure to secure the wellhead with a lockdown sleeve before allowing the pressure on the seal from below.
At the end of the article, the author concludes that the culture and the organizational architecture of BP could be some of the likely causes of the disaster. Recommendations can involve creating incentive-based systems centered on personal and ecological protection. Had this been the case in BP, it would have resulted in better decision-making during the project implementation phase, during which the aforementioned engineering issues came up, but were ignored in favor of speed and economic efficiency.
Case Study Analysis: A SEU Perspective
The following section will analyze BP’s policies and processes that involved the construction of Deepwater Horizon based on several SEU parameters, such as Total Quality Management (TQM), Just in Time Management (JIT), Risk Assessment Management, Supply Chain Management, and Lean management techniques. The thesis of the paper is that, although the company did implement these techniques in an attempt to reform their strategy, they did so poorly and without understanding the purposes and weaknesses of these approaches, which, in turn, caused the disaster.
The Core Problem
From how it appears, the core problem was with the company adopting JIT and Lean management as the primary methods of running their construction project. This could be seen in their efforts to “reduce waste” by saving time and money on unnecessary precautions such as the centralizers, the attempts to make construction decisions during each step of the installation, which resulted in controversies and changes along the way, as well as the push to have the installation complete in a very short schedule. It has some resemblance to JIT and lean management techniques but misses the point entirely.
These techniques are very useful in retail and product assembly with planned and known variables as well as the estimated production quantities. However, some of the weaknesses of these techniques include lacking a long-term perspective as well as being vulnerable in terms of safety. It is the reason why they are rarely used in construction, where the costs, materials, and projects may be rehashed and changed several times as the process goes. Yet, as it was possible to see, Deepwater Horizon was constructed with the process in mind, not the result.
Risk Assessment Management
The first and most prominent issue was with the risk assessment techniques or lack thereof. Many modern business processes implement Six Sigma to govern safety protocols and minimize risks. As a result, extra time and resources are being saved, which makes the idea very attractive to JIT and Lean managers. However, Sigma Six does not approve of simply removing safety standards. On the contrary, it integrates safety measures into the process, thus making the entire venture safer.
As it is possible to tell from the case study, such actions were not implemented. Deepwater Horizon had numerous safety hazards starting from poor software usage and ending with faulty equipment and numerous workaround techniques that the employees had to implement to maintain a measure of productivity. Various risks from inadequate equipment rushed construction, and oil discharges were considered negligible compared to short-term losses caused by delays. Thus, the risk assessment strategy valued an extremely short-term perspective over the long-term or even middle-term strategy. That approach was inherently flawed.
Supply Chain Management
The supply chain management strategy in the construction of Deepwater Horizon was also critically flawed. The supplies followed the Lean management strategy, which assumed that the preliminary work estimations, material requirements, and project regulations were final. As a result, they were attempting to supply the deep-sea excavation and construction without having a surplus. This caused an issue during the installation of the centralizers as well as during mud circulation.
The company simply did not have enough centralizers at hand and decided to install only 6 instead of the required 21. This indicates a lack of planning for contingencies, which is paramount in construction. Due to various delays and changes, a project of this scope must always keep additional materials on hand to avoid delays. Thus, the supply chain was chosen poorly, which led to the additional problems and critical engineering mistakes, which the specialists were warned about.
Total Quality Management
As it is possible to see from the description of labor on Deepwater Horizon, total quality management techniques were not implemented. TQM helps minimize costs by avoiding potential risks and eliminating them before they could become larger problems. The strategy of dealing with safety issues on Deepwater Horizon was starkly different. Instead of eliminating the vast array of problems, the local management chose either to ignore and underreport them or to find workarounds using the existing systems. Thus, the issues of the safety and quality of labor were ignored, meaning it was only a matter of time before the issues caused a critical failure.
The True Mission of BP
With how much concern was given to cost-efficiency and profitability of the enterprise, as well as the unsystematic use of JIT and Lean techniques during labor, it is obvious that the true mission of the company was not to ensure the safety of its workers or the environment. Instead, BP sought to earn money on oil extractions while cutting costs everywhere possible in the short-term perspective. Part of the reason why it happened was that of the increased initiative given to the local managers, with their compensation being tied to the overall performance of each rig or sector. Short-term benefits became more important than the overall stability of the project or the company. These tendencies were shown during the planning and construction as well as the actual utilization of Deepwater Horizon.
As it is possible to see from the summary and the analysis, the issue encountered at Deepwater Horizon was not a singular fault unique to that particular oil platform. Despite the difficult terrain and extreme deep-sea conditions, the project could have been done properly and safely for the workers as well as the surrounding environment.
However, BP’s problem is that of systemic neglect of safety requirements and adopting a facsimile of JIT and lean management while not mitigating their weaknesses, with those being the aim for the short-term perspective as well as the attempts to minimize waste through reducing environmental and worker safety. The idea that the author wanted to express was that these systematic issues might be a blight upon the industry in general, so long as it is fixed on generating profits and saving costs at the expense of everyone else.