The Deepwater Horizon Disaster from a Systemic and

Unexpected Management Perspective

Karlene H. Roberts

Haas School of Business

Canter for Catastrophic Risk Management

University of California, Berkeley

karlene@haas.berkeley.edu

510.642.4700 (fax)

6/27/2012 1

Complex Systems Almost Always

Fail in Complex Ways

Columbia Accident Investigation Board,

August, 2003

6/27/2012 2

Agenda

What the nuclear power industry can learn from the Deepwater Horizon disaster

Two kinds of safety culture

What happened in the Gulf

The costs The costs

Indicators of lack of process safety Where leaders direct their organizations: Browne,

Hayward, Dudley

What goes on in organizations that must work together: BP, Transocean, Halliburton, Schlumberger, MMS

6/27/2012 3

What Can the Nuclear Energy Industry Learn

from the Deepwater Horizon Disaster?

The difference between the old perspective

on safety and the new perspective on safety

How not to solve the wrong problem precisely How not to solve the wrong problem precisely

What it means to be a system

6/27/2012 4

Safety Culture: Doing the Right Thing

Even When Nobody is Looking

Occupational Safety

Keeping people safe

Slips

Trips

Process Safety

Procedures for minimizing

risk generally

Decision making

Communication Trips

Falls Communication

Leadership

Regulation

Incentives

Culture

5

The Arrow

ManagementManagement

Operational Operational

CompanyCompany

RegulatorsRegulators

GovernmentGovernment

WorkWork

Operational Operational

StaffStaff

ActionsActions

AccidentAccident6/27/2012 6

A SYSTEM!!!!

What Happened in the Gulf

On April 20, 2010 the Deepwater Horizon drilling rig blew up

Eleven people were killed

Seventeen more were seriously injured

The drilling rig burned for 18 hours and then The drilling rig burned for 18 hours and then sank

Oil spilled from the well for 86 days

It released 200 million gallons of crude oil

This killed valuable wildlife and ruined both the gulf and surrounding lands

6/27/2012 7

6/27/2012 8

The Costs

Total cost USD 40 billion (Huffington Post, Guardian)

BP paid USD 713 million in lost tax revenues to Louisiana, Alabama, Florida, and Texas

Hard to estimate costs to: Hard to estimate costs to: Fishing industry (At the peak of fishing season the

closure of 88,000 square miles of sea)

Tourist industry (Oxford Economics estimated USD 7 -23 billion)

100,000 businesses who sued

405,000 individuals who sued

6/27/2012 9

The costs, cont.

Natures critters (Known deaths of 6045 birds, 609

marine turtles, 100 sea animals, 300 bottle nose

dolphins)

1,000 miles of shoreline were heavily or

moderately oiled

Massive coral die off

Damage to the floor of the Gulf

6/27/2012 10

Indicators of a Lack of Process Safety

What happens under various leaders

Where do they put resources?

How attentive are they to precursors of trouble?

Whats going on within the organizations

which have to work together

How attentive are they to safety issues?

6/27/2012 11

Relationships Among People

Browne Hayward Dudley

6/27/2012 12

John Browne CEO 1995-2007

Before that he was head of Exploration and

Production

Saw that BP was a stodgy company

Wanted to implement more aggressive management Wanted to implement more aggressive management

Did that by cost cutting

Reorganized the company to make it lean and mean

Maintenance of the Alaska pipeline was reduced

Refinery at Texas City was starved of resources

Solved the wrong problem!

6/27/2012 13

On Brownes watch.

Grangemouth Complex had 3 accidents (2000)

Alaska well pad explosion (2002)

Texas City refinery blows up (2005)

Thunder Horse platform almost sinks (2005) Thunder Horse platform almost sinks (2005)

U.S. Commodities and Future Trading Commission sues BP for cornering and then manipulating the market price for propane (2006)

Between 2000 and 2009 more than 350 large spills in Alaska

6/27/2012 14

Browne and Hayward

BP was a bad company but that had nothing

to do with Hayward (says Hayward)

Hayward ran Exploration and Production and

had Brownes attention well before he became had Brownes attention well before he became

CEO

Haywards business pressures were the same

as Brownes

Greater and greater reliance on contractors

6/27/2012 15

Tony Hayward CEO 2007-2010

Career moved in lockstep with Brownes

Was head of Exploration and Production

Pledged to undertake a substantive review of

companys riskscompanys risks

Much of the safety challenge amounted to

house cleaning

Solved the wrong problem!

6/27/2012 16

On Haywards watch

Slashed USD 4 billion in expenses in 2009

2010 refinery subsidiary paid more than USD 50 million to Occupational Safety and Health Administration (OSHA) to settle claims that it failed to address safety problemsfailed to address safety problems

High pressure gas line exploded in Alaska

By spring 2010 more than forty percent of Horizons rig days were non productive (downtime)

Deepwater Horizon blows up (2010)

6/27/2012 17

Robert Dudley 2010-

6/27/2012 18

Dont yet know what Dudley can do, but his hands are filled with oil spill consequences

Relationships Among Organizations

BP

TransoceanMinerals

Management Transocean

HalliburtonSchlumberger

Management Service

6/27/2012 19

BP Is Not The Only Player In The

Game

BP owns the well, contracts with Transocean to drill the well

BP contracts with Halliburton to complete the final cement job on the wellfinal cement job on the well

BP contracts with Schlumberger to test the adequacy of the cement job

Minerals Management Service (MMS) is the US regulator of these activities

Thus, we have a system of organizations

6/27/2012 20

BP

Under Hayward and Brownes leadership BP cut

costs over a 15 year period

BP lowered maintenance on the Alaska pipeline

BP cut training costs BP cut training costs

BP made money through production pressures

In the Gulf they used lower cost, lower quality

materials

BP solved the wrong problem

6/27/2012 21

Transocean

Owned drilling rig Deepwater Horizon

Largest operator of offshore drilling rigs

Inadequate monitoring of the well

In a survey conducted in March 2012 46% of the workers feared they would face reprisals if they workers feared they would face reprisals if they reported unsafe situations

Used a cheap and less reliable casing

Used fewer centralizers than prescribed (centralizers hold the casing in place)

Transocean solved the wrong problem

6/27/2012 22

Halliburton

Industry leader in foam cementing

Called in by BP to do the cementing after Transocean completed the drilling

Cementing is inherently uncertain

BP placed a number of significant constraints on BP placed a number of significant constraints on Halliburton (BP had little experience with foaming technology)

Halliburton conducted 2 tests on the foam. Both failed

Halliburton solved no problem

6/27/2012 23

Schlumberger

The worlds leading supplier of technology, integrated project management and information solutions in the gas and oil industry

BP contracted with Schlumberger to do a bond log to insure that the solitary cement barrier in the well insure that the solitary cement barrier in the well would hold

A Schlumberger crew was on the rig to do the test

BP ascertained the cement would hold

BP sent the Schlumberger crew home

Schlumberger solved no problem

6/27/2012 24

Minerals Management Service

Mission: To manage the energy and mineral resources on the U.S. Outer Continental Shelf and to regulate the oil and gas industry

Prescription as opposed to performance view of regulation

Few and inadequate resources Few and inadequate resources

Lack of training

Preoccupation with revenues as opposed to safety (solving the wrong problem)

Degeneration of ethical culture

MMS could not solve the safety problem

6/27/2012 25

A Conclusion

If industry leaders Transocean, Halliburton and

Schlumberger, had their own failures in the

Gulf

And since none of these companies were And since none of these companies were

examined under a microscope as was BP

You can expect them to fail again somewhere

6/27/2012 26

6/27/2012 27