The Deepwater Horizon Disaster from a Systemic and Unexpected - PowerPoint PPT Presentation

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 Process Safety • Keeping people safe • Procedures for minimizing risk generally • Slips – Decision making • Trips Trips – Communication Communication • Falls – Leadership – Regulation – Incentives – Culture 5

The Arrow Government Government Regulators Regulators Company Company Management Management Operational Operational Operational Operational Staff Staff Work Work Actions Actions A SYSTEM!!!! Accident Accident 6/27/2012 6

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

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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. – Nature’s 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? • What’s 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 Browne’s 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 Browne’s attention well before he became had Browne’s attention well before he became CEO • Hayward’s business pressures were the same as Browne’s • Greater and greater reliance on contractors 6/27/2012 15

Tony Hayward CEO 2007-2010 • Career moved in lockstep with Browne’s • Was head of Exploration and Production • Pledged to undertake a substantive review of company’s risks company’s risks • Much of the safety challenge amounted to house cleaning • Solved the wrong problem! 6/27/2012 16

On Hayward’s 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 problems failed to address safety problems • High pressure gas line exploded in Alaska • By spring 2010 more than forty percent of Horizon’s rig days were non productive (downtime) • Deepwater Horizon blows up (2010) 6/27/2012 17

Robert Dudley 2010- Don’t yet know what Dudley can do, but his hands are filled with oil spill consequences 6/27/2012 18

Relationships Among Organizations BP Minerals Management Management Transocean Transocean Service Schlumberger Halliburton 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 well final 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 Browne’s 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 world’s 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

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