The current disaster in the Gulf of Mexico where 800.000 liters of crude oil are spilling into the sea each day since the 20th of April is unfortunately a perfect lecture concerning risk management practices and failures. And a lesson about the dragons lurking on the tail ends of probability curves.
BP was on the endeavor to leave the bad security past behind, after years with accidents in 2005 to 2008 under a new CEO BP had improved the safety record and moved delayed projects forward. One of them was Thunderhorse - the Gulf underwater drilling operation. For that they had contracted Transocean, the world’s biggest offshore drilling contractor. The rig that sank represented the cutting edge of drilling technology. It is a floating rig, using dynamic positioning and was capable of working in up to 10,000 ft water depth. It was equipped with Blowout Preventers that are controlled with redundant systems from the rig including panic buttons and fail-safe Deadman systems that should be automatically engaged when something of this dimension blows out.
As always when such a thing occurs there is a lot of blaming going on - we just will have to wait until the investigations will bear results. As I have the experience of working on an oil rig before I can tell you that security is always at the top of everybody's mind as it affects your own life and most likely bonus. So discussing if there was a technical or human failure is completely beyond the point.
But to give some dimensions to the motivation behind this operation: BP produces about 450,000 barrels a day of oil equivalent in the Gulf of Mexico, about 12 percent of its total. Oil from Thunderhorse, the second-largest producing field in the U.S., is among the most profitable. BP went ahead with exploration in the Gulf of Mexico when others backed off. Last year’s Tiber find in the Gulf may contain 4 to 6 billion barrels of oil. As an indication of improved performance, BP's net income more than doubled in the first quarter to $6.08 billion from $2.56 billion a year earlier. And that in spite of the cost for such a rig at approx. $500,000 per day to contract, full cost rather close to $1,000,000 per day. By the way the Gulf operations boosted U.S. energy production. For the first time in years, the nation’s oil output is rising. There are 3,858 wells that have been drilled out in the Gulf of Mexico (US waters) and 30% of the oil produced domestically comes from the Gulf of Mexico.
There is a clear analogy with the financial crisis: The higher the profits and gains at stake the more likely it is that risks are taken that actually should never have been. Would you as a state dispense with 30% of your oil available? Don't take your answer lightly as that would probably cause riots.
One can state that the Thunderhorse disaster event is exceptional and topping any risk scenarios that were discussed beforehand by far. The extensive contingency and emergency plans that were prepared are simply not able to cope with the effects that were never expected. Things were happening so fast that none of the prepared safety and backup procedures could get a grip. Analogy again to the avalanche rolling through the financial institutions.
So we come to communication: At least BP seems to have learned from the bad examples of the last years and goes quite aggressively on that: "Yes - we will pay! Yes it is our responsibility!" There was only a slight glitch in the beginning when there were discussions on the actual amount of oil spilling into the ocean.
But there is more to communication on risks. On an oil field everybody knows about the residual risk - dangers even affecting one own life. But the public is very often not informed about the risks coming with such kind of operations and reacts accordingly after a disaster is happening as it is out of their experience. And they were never asked if they are willing to take this risk, by the way.
So again the failure of risk management comes down to psychology. There are risks that are so severe in their impact that they are simply not allowed to happen! Combined with an exceptional low probability for occurrence this leads to the perception that something like this will never happen. But it is essentially important to look at those risks and ask yourself if you can stand it if that happens. The Thunderhorse disaster is a good example for a risk event that can easily kill a company - as well financially as by reputation.
BP stands for "Beyond Petroleum" they say - that gets now a totally different notion as the fallout of this event will effect the oil industry worldwide.
