US Report Says BP Oil Spill Stemmed from "Bad Management"

Next week, the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling will issue its report, but today, it released Chapter 4 of the final document. What is most troubling about this portion is the stated belief that the failures that caused the petrocano to erupt were "systemic" and are likely to recur. Yet the commission clearly states, "the accident of April 20 was avoidable." Reading between the lines, it becomes clear that oil company leaders and oil company regulators simply don't have the courage to fix things.

The main point of the matter is that drilling for oil off shore is a risky environmental proposition. There are engineering techniques that can make it safer, but they all cost time and money. In other words, making off-shore drilling environmentally sound cuts into profits. To ensure that corporations drilling off shore don't shirk their environmental obligations, government must either create financial incentives to mitigate the costs or regulate drilling techniques. The former socializes the risk while keeping the profit in private hands (most unsatisfactory), and the latter requires government expertise at least equal to that of the private sector to set the proper regulations and sufficient political will to enforce the rules.

The Commission concludes that neither approach was in effect in the Gulf last spring. Had adequate financial incentives existed, the risks would, by definition, have been managed sufficiently well. "Whether purposeful or not, many of the decisions that commission BP, Halliburton, and Transocean made that increased the risk of the Macondo blowout clearly saved those companies significant time (and money)." As for regulation, ". . .the Macondo blowout was the product of several individual missteps and oversights by BP, Halliburton, and Transocean, which government regulators lacked the authority, the necessary resources, and the technical expertise to prevent."

In business of any type and in oil production in particular, managers make decisions that carry risks. However, they usually don't look at the cumulative effect on overall risk that each individual decision carriers. When a project is divided among three different firms (in this case, BP, Halliburton and Transocean), managers tend to worry only about their own decisions and responsibilities. What the other guys does is the other guy's problem. Yet, everything is connected to everything else.

What would have prevented the blowout? "Better management by BP, Halliburton, and Transocean would almost certainly have prevented the blowout by improving the ability of individuals involved to identify the risks they faced, and to properly evaluate, communicate, and address them." Eleven men died, and the world suffered hundreds of millions of dollars of damage. Co-Chair Bob Graham said, "There is nothing that we can do to bring back the lives of the men we lost that day. But we can honor their memory by pledging to take steps necessary to avoid repeating the fatal practices of the past." Financial incentives and/or tighter regulation can do that, but the smart money says the "systemic risk" will remain.

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