BP Deepwater Horizon
In April, 2010, Gulf of Mexico oil rig Deepwater Horizon, managed by British Petroleum (BP) suffered an explosion, sank to the bottom of the sea and precipitated an oil leak that would take months to cap (Pagnamenta & Goddard, 2010). The disaster was costly for BP both financially and reputationally, and the company’s responses have not engendered much faith among the general public with respect to BP’s ethics or its willingness to address the concerns of those whose lives have been devastated by the disaster. The company’s strategy throughout the course of the disaster from the point prior to the disaster to its handling of the legal actions taken against it, has drawn the ire of many observers.
This paper will analyze BP’s strategy, in particular with respect to its balance between the public relations issues and the financial issues. BP’s approach appears to be internally consistent, which makes the strategy easier to discern. The strategy will be analyzed in part using some historical context such as the Brent Spar battle between Greenpeace and Shell, which was another high profile issue between the oil industry and the general public. First, some general background discussion will be provided, followed by a more in-depth analysis of the issue from BP’s perspective.
For BP, the Deepwater Horizon incident can be distilled into two main types of issues, the financial and the public relations. With respect to the financial issues, the incident not only cost BP billions of dollars in direct expenses with respect to cleanup of the oil that was spilled, but also lost revenue from Deepwater Horizon and the oil from that well that ended up in the Gulf of Mexico. The company is guided by Milton Friedman’s principle that its primary responsibility is to generate profit for its shareholders (Friedman, 1970). Thus, BP would have adopted the strategy of weighing its actions in the Gulf on a financial basis. There was a legal ceiling with respect to the money it could pay to the U.S. government for the cleanup, but the federal government was seeking to raise that ceiling. The incident could also cost BP, a foreign company, access to U.S.-based oil fields in the future. Thus, there was considerable financial incentive to act ethically in this situation, in order to protect the interests of the company’s shareholders.
The second type of issue is with respect to public relations. In general, BP can reasonably be said to have failed with respect to public relations. Holt and McNulty (2008) the public relations battle is almost as important as the economic battle. It is worth considering, however, that the reason the PR battle is so important is because it has the potential to impact on the financial battle. For BP, the company faced difficult public relations conditions almost immediately because of the multiple ill-considered quotes of its chief executive and the company’s relatively slow response to dealing with the crisis. That BP was later alleged to have cut corners on safety in order to increase profits also played a role in the development of negative publicity. BP also suffered negative publicity with respect to its legal strategy, which was designed to confuse plaintiffs, delay proceedings and generally drag out the process of assigning and paying damages (Peel, 2010).
BP was faced with a number of different alternative courses of action, with respect to the different elements of the Deepwater Horizon damage control strategy. These elements, however, would be guided by the company’s overall strategy. There are essentially three main options. The first is to focus on maximizing shareholder wealth in the long-run. The second is to maximize the company’s public relations stature. The third is to attempt to strike a balance between the two objectives in the hopes that all of the different stakeholders will be satisfied by a balanced approach.
The company needs to weigh the financial and public relations objectives of the different options that it faced. With respect to the financial objectives, there are a number of considerations that need to be taken into account. The first is size of the costs involved. BP was forced to set aside a $20 billion fund for damages accruing from the disaster, in addition to the money spent on the actual damage control of the well site and the oil spill. This amount threatened to become larger if the U.S. Congress re-wrote the laws to give it stronger legal mechanisms to recover cleanup expenses from BP. The disaster’s up front costs were significant, but the potential costs downstream were also significant, and related to the multitude of legal actions that would be brought against the company. The scope of the disaster would make such actions costly to fight and if the company lost potentially disastrous. The long-term impact would wipe out the company’s wealth; the short-term impact could have a strong negative impact on the company’s share price.
BP would have needed to engage in calculations of the potential financial costs associated with the Deepwater Horizon spill. Once it had estimates of potential damages, the next step for BP would be to make a decision as to which impact was going to be the least negative, relative to its risk of occurrence. The company appears to have taken the approach that minimizing financial damages was the most important consideration in its strategy.
For the company, Deepwater Horizon was a public relations disaster. Its name will inextricably be linked to the disaster. Within the affected regions, BP dealers are unlikely to survive under that name. The company could also expect some loss of business elsewhere. BP also had the opportunity to improve its image with respect to corporate social responsibility by acting in a strong and proactive manner to address the concerns of the citizens affected and environmental groups who advocate for the Gulf ecosystem. The company’s approach, however, has shown little but contempt for the people affected. The CEO famously stated that he wanted his life back to normal, showing utter disregard for the fact that eleven people were killed on the rig when it exploded and thousands more saw their lives and livelihoods devastated as the result of the oil spill.
If BP had decided to maximize its public relations, it would have been more proactive not only in dealing with the aftermath of the spill but also in dealing with the legal fallout. The company’s attempts to stall action portray the company as arrogant and uncaring, preserving its bottom line at the expense of the people whose lives it ruined. This approach mirrors somewhat the approach that Shell took with respect to the Brent Spars decommissioning. In that incident, Greenpeace was able to generate enough negative publicity for Shell that the company was forced to reverse its decision to sink the rig at risk of environmental catastrophe (Tsoukas, 1999).
It is an interesting study of contrasts between the approaches the two companies took, and highlights some of the market factors at work. Tsoukas argues that we have become a risk society in that firms will attempt to minimize the risk that they face in the external environment. Risk, it is worth noting, relates to volatility of earnings for most corporations, in particular downside volatility since nobody complains about upside volatility. Shell saw that its actions were generating substantial negative publicity in Europe. This publicity threatened to result in boycotts and lost sales for the company. The company realized that the negative public relations that were set to accrue would have long-term negative impacts on the company’s business in Europe.
For BP, that risk is not as great in the United States. There were calls for boycotts of BP, but Americans are less likely to concern themselves with such matters. Negative publicity is less likely to turn into negative long-term impacts on earnings in the United States, something that BP would be aware of following the lack of significant harm to Exxon in the wake of the Exxon Valdez disaster. BP even had the support of Louisiana’s Republic governor Bobby Jindal in the wake of the accident, apparently afraid of losing a few jobs despite the obvious lack of thousands of jobs as a result of the accident. For BP, support from many quarters in American society gave the impression that even strong negative publicity was unlikely to have lasting effects. This stands in contrast to the situation faced by Shell in Europe in the 1990s. As a result, BP took a different strategic path than Shell did.
For BP, strategy is based around the resource-based view. This view holds that the company’s resources, and its ability to capitalize on those resources, is the key to success. For BP, the primary resource that it has consists of its oil properties. Another important resource is the wealth that the company has with which to develop those resources. For BP, this necessitates a strategy that emphasizes the maintenance of those finances and those oil assets. The company’s brand is an important resource, but not as important as its oil and its money. BP can easily re-brand its gas stations, or get out of retail and sell to other oil companies, none of which will hold BP’s Deepwater record against it. The brand, therefore, has only limited value. This is doubly so in the United States, where consumers are less likely to uphold a boycott of a company over the long run, and where the price elasticity of demand for gasoline is much lower than in Europe.
The result of this is that BP’s strategy is guided by the desire to maximize the company’s two most important resources of oil and money. The latter is particularly important when the legal stalling process is considered. BP’s stalling has resulted in the company facing significant negative publicity, but it has allowed BP to retain more of its money in the short-term. In addition, now that the company knows that it needs to generate more free cash flow, it can focus on doing that while the process is being stalled. Additionally, if stalling costs the company $20 or $30 million but saves the company $500 million, then the effort is very much worthwhile.
The hit that BP takes on its reputation is unlikely to cost as much money as the cost of legal action stemming from the Deepwater Horizon incident. BP knows this, and has based its strategy on the protection of its most important assets. Reputation is not one of them, illustrating that BP more closely subscribes to Friedman’s view of corporate social responsibility than the more modern view that most firms take, which emphasizes right behavior in the face of adverse outcomes. BP is instead focused on protecting the financial interests of its shareholders above all else, and has apparently calculated that doing so involves stalling legal action and minimizing the cleanup effort.
Holt and McNulty (2008) argue that the Brent Spar situation was largely reflective of Greenpeace having a stronger understanding of the discursive environment than Shell, and therefore being able to outflank the oil company in a publicity battle. Shell risked losing symbolic capital, the authors contend, and that is what compelled them to act. While Shell was slow to learn, it did eventually determine that there was a high cost associated with the sinking of the Brent Spar platform, and that was likely to be more costly than the proposed action.
The situation with BP is different for a couple of reasons. The first and most important is that it is reasonable to assume that for the most part BP did understand the discursive environment. With the exception of the company’s foot-in-mouth victim CEO, the company appears to understand that its actions are going to be viewed negatively, and is engaging in relatively little spin with respect to that discourse. It is worth noting that in the Deepwater Horizon situation, the opposition is less galvanized, consisting of a wide range of groups with a wide range of interests. BP as the enemy is the only commonality between them and the number of issues are myriad, contrary to the situation that Shell faced. BP seems to understand this and is taking advantage of the situation. Shell was also faced with a financial decision that was close enough to make the company reconsider. Shell did not act on the basis of its symbolic capital, but rather acted to protect its economic interest. BP is taking the same approach, but the damage control calculus that BP used determined that its symbolic capital was worth relatively little in terms of financial capital. The rewards of its chosen strategy outweigh the risks.
There is considerable outrage, and rightfully so, about BP’s actions and attitudes throughout the process of dealing with the aftermath of Deepwater Horizon. However, the company’s moves have been more or less calculated. It understands the relative importance of its different resources to long-term success, and has formulated a strategy that is designed to maximize those resources, even if other resources such as reputation must face a cost in order to preserve those more important resources.
BP’s strategy therefore is a strong one, at least from a resource-based perspective. From an ethical perspective, there is a case to be made against BP, but the issue is whether or not BP’s managers have undertaken the strategy that is in the best long-term interests of the company. It is believed that BP has done that, and will continue to do that if it pursues its current aggressive tack towards its disparate opposition.
Friedman, M. (1970) The social responsibility of business is to increase its profits. New York Times Magazine. Retrieved May 1, 2011 from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html
Holt, R. & McNulty, T. (2008) Securing the license to act: a foundational capability. Journal of Strategy and Management 1 (1) 72-92.
Pagnamenta, R. & Goddard, J. (2010). Pollution disaster as Deepwater Horizon oil rig sinks into sea. The Times. Retrieved May 1, 2011 from http://www.timesonline.co.uk/tol/news/environment/article7105649.ece
Peel, M. (2010). Opposition grows to BP’s strategy. Financial Times. September 15, 2010. In possession of the author.
Tsoukas, H. (1999). David and Golaith in the risk society: Making sense of the conflict between Shell and Greenpeace in the North Sea. Organization. Vol. 6 (3) 499-528.
Get Professional Assignment Help Cheaply
Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?
Whichever your reason is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.
Why Choose Our Academic Writing Service?
- Plagiarism free papers
- Timely delivery
- Any deadline
- Skilled, Experienced Native English Writers
- Subject-relevant academic writer
- Adherence to paper instructions
- Ability to tackle bulk assignments
- Reasonable prices
- 24/7 Customer Support
- Get superb grades consistently
Online Academic Help With Different Subjects
Students barely have time to read. We got you! Have your literature essay or book review written without having the hassle of reading the book. You can get your literature paper custom-written for you by our literature specialists.
Do you struggle with finance? No need to torture yourself if finance is not your cup of tea. You can order your finance paper from our academic writing service and get 100% original work from competent finance experts.
While psychology may be an interesting subject, you may lack sufficient time to handle your assignments. Don’t despair; by using our academic writing service, you can be assured of perfect grades. Moreover, your grades will be consistent.
Engineering is quite a demanding subject. Students face a lot of pressure and barely have enough time to do what they love to do. Our academic writing service got you covered! Our engineering specialists follow the paper instructions and ensure timely delivery of the paper.
In the nursing course, you may have difficulties with literature reviews, annotated bibliographies, critical essays, and other assignments. Our nursing assignment writers will offer you professional nursing paper help at low prices.
Truth be told, sociology papers can be quite exhausting. Our academic writing service relieves you of fatigue, pressure, and stress. You can relax and have peace of mind as our academic writers handle your sociology assignment.
We take pride in having some of the best business writers in the industry. Our business writers have a lot of experience in the field. They are reliable, and you can be assured of a high-grade paper. They are able to handle business papers of any subject, length, deadline, and difficulty!
We boast of having some of the most experienced statistics experts in the industry. Our statistics experts have diverse skills, expertise, and knowledge to handle any kind of assignment. They have access to all kinds of software to get your assignment done.
Writing a law essay may prove to be an insurmountable obstacle, especially when you need to know the peculiarities of the legislative framework. Take advantage of our top-notch law specialists and get superb grades and 100% satisfaction.
What discipline/subjects do you deal in?
We have highlighted some of the most popular subjects we handle above. Those are just a tip of the iceberg. We deal in all academic disciplines since our writers are as diverse. They have been drawn from across all disciplines, and orders are assigned to those writers believed to be the best in the field. In a nutshell, there is no task we cannot handle; all you need to do is place your order with us. As long as your instructions are clear, just trust we shall deliver irrespective of the discipline.
Are your writers competent enough to handle my paper?
Our essay writers are graduates with bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college degree. All our academic writers have a minimum of two years of academic writing. We have a stringent recruitment process to ensure that we get only the most competent essay writers in the industry. We also ensure that the writers are handsomely compensated for their value. The majority of our writers are native English speakers. As such, the fluency of language and grammar is impeccable.
What if I don’t like the paper?
There is a very low likelihood that you won’t like the paper.
- When assigning your order, we match the paper’s discipline with the writer’s field/specialization. Since all our writers are graduates, we match the paper’s subject with the field the writer studied. For instance, if it’s a nursing paper, only a nursing graduate and writer will handle it. Furthermore, all our writers have academic writing experience and top-notch research skills.
- We have a quality assurance that reviews the paper before it gets to you. As such, we ensure that you get a paper that meets the required standard and will most definitely make the grade.
In the event that you don’t like your paper:
- The writer will revise the paper up to your pleasing. You have unlimited revisions. You simply need to highlight what specifically you don’t like about the paper, and the writer will make the amendments. The paper will be revised until you are satisfied. Revisions are free of charge
- We will have a different writer write the paper from scratch.
- Last resort, if the above does not work, we will refund your money.
Will the professor find out I didn’t write the paper myself?
Not at all. All papers are written from scratch. There is no way your tutor or instructor will realize that you did not write the paper yourself. In fact, we recommend using our assignment help services for consistent results.
What if the paper is plagiarized?
We check all papers for plagiarism before we submit them. We use powerful plagiarism checking software such as SafeAssign, LopesWrite, and Turnitin. We also upload the plagiarism report so that you can review it. We understand that plagiarism is academic suicide. We would not take the risk of submitting plagiarized work and jeopardize your academic journey. Furthermore, we do not sell or use prewritten papers, and each paper is written from scratch.
When will I get my paper?
You determine when you get the paper by setting the deadline when placing the order. All papers are delivered within the deadline. We are well aware that we operate in a time-sensitive industry. As such, we have laid out strategies to ensure that the client receives the paper on time and they never miss the deadline. We understand that papers that are submitted late have some points deducted. We do not want you to miss any points due to late submission. We work on beating deadlines by huge margins in order to ensure that you have ample time to review the paper before you submit it.
Will anyone find out that I used your services?
We have a privacy and confidentiality policy that guides our work. We NEVER share any customer information with third parties. Noone will ever know that you used our assignment help services. It’s only between you and us. We are bound by our policies to protect the customer’s identity and information. All your information, such as your names, phone number, email, order information, and so on, are protected. We have robust security systems that ensure that your data is protected. Hacking our systems is close to impossible, and it has never happened.
How our Assignment Help Service Works
1. Place an order
You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.
2. Pay for the order
Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.
3. Track the progress
You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.
4. Download the paper
The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.
PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET A PERFECT SCORE!!!