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5 Impacts of the BP Oil Crisis

July 2010

The Gulf of Mexico oil spill is considered to be one of the worst corporate disasters in recent history. The impacts have been so wide spread and significant, that there are many experts saying the oil disaster in the Gulf of Mexico could be fatal to the 101-year-old company.

Over the last 80 days since the incident occured, there has been significant media coverage which has focused diligently on BP’s response. The organisation has been closely monitored both operationally, in the fixing of the problem, and also from a corporate perspective, by the way the organisation as a whole has presented itself to the world, and the strategic decisions it has made.

There is still much to do – not just in BPs ongoing efforts to contain the spill, but also in the clean up of the environmental damage as well as the salvage of their reputation as a responsible, profitable organisation.

In this article we take a high level look at five of the key impacts of the disaster; human, environmental, legal, financial and reputational, to demonstrate the reach of such an event, and the consequences of having an inadequately prepared business continuity plan.

Human Impacts

Any disaster has the potential to create significant human impacts, both within the organisation, and to the broader community. In BP’s case, this impact extends beyond a local level, to that which is felt globally.

The disaster occurred on April 20 with an explosion and fire on the drilling rig Deepwater Horizon, owned by Transocean Ltd. and leased by BP PLC. The explosion killed 11 platform workers and injured 17 others. [32][34]

Since the Deepwater Horizon oil rig blew up and sank, oil spewed unabated into the Gulf of Mexico and reached land in several states. Finally on July 15, 85 days after the disaster, BP were able to control the leak by placing a fitted cap over the gushing geyser. [32][33] Now health concerns of residents and cleanup workers in the areas affected by the spill are growing.

More and more workers and residents of the coastal areas reported symptoms such as headaches, breathing problems, nausea and other more serious health problems. To date, “more than 200 exposure-related complaints have been filed with the Louisiana Department of Health and Hospitals alone.” [1]

From those directly affected from the explosion, to families living in The Gulf of Mexico suffering health problems and loss of livelihood, the impacts of the disaster are far reaching and will be experienced for generations.

Environmental Impacts

“This is probably the biggest environmental disaster we have ever faced in this country,” top White House energy adviser Carol Browner said. [31]

Despite efforts to stem the leak and contain the oil on the surface, it is estimated that “17 million to 39 million gallons of oil has now spewed into the Gulf of Mexico”. [3] Initial reports said the rig was leaking 1,000 barrels of oil a day, but the latest estimates from US Geological Survey (USGS) experts suggest it is between “35,000 and 60,000 barrels a day”. The slick has continued to spread covering at least 6,500 km2, [32] fluctuating from day to day depending on weather conditions. The oil is “threatening hundreds of species of fish, birds and other wildlife along the Gulf Coast, one of the world’s richest seafood grounds.” [22]

Crews have been working to protect hundreds of miles of beaches, wetlands and estuaries along the northern Gulf coast, using skimmer ships, floating containment booms, anchored barriers, and sand-filled barricades along shorelines.

British scientists have also revealed that the oil spill in the Gulf of Mexico is increasing the level of arsenic in the ocean. According to the study, “oil stops the ocean’s natural filtering process of arsenic, which then gets “magnified” up the food chain, as fish eat small amounts of the deadly poison and may eventually impact humans, researchers said”.

Professor Mark Sephton said arsenic, which is found in seawater, was normally filtered out of the ocean when it combined with sediment on the sea floor.
“But oil spills stop the normal process because the oil combines with sediment and it leads to an accumulation of arsenic in the water over time,” he said.
“Arsenic only needs to be a 10th of a part per billion to cause problems.” [4]

Whilst the immediate environmental issues are clear, what extent the affects of the oil spill will have over the longer term are unknown but potentially extensive.

Legal Impacts

BP face numerous lawsuits filed in Louisiana, Alabama and elsewhere accusing it of negligence over the oil spill in the Gulf of Mexico. The suits came as US government officials warned BP was responsible for clean-up of the massive slick, and the British oil giant pledged to pay for ‘‘legitimate claims’’ stemming from the disaster. [8]

“BP faces more than 225 lawsuits in 11 states across the Gulf region [7], as litigation from businesses, individuals and investors continues to increase” . Lawyers envision this disaster to become “one of the biggest class actions in U.S. history, involves billions of dollars in potential liabilities”. [9]

“Families of some of the 11 workers who died in the April 20 Deepwater Horizon rig blast have filed wrongful-death claims, and people who were injured have also taken legal action”. [9]

The company also faces lawsuits brought by fishermen, restaurants, charter boat companies, hotels and rental property owners. Gulf Coast states could also sue, as could municipalities, for lost tax revenues, and shipping companies if traffic into major ports or the Mississippi River is disrupted.

“You’re talking about the entire economic structure of five states and all their ancillary businesses,” said Tim Howard, a Tallahassee lawyer who last week filed one of Florida’s first class-action suits over the oil spill. [9]

It is inevitable that a disaster of this nature will have significant legal consequences for any organisation, resulting in extensive reputational and financial costs.

Financial Impacts
The financial impacts from the oil spill are extensive, from the huge response and cleanup costs, to the legal expense and most importantly the loss of market value.

The British oil giant has seen its “market value plummet from US$122 billion to barely US$80 billion” [21] since the oil started to flow into the Gulf. BP’s shares have dropped by 34% since the incident, sparking takeover concerns, Britain’s Financial Times said [28].

As of 5 July, BP’s costs over the Gulf of Mexico oil spill “soared above three billion US dollars” [12]. Estimates of the total cost vary widely. “Including the clean-up, compensation and fines, BP could face a bill of $US12 billion ($AUD14.2 billion), investment bank UBS has suggested. Jason Kenney, an analyst at ING Commercial, estimates the cost could rise to $US22 billion if the spill continues until August.” [13]

Experts now believe that the combination of the continuing leak and the prospect of high legal costs and political damage in the United States could mean a real possibility the Deepwater disaster could destroy BP, “leading to a break-up of the 101-year-old company, which employs 80,000 people, operates 22,400 gas stations and generated US$239 billion of revenue last year” [21].

Reputational Impacts

BP’s reputation has been severely damaged by the oil spill in the Gulf of Mexico. Many around the world are disappointed with the once proud London-based energy company. It is felt that their response to shareholders, the public, and especially the government was inadequate.

Seemingly aware of the damage to its public image, “BP is spending millions of dollars to minimise the negative publicity caused by the Gulf of Mexico oil spill” [19]. It “hired Anne Womack-Kolton, once press secretary to former US vice president Dick Cheney, to bolster its public relations efforts in the US” [21], but whether it is having a positive effect is questionable.

James Hoopes, a professor of business ethics at Babson College, in Massachusetts, said it was hard to imagine a worse public relations fiasco. “This has to be one of the all-time disasters for corporate reputation. The most graceful course of action for BP would be to hang its head for a very long time and admit it has some deep issues to deal with,” Hoopes said. [21]

BP devoted significant time and resources over the past few decades promoting the company to be an environmentally responsible organisation, however this crisis has put their ‘clean’ image at risk. Now in ‘damage control’, BP has a long way ahead to restore a positive image, if at all salvageable.

So as questions grow about whether BP can redeem its reputation in the US and whether the company can survive as an independent entity at all, it is clear that a disaster of this magnitude has had numerous and significant impacts to the organisation. It is a good lesson for every organisation to consider the adequacy of their risk management, crisis and business continuity strategies to ensure a robust and resilient organisation that is prepared for any disaster. Creating and maintaining comprehensive plans will ensure an organisation can minimise and manage the potential consequences of such an event.

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[1] Concerns over Health Effects of BP Oil Spill (2010) MedIndia,, at 12 July 2010
[2] The Ongoing Administration-Wide Response to the Deepwater BP Oil Spill (2010) wmbb.comnews,, at 13 July 2010
[3] BP Oil Spill: Worst in History: Scientists Weigh In (2010) The Fiscal Times,, at 12 July 2010
[4] BP Oil Spill ‘increases arsenic in ocean’ British scientists say(2010) Newscore,, at 13 July 2010
[5] BP Pays $23bn to oil spill victims (2010) The Australian,, at 14 July 2010
[6] BP(2010) Wikipedia,, at 9 July 2010
[7] BP Oil Spill Lawsuits Spread to States Beyond Gulf Coast (2010) Bloomberg,, at 13 July 2010
[8] BP faces slew of lawsuit over oil spill (2010) The Sydney Morning Herald,, at 14 July 2010
[9] Gulf of Mexico oil spill spawns tide of lawsuits (2010) Reuters,, at 12 July 2010
[10] Crisis Management Lessons from BP (2010) Corporate Executive Board,, at 9 July 2010
[11] Gulf oil spill: Will Deepwater sink the 101-year-old BP? (2010),, at 12 July 2010
[12] BP oil spill costs soar above 3 billion US dollars (2010) Brisbane Times,, at 12 July 2010
[13] Obama calls in lawyers over BP oil spill (2010) The Age,, at 12 July 2010
[14] Oil spill may signal end of BP (2010) ABC News,, at 9 July 2010
[15] BP faces legal action over oil spill (2010) Business Spectator,, at 14 July 2010
[16] Special Report – BP oil spill a gusher for lawyers (2010) International Business Times,, at 13 July 2010
[17] US opens criminal probe into BP Oil Spill (2010) Business with The Wall Street Journal,, at 12 July 2010
[18] BP oil spill costs continue to mount (2010) Business Spectator,, at 13 July 2010
[19] BP Throws Cash at Minimising Reputation Damage over Gulf of Mexico Oil Spill (2010) PR Week,, at 9 July 2010
[20] Florida Outlines BP Gulf Oil Spill Response for July 8, 2010 (2010) Gov Monitor,, at 12 July 2010
[21] BP fights for its reputation and future (2010) TaipeiTimes,, at 9 July 2010
[22] Oil from massive Gulf spill reaching L.A. coast (2010),, at 13 July 2010
[23] BP’s Reputation at Risk as Much as the Gulf Ecosystem (2010) BNET Insight disaster,, at 9 July 2010
[24] Gulf of Mexico oil leak ‘worst US environment disaster’ (2010) BBC News,, at 12 July 2010
[25]US oil spill ‘could bankkrupt BP’ (2010) ABC News,, at 9 July 2010
[26] Economic and Political consequences of the Deepwater Horizon disaster (2010) Wikipedia,, at 12 July 2010
[27] BP oil spill impact will be felt for years to come – Crescent (2010) Arabian,—uae-official, at 14 July 2010
[28] BP’s reputation tarred by oil spill (2010) Ria Novosti (Russian Newspaper),, at 12 July 2010
[29] BP Oil Spill to Hit Charitable Giving (2010) Pro Bono News,, at 13 July 2010
[30] Louisiana Reports Oil Spill Illnesses (2010) News Inferno,, at 12 July 2010
[31] Factbox: Gulf oil spill impacts fisheries, wildlife, tourism (2010) Reuters,, at 13 July 2010
[32] Deepwater Horizon oil spill (2010) Wikipedia,, at 9 July 2010
[33] No Oil Leaking into Gulf from Busted Well (2010) CBS News,, at 14 July 2010
[34] Memorial services honors 11 dead oil rig workers (2010) USA Today,, at 9 July 2010

Categorized: Business Continuity