BP Deepwater: a performance disaster

The cause of the BP Deepwater Horizon platform explosion and oil spill has yet to be fully revealed, however, from the information that has emerged from workers on the rig it would appear that a fundamental performance problem was at the heart of this disaster.

The oil industry is a highly evolved example of industrial capitalism. It generates profit at a frightening rate through large scale production, trading and diversified downstream businesses. It is also very focused on cost control. Lord Browne pushed BP’s organisation hard on this component of their business model and his legacy has persisted under current CEO Tony Hayward. From a strategic perspective, BP and the other oil majors have moved to a point in the supply chain where they are more investors rather than hands-on oil producers. In mature fields such as the North Sea, third party companies such as Petrofac operate most of the assets on behalf of BP and others. In the Deepwater case, the ownership and operating responsibilities were complex, involving BP, Transocean, and Anadarko amongst others. BP says that Transocean as the rig owner was responsible for the operation and maintenance of the ‘blow out preventer’ (BOP) that was the key item that failed. Yet BP accepts liability for the outcome and faces potentially crippling losses as a result.

In terms of the Effectus Performance Framework, this looks like a high reliability situation being managed according to high combat performance measures. BP took unreasonable risks with cheaper design options in order to save money and time. Safety should have been the highest priority and dominant performance outcome. Also the lack of clear ownership for the safety environment on the rig meant that potential sanctions were vague and ineffective in guiding performance choices. BP now accepts responsibility for the cost of damages, however, is adamant that it was not solely responsible for causing the accident.

Oil company executives and regulators would do well to consider the typical performance structures in the industry today and the potential risks implied by these on high reliability situations, in order to reduce the chances of a repeat incident in the future.