Avoiding Corporate Breakdowns

The Nature and Extent of Managerial Responsibility

L. Hosmer, P. Barry

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137325891
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

Avoiding Corporate Breakdowns focuses on prescribing a preventative strategy for managerial actors who face economic, social and environmental disasters. Prevention is basically simple, but it will require a considerable broadening in both the nature and the extent of managerial responsibility.

CHAPTER 1

Defining the Problem

The crew members, engineering supervisors, and contractor specialists on board the Deepwater Horizon must have felt both pleased and proud on the morning of April 20, 2010. They had successfully completed drilling what BP (formerly British Petroleum) termed the Macondo well to a near-record depth. The “wellhead” (the partially embedded top structure of the well, where the valves, controls, and emergency disconnects were located) was on the ocean floor, 5,000′ beneath the surface of the sea, and the “pay zone” (the large reservoir of oil and natural gas that had been reached) was 20,800′ further down, past numerous layers of hard sedimentary but easily fragmented rock. Everyone involved, both those on board the drilling rig and those on shore in company offices, recognized that this was a remarkable achievement.

At 8:52 a.m. [during the morning of April 20, 2010] Daniel Morel [BP’s head engineering supervisor on board the Deepwater Horizon] e-mailed the Houston office to reiterate “Just wanted everyone to know the cement job went well. Pressures stayed low, but we had full returns on the entire job. We should be coming out of the hole shortly”. At 10:14 a.m. David Sims, BP’s new operations manager in charge of the Macondo well, e-mailed to say, “Great job, guys!”¹

The Deepwater Horizon was the oil-drilling platform that had made this achievement possible. It was huge, complex, and expensive. It weighed nearly 35,000 tons, only slightly less than a World War II battleship, but unlike the battleships of that era that were built for speed, firepower, and armored protection, the Deepwater Horizon had been constructed for stability, precision, and operational efficiency. Think for a moment about the design challenges those three essential characteristics imposed. Each time that a drill bit became dull while grinding though the sedimentary rock strata of the site and had to be replaced, it was necessary to pull 5 miles of 6″ diameter steel drill pipe out of the well, through the wellhead, up to the surface, and then to the top of the 200′ tall lifting derrick where it was disassembled into 90′ sections and then stacked vertically, ready for reassembling and relowering into the well after the new drill bit had been attached, and this all had to be done while the drill platform was held stable, not rocking back and forth due to wind and wave pressures (which would cause the drill pipe to swing dangerously) nor drifting off even slightly from its chartered position (which would greatly complicate reentry into the well hole). The top of the wellhead on the ocean floor had an opening 52″ in diameter, and the drilling crew had to thread their descending 40″ diameter drill bit through that opening from one mile above, in the total darkness of the deep ocean, relying on underwater lights and electronic cameras for guidance, and those lights and cameras had to be designed to withstand the weight of a vertical mile of ocean water pressing upon their weakest components.

How was all this accomplished? Innovation, automation, and computerization. The Deepwater Horizon bore no relation whatsoever to an anchored ship. It consisted of four rectangular steel decks that were held 50′ above the surface of the sea by four equally large steel columns, one at each corner of those decks, that in turn rested upon two massive steel pontoons that were semi-submerged, their tops just barely above the surface of the sea. The four decks were above the impact of all except the strongest waves, and provided the enclosed spaces that were needed to house the power units, the communication systems, the control processors, the command centers, the drilling inventories, the fuel supplies, and the crew quarters, dining facilities, and relaxation areas that made the two-week tours of 12-hour shifts on board this drilling platform endurable if not enjoyable.

The top or “drill” deck of the Deepwater Horizon was open, and held the 200′ tall lifting derrick, the 100′ tall pipe stacking rack, and the raised helicopter landing pad that was needed for shore to rig and rig to shore travel. Boats were O.K. to bring supplies but not to bring personnel who were, in large measure, trained, experienced, and expensive.

The two massive steel pontoons that supported the four steel columns, the four steel decks, and all of the heavy machinery and supplies needed for drilling operations had been positioned just slightly above the surface of the sea to reduce the wave impacts. These pontoons had been designed with curvilinear bows that could be pointed into the wind to further lower the impact of those waves. Water could also be automatically pumped back and forth between lengthwise compartments within each pontoon, and between the pontoons themselves, to help stabilize the structure and reduce rocking.

Positioning of this huge and awkward structure directly above the drill head was accomplished by large power thrusters (essentially hydraulically driven variable-speed enclosed propellers with automatic adjustment for the propeller-blade speed and the propeller-blade pitch) to continually point the drill platform into the prevailing winds and waves. These thrusters were powerful enough to resist winds and waves of gale force. This entire positioning system—thrusters and controls—responded to a dynamic global positioning methodology that maintained the location of the Deepwater Horizon directly over the wellhead.

This structurally large, technologically complex, and financially expensive drilling platform was owned by Transocean, a petroleum industry servicing firm that specialized in deepwater exploration around the world. Transocean also supplied two crews of about 80 persons each for the alternating two-week tours. These crews still had a few of the traditional roustabouts who did the hard labor that has always been a part of oil-field exploration and production with a certain “get out of our way and we’ll get the job done” swagger, but in large measure they consisted of employees who had been personally selected by Transocean for their extensive experience in shallow-water drilling operations and then technically trained by Transocean in the rapidly changing machines and methods needed for deepwater drilling. There was a general feeling throughout the industry that these Transocean employees, particularly the senior foremen, knew what they were doing.

In addition to the 80 Transocean employees who were on board the Deepwater Horizon on the morning of April 20, 2010, there were also 5 BP supervisors, all petroleum engineers, who had participated in the design of the well, and now set goals and parameters for the drilling operations following that design, and approved changes in those operations as problems or obstacles (rock strata that was harder to drill than expected, or looser and more easily fractured than wanted) were encountered. There were even further a number of technical specialists on board who worked for other oil industry servicing firms (Schlumberger, Halliburton, Baker Hughes, et cetera) that had developed new methods, materials, and techniques for deepwater drilling. These specialists were either present on site to assist and advise in the use of those methods, materials, and techniques, or they were brought out on special trips by helicopter for that purpose.

The Deepwater Horizon was drilling for oil in a section of the Gulf of Mexico in which BP owned the exclusive drilling rights, but the technically advanced drilling platform was owned by a different firm, the technically trained crew was supplied by that company, and many if not most of the technically complex services were provided under contract by still other companies. Of the approximately 230 persons on board the Deepwater Horizon on the morning of April 20, 2010 (including a 40-person group provided by a still different contractor that attended to the cafeteria, cleaning, and laundry needs of those on board), only five were directly employed by BP.

This “contract out, don’t hire in” strategy had in the past worked very well for BP. They took the discovery risks in the deepwater exploration for oil, but they did not bear the fixed costs of having the needed equipment and essential skills in-house, ready for use when needed, or cover the start-up costs for the research and development of the new and needed equipment. This outsourcing for deepwater drilling equipment and technically advanced skills started in the 1990s, and became dominant during the 2000s:

[Following the wave of oil industry mergers in the late 1990s] management pared away overlapping functions and laid off employees, reinforcing the trend towards outsourcing R&D and reducing internal technological expertise.²

A new generation of drilling platforms coming on the market [in the early 2000s], along with advances in drilling technology, encouraged BP to take the risk to explore [deepwater] prospects. Outpacing most of the industry by a year, the company shifted its sights [to those deepwater regions]. Rich rewards followed with a historic string of rich oil finds.³

This BP trend toward outsourcing R&D and reducing internal technological expertise did not seem to have affected operations on board the Deepwater Horizon. Despite the obvious authority divide between the BP engineers and the Transocean drillers, and despite the traditional competence divide between those with technical education and those with workplace experience, there seemed to have been few conflicts or disputes over the drilling methods. Perhaps this was because everyone understood that they were doing something new and difficult, and that it was necessary to work jointly and not argue individually to get things done.

In addition to the apparent spirit of cooperation and acceptance that brought together the Transocean crew members, the BP engineering supervisors, and the outside contractor specialists, there doubtless also was an underlying recognition that things could get very bad very fast if mistakes were made. This had happened frequently enough in the past on other drilling rigs operating out on the Gulf of Mexico to make everyone aboard the Deepwater Horizon fully conscious of their personal risks:

Drilling for oil has always been hard, dirty, dangerous work, combining heavy machinery and volatile hydrocarbons extracted at high pressure. Since 2001 the Gulf of Mexico workforce—working on 90 big drilling rigs [though few others as large, complex, and efficient as the Deepwater Horizon] and 3,500 production platforms—had suffered 1,550 injuries, 60 deaths and 948 fires and explosions.⁴

Lastly, there was without question a widespread awareness that the Macondo oil well was six weeks behind schedule and $58 million over budget.⁵ Probably few people on board the drilling rig talked much about this matter, but in most companies this sort of issue is brought up more than occasionally in dispatches from district offices and memos from corporate headquarters. It can easily be understood that everybody on board much preferred to put that particular aspect of their performance record behind them, given that the exploration phase had finally been so successfully completed. Now they doubtless felt that it was necessary to focus on preparing the Macondo well for conversion to the production function as quickly and inexpensively but safely as possible.

We have attempted, in the previous few paragraphs, to propose a set of the probable goals, norms, beliefs, and values that guided the decisions and actions of the various supervisors, drillers, and contractors who were working jointly on board the Deepwater Horizon during this conversion stage. These goals, norms, beliefs, and values varied by individual, of course. There was no universally accepted set, but together they doubtless formed the informal way that things got done for this job on this drilling platform at this time.

We have emphasized this last statement because we believe that the behavioral patterns that develop over time in the performance of complex tasks for difficult projects or programs where the responsibility is shared by multiple organizations are often the neglected factor in the follow-up analyses when things go terribly wrong. Our argument is very simple. People who are working actively together for the successful completion of a large and complex project or program but are employed by different corporations and have different job skills, different knowledge bases, different experience levels, different risk perceptions, different performance measures, and different incentive systems will almost inevitably develop a common pattern of cooperation and acceptance with which they jointly feel comfortable.

By “acceptance” we mean a general feeling of “Well, I may not really like what you are doing, or plan to do, but you probably know more about this part of the work than I do, and if I object it will just put us further behind, so go ahead.” We believe that the decisions and actions that were taken during the temporary closure of the Macondo well will illustrate this alleged pattern of “get the job done now and don’t argue about it until later” cooperative acceptance.

This temporary closure of the Macondo well was required so that the Deepwater Horizon could be disconnected from the current wellhead and moved to its next drilling assignment. It would be replaced on this site by a much smaller and less complex production platform that would connect the wellhead to an undersea pipeline, reopen the well, and supervise transferring the oil and natural gas from the deepwater reserve to an onshore refinery for processing, storage, and sale.

Closing a deepwater oil well is not an easy task. The problem is the immense pressure of the oil and gas held within the newly discovered reserve. The pressure is much greater in deepwater wells than in shallow-water wells because both the ocean depth and the well depth are much greater. The problems of this pressure, and the difficulties of controlling it during drilling operations, were clearly described in a section of the report prepared by the National Commission on the BP Deepwater Horizon Oil Spill and Deepwater Drilling:

The principle challenge in deepwater drilling is to drill a path to the hydrocarbon filled pay zone in a manner that simultaneously controls those enormous pressures and avoids fracturing the geologic formation in which the reservoir is found. It is a delicate balance. The drillers must balance the reservoir pressures pushing hydrocarbons into the well with counter pressure from inside the wellbore. If too much counter pressure is used the formation can be fractured [permitting the hydrocarbons to escape, which leaves the reserve depleted and the environment polluted]. If too little counter pressure is used, the result can be an uncontrolled intrusion of hydrocarbons into the well, and a discharge from the well itself as the oil and gas rush up and out of the well. An uncontrolled discharge is termed a blowout.⁶

The term “blowout” barely describes the event or the consequences. Natural gas within...

Table of contents

• Cover
• Title Page
• Copyright Page
• Contents
• List of Figures
• Preface
• Chapter 1  Defining the Problem
• Chapter 2  Proposing the Solution
• Chapter 3  Applying the Evaluative Construct of Economic Efficiency
• Chapter 4  Applying the Evaluative Construct of Legal Conformity
• Chapter 5  Applying the Evaluative Construct of Personal Integrity
• Chapter 6  Acknowledging the Results: Trust, Commitment, and Effort
• Notes
• Bibliography
• Index