David Apgar: What Was So Unpredictable about Deepwater Horizon?

By David Apgar, the Director of ApgarPartners LLC, a new business that applies assumption-based metrics to the performance evaluation problems of development organizations, individual corporate executives, and emerging-markets investors, and author of Risk Intelligence (Harvard Business School Press 2006) and Relevance: Hitting Your Goals by Knowing What Matters (Jossey-Bass 2008). He blogs at WhatMatters.

It’s tempting to look for a little consolation on the anniversary of the oil spill from BP’s Deepwater Horizon rig in the idea that our worst industrial accidents are unpredictable and not the result of negligence. The only trouble is that the BP disaster in the Gulf of Mexico was predictable. The Gulf explosion was not an isolated accident for BP. Earlier accidents in 2005 and 2006 followed a radical initiative to push strategic decisions down to operating units. That initiative, however, was a disastrously incomplete revolution because no one ever pushed full responsibility for mishaps down to those units.

Most importantly, everything that follows appears at the beginning of a mainstream business book I published in April 2008 – two years before the catastrophe – called Relevance: Hitting Your Goals by Knowing What Matters (Jossey-Bass 2008).

Deepwater Horizon was no isolated accident for BP. In 2006, the firm had to shut down its Prudhoe Bay, Alaska drilling operations amounting to 8% of US production as oil prices were spiking. BP subsequently admitted it had not run a corrosion-sensing device colorfully known as a smart pig through some of its Alaska pipelines since 1992.

And that was a year after the company dumped 200,000 gallons of oil on Alaska’s North Slope. But what really made 2005 stand out for BP was the March explosion at its Texas City refinery that killed 15 workers and injured 100.

OSHA fined BP $21 million at the time for “egregious, willful violations of safety standards.” A report headed by James Baker on problems at a similar BP refinery in Whiting, Indiana claimed that preventive maintenance was rare, the refinery was plagued by a ‘run until it breaks’ mentality, and, as a precursor of things to come in the Gulf, equipment was operated with the equivalent of ‘band-aids’.

U.S. Chemical Safety Board spokesman Daniel Horowitz concluded: “If you’re not learning from
near-misses, you’re not in a position to prevent major disasters like the one in Texas City.”

The 2005 and 2006 accidents followed an initiative to push strategic decisions down to operating units. Former CEO Robert Horton’s Project 1990 had cut headquarters staff by 80% a decade earlier. Successor John Browne then transferred responsibility for performance from BP Exploration’s regional operating companies to the managers of forty individual sites and fields.
The idea was to fire up those managers with all of the zeal of a startup entrepreneur. But John Browne’s revolution was woefully incomplete.

The problem was that truly independent operating units don’t survive big accidents. BP’s deep pockets, however, let its US refining and extraction operations live to fight another day no matter how they screwed up.

As a result, Browne’s partial revolution exposed operating managers to the thrill and financial rewards of independent entrepreneurs – but not to the full consequences of the risks they took. In other words, BP really is the oil industry echo of the ‘heads I win, tails society loses’ world our top bankers inhabit.