Tag Archives: transocean

A Year After the BP Oil Spill- a Slow Recovery, Continued Risk Management Challenges

25 Apr

A year ago last week, and for months afterward, we were bombarded with horrible images of potentially catastrophic proportions.  The Gulf Coast was under siege from the Deepwater Horizon blowout and resultant spill.  Dead or dying waterfowl and sea life haunted our dreams.  Tourists scooped up tar balls from Gulf Shores, Alabama to Pensacola, Florida.  Round the clock news coverage of the economic devastation was heaped unexpectedly on the gulf coast.   Cleanup crews deployed nearly useless 20th century solutions to a 21st century problem.  Hapless oil executives spun their stories and federal government agencies did too little, too late.  And the problem kept growing while the oil kept spewing from the blown out well, miles below the surface.

Risk Control Lacking

Just after the spill occurred, I wrote a piece on the lack of risk management protocols  and oversight that matched the nature of the work and how it was inevitable that this type of event would occur.

“I have no doubt that there has been a central breakdown in process risk management, commonly used by organizations to establish procedures to safely manage the greatest of uncertainties of its daily operations.  This means that if a company is going to drill a mile under the Gulf of Mexico, they should FIRST make certain that all possible failure scenarios are identified, evaluated, tested and implemented, before that first barrel of oil is extracted…While it’s vital that 24 hour protocols be applied to day-to-day activities that may be a threat to environmental well-being, unforeseeable events involving human error or equipment failure must be managed too… inadequate steps have been put in place to 1) evaluate “worst case” impacts associated with catastrophic failures of equipment or systems; 2) establish policies and program to mitigate short and long-term environmental risk factors and 3) assure that there are financial cushions (cleanup and reclamation bonds, for instance) that continue to hold those liable before they can run or hide.”

Spring turned to summer and finally on July 15, 2010 the leak was stopped after it had released about 4,900,000 barrels of crude oil, the well was capped.  But the troubles were far from over and as I reported shortly before the well was finally capped, recovery takes time. When writing about the possibilities of a rebounding gulf coast (both ecologically and economically), I spoke of resiliency, the “structural issues” that appeared in the oil exploration, approval and development process, and the steps needed to nurture a full recovery.

The current, devastating Deepwater Horizon oil spill and ecological crisis in the Gulf of Mexico presents a great set of uncertainties and human-induced risks not realized before in terms of scope and magnitude…Ecosystems are dynamic and ever-changing.  This changing dynamic flow continues its natural cycles and fluctuations at the same time that it continues to recovery from impacts of spilled oil.  As time passes, separating natural changes from oil spill related impacts becomes harder to distinguish.  So time will tell, and after the well is finally plugged (and it will be plugged) and the last drop of oil spills, the long term ecological “rebound” will begin.

Then the fingers started pointing, lawyers got involved, congressional testimony began and yielded few results.  Few companies claimed immediate responsibility nor were they held accountable.  BP said that they would pay “all legitimate claims”.  But that promise seemed hollow to those immediately affected, and the restitution payments flowed like the oil drifting on the surface of the gulf waters.  The status of claims paid can be found in this interview with U.S. Claims Administrator Ken Feinberg, but in a nutshell roughly 25% of the $20 billion set aside by BP has been paid out.

Government Call for Better Risk Management

On January 5, 2011, White House National Commission convened to review the oil spill released a final report detailing faults by the companies that led to the spill.  The report noted that “Better management of decision-making processes” within BP, Halliburton and Transocean (the three key players in this ordeal), “better communication within and between BP and its contractors” and “effective training of key engineering and rig personnel” would have prevented the blowout.  The panel also noted a key breakdown in communicating with government agencies, which did not have “sufficient knowledge or authority to notice these cost-cutting decisions”.

The record shows that without effective government oversight, the offshore oil and gas industry will not adequately reduce the risk of accidents, nor prepare effectively to respond in emergencies. However, government oversight, alone, cannot reduce those risks to the full extent possible. Government oversight … must be accompanied by the oil and gas industry’s internal reinvention: sweeping reforms that accomplish no less than a fundamental transformation of its safety culture. Only through such a demonstrated transformation will industry—in the aftermath of the Deepwater Horizon disaster—truly earn the privilege of access to the nation’s energy resources located on federal properties.

Economy and Ecology- Rebounding…Slowly

Flashing forward to this last week, on the economic side, only seven of the 34 deep water rigs operating at the time of the explosion are in operation (due to the moratorium that was put in place by the Obama Administration last year).  Following the sunset of that moratorium last fall, it’s been reported that off shore production may ramp up to about 15 or 20 by the end of the year, meaning the addition of the thousands of oil industry and related service jobs that have been lost since the spill.  A Wall Street Journal article last week highlighted the struggles that small businesses (small marinas, seafood restaurants, commercial fish operations etc) have had in the past year.

A BBC report last week noted that “scientists have warned that it is too soon to attempt to offer a considered assessment on what impact the Deepwater Horizon oil spill, the largest of its kind, has had on the Gulf of Mexico’s wildlife.   In short, they said, nature did not work in such a way that the full picture will present itself within just one year.  It’s clear that given the rate of recovery from the Exxon Valdez spill over 20 years ago that more data will be needed in the years ahead to assess the full extent of the ecological damage done.

But Dr. Jane Lubchenco (Administrator at the National Oceanic and Atmospheric) believed that reports of systems recovery suggest that the health of the Gulf is “much better than people feared”, but the jury was out about what the end result would be.  According to some reports, signs 60 pounds of tar balls still wash ashore daily along the 33-mile stretch of beach that runs near the Interstate 65 corridor near Orange Beach, Ala..  Meantime, one thing I can tell you is that Louisiana Governor Bobby Jindal was plugging gulf coast seafood big time last week on National Public Radio and elsewhere.

Not Out of the Woods, More Work Needed

Progress toward requiring safer drilling, protecting natural resources and compensating victims has been uneven at best.  As reported in an Op-Ed last week, “Without the reforms fully in place, the administration is plunging ahead despite the well-documented inability of industry and government to prevent accidents in deep water. For starters, the federal government needs a better understanding of how operating rigs under the intense pressure of deep water can cause blowout preventers — the so-called last lines of defense — and other critical equipment to fail…. There also should be a more complete picture of whether rig operators have the assets — people, vessels, know-how, and money— to respond to a spill.”

The Op-ed also stated “The Federal government needs a better sense of the risks of offshore drilling and a better process for sharing that analysis with other agencies — the Coast Guard, the National Oceanic and Atmospheric Administration, the Environmental Protection Agency — that play a key role in any emergency response.”  For instance,  the newly created Bureau of Ocean Energy Management has added only 4 new inspectors (now at 60) to cover more than 3,500 drill rigs and platforms in the Gulf.  New monies allocated by Congress may alleviate that serious oversight deficiency, but it will take time, training and education to get new inspectors up to speed.  Meanwhile, inspection and oversight is spread too thin and the oil industry appears to be in no rush to help fund additional inspectors (especially at the same pace they are lobbying at to get more drill rigs operating again in the Gulf).

Photo by alancleaver_2000. (via Creative Commons license)

In the second post on risk that I published last year after the gulf spill, I noted that a continuous risk management process helps organizations understand, manage, and communicate risk and avoid potential catastrophic conditions that can lead to loss of life, property and the environment.  I laid out a typical six-step process to achieve effective risk management and failure mode control.  I also noted ”What will be … fascinating will be the lessons learned and if businesses truly embrace risk management planning and implementation as a central function of business, take it seriously and hold themselves accountable.”

Last week, Bob Dudley the Chief Executive of BP, wrote an opinion letter in the Wall Street Journal.  In the piece, Mr. Dudley indicated that the company was “creating a central safety and operational-risk organization reporting directly to me. This organization has the mandate and resources to drive safe, reliable operations that comply with regulations, and it has the authority to intervene in our operations anywhere in the world. We are also linking the management of employees’ performance and reward directly to safety and to compliance with BP’s standards….We will not use rigs on our projects that do not conform to our standards. We have either turned away rigs or are negotiating for modifications to particular rigs that will bring them up to our standards.”  Dudley also noted that “… around 7% of the world’s oil supplies are coming from the deep water, a total we expect will rise to nearly 10% by the end of this decade. That means we must have better safety technology, more effective equipment and the capability to deal with a blowout in the deep water.”

Summary

The National Commission on the spill and members of industry, academia and Congress have made solid “suggestions” for beefing up the regulatory framework for oil exploration and drilling, including: tougher inspections; higher fees from industry to self-fund more policing programs; greater financial liability for companies that spill into waterways as a means to encourage responsible behavior and to cover accident cleanup and recovery costs.

It appears, looking back, that industry and government have moved in the right direction to address the systemic problems that emerged from the Deepwater Horizon spill and follow-up investigations.  But as the current status clearly shows, I’ve grave concerns about on-going performance and genuine progress in adopting genuine, effective risk management tools, oversight and governance. Until there is 100% assurance that such a system is fully in place, fully staffed, fully operational and with full oversight assurance, I am fearful of a repeat…whether it’s in deep water or in other harsh environments, such as the Arctic.

Meanwhile it’s vital that the U.S. continue expanding the search for alternative forms of land-based fuel and energy and support the funding of alternative, cleaner fuels and greener technologies.

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“Ch-Ch-Ch-Ch-Changes”: 3rd Party Logistics CEOs Priming for a Sustainable Future, Retooling to Compete

3 Oct

Last week in San Diego (my second hometown), the Council of Supply Chain Management Professionals (CSCMP) held their Annual Global Conference.  Over 3,100 supply chain professionals from 41 countries attended sessions from over 20 tracks.

At the Conference, the 17th Annual Survey of Third-Party Logistics Providers was presented by survey author, Dr. Robert Lieb, Professor of Supply Chain Management at Northeastern University, and Joe Gallick, Senior Vice President of Sales for Penske Logistics. The findings analyzed responses from 31 third-party logistics company CEOs across North America, Europe and Asia-Pacific.  The study was pretty comprehensive in its findings but me being the sustainability focused guy that I am, poured through the document in search of green stats. And as expected they were there.

With 87 percent of the companies reported to be rebuilding their workforces in 2009, CEOs revealed that green practices are still a major priority in the 3PL market.  Further, more than 80 percent of the companies surveyed now have formal sustainability groups within their companies. Even in the wake of the recession, most of the companies surveyed these are still heavily committed to environmental sustainability issues.  Take note of these numbers according to the survey:

  1. Fourteen of the 31 companies began new green initiatives during the year.
  2. Eighteen of the companies expanded existing sustainability programs.
  3. Twenty-five of the companies now have formal sustainability groups within their companies.
  4. Twelve of the 31 CEOs believe that their sustainability capabilities differentiate them from their competitors.
  5. Ranking second and third respectively in North America were opportunities related to potential differentiation based upon the companies’ environmental sustainability capabilities and opportunities related to expansion of service offerings.

Also, 27 of the 31 CEOs noted that some of their manufacturing customers have begun to move toward “near-shoring” options during the past year.  This type of “reversal of fortune” for U.S. manufacturing has been driven by quality control issues, fuel costs for transoceanic shipping and (wishful thinking perhaps) a desire to stand by corporate commitment to curtail carbon emissions associated with reduced fuel usage.

Additionally the report cited several business practice trends, related to risk management/risk sharing; business continuity planning; performance based contracts; and enhanced vendor qualifications.  Each of these growth areas fit well into the sustainable sourcing, accountability and risk management picture that I have spoken about in this space as essential elements of a green supply chain.

While the survey results are impressive, there is clearly room for improvement in terms of implementing actual “boots on the ground” solutions.  There are increasing examples everyday where 3PLs have demonstrably improved operations efficiency while lowering fuel use, energy use, air emissions and indirectly related resource consumption and waste generation. But at the same time, these efforts must be able to strike a balance between cost and benefit that CEO’s can understand, appreciate and rally around.  The stat about CEO’s belief in how sustainability can differentiate their companies (only 38% are on board) tells me that much still needs to be done to make a business case for greening of supply chains.

In another recent reportthis past spring by the Economist Intelligence Unit (EIU) of the Economist Magazine,   supply chains are in a massive state of flux.  Individual supply chains “have shrunk at the margins and the network has become denser”, according to the report. The report concluded that many companies are forced to choose between having supply chains that are simple and compact, or those that are complex, redundant and dispersed.  Efficiency versus resiliency, in effect.   But the report found it possible to increase both efficiency and resilience.

The EIU report cited that a more efficient supply chain enhances two drivers of value: operating margin and asset efficiency.  What was notable to me was a note in the report that said “efficiency also has the beneficial side effect of shrinking the carbon footprint”.  The report cited companies like Coca-Cola, that are looking at ways to move to central distribution, cutting back on empty loads (bringing back post-consumer recycled cans  for instance) as ways to ‘own’ its supply chain and drive efficiency (without losing resiliency).

Issues such as supply chain resiliency and agility are two criteria that should be evaluated as 3PL’s move down the sustainability path and create a business case for operational changes.  I am fairly certain, based on the Penske sponsored 3PL report that CEO’s and other top managers will be asking the tough questions, so be prepared to come to the table with some compelling ideas and numbers to back it up.