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Corporate Social Responsibilities

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Added on  2019-09-25

Corporate Social Responsibilities

   Added on 2019-09-25

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Master of Business AdministrationCorporate Social Responsibilities (Deep Water Horizon Case Study)PRESENTATION OF FINAL ASSIGNMENT You must include a title page that lists your name, Student ID and the unit number and title.Number all pages sequentially.Any published material you refer to must be properly referenced (Harvard Referencing) and included in a reference list at the end of your assignment.The Harvard Referencing System; e.g. 'Smith (1985) listed five key factors'NOTE: The first page of each final case study must include the following declaration:I certify that this assignment is my own work, based on my personal study and/or research, and that I have acknowledged all material and sources used in the preparation of this final case study whether they be books, articles, reports, lecture notes, any other kind of document, electronic or personal communication.I also certify that the final case study has not previously been submitted for assessment in any other course or at any other time in this Course, unless by negotiation, and that I have not copied in part or whole or otherwise plagiarised the work of other students and/or persons. I have read the GBS policy on plagiarism and understand its implications.Final case study that do not include the above declaration will not be marked.FINAL CASE STUDY
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BP and the Deepwater Horizon Disaster of 2010On the 20th of April 2010, the petroleum industry has been marked by the largest maritime disaster oil spillin its history known as the Deepwater Horizon oil spill. As of 2010, the Deepwater Horizon disaster was the largest marine oil spill ever to occur in U.S. waters. Bythe time the well was capped on July 15, 2010, nearly five million barrels of oil(205.8 million gallons) had spilled into the Gulf of Mexico. Federal science and engineering teams revisedtheir estimates on the rate of oil flow several times, and in August they concluded that between April 20 andJuly 15, 53,000-62,000 barrels per day spilled into the Gulf, an amount that was equivalent to a spill the sizeof the 1989 Exxon Valdez every four to five days. Before the Deepwater Horizon disaster, the Exxon Valdezheld the record for the largest spill in U.S. waters.It was surprising to many analysts how such a disaster could happen, particularly involving a company likeBP, which publicly prided itself on its commitment to safety. It did seem clear that, in an effort to close upthe Macondo well, several key decisions were made, each involving multiple stakeholders and trade-offs oftime, money, safety, and risk mitigation. The public debate began immediately on whether the result of thesedecisions indicated operational or management problems on the rig, and whether these problems wereendemic to the oil industry, or resided within BP itself. To help answer these questions, several task forceswere formed to investigate the root causes of the disaster and who among the various players involved withthe Macondo well bore responsibility for the disaster and for its resolution.The impact of the Deepwater Horizon explosion and the subsequent Macondo well oil leak was devastatingon a number of fronts, the most obvious being the death of 11 crew members and the injuries sustained byanother 17. As of early 2011, investigations into the actual causes of the Deepwater Horizon disaster were ongoing, andthe various parties involved in the Macondo well project were engaged in a highly publicized finger pointingexercise. The three major decisions on closing the Macondo well involving the well casing, the number ofcentralizers used, and the decision not to perform a cement bond log may have contributed to the conditionsthat caused the well to blow out.The environmental damage from the oil spill was extensive, with 25 national wildlife refuges in its path. Oilwas found on the shores of all five Gulf States, and was responsible for the death of many birds, fish, andreptiles. The total amount of impacted shoreline in Louisiana alone grew from 287 miles in July to 320 milesin late November 2010. Unlike conditions with the Alaskan Exxon-Valdez oil spill, the contaminated Gulfshoreline was not rock but wetland. Grasses and loose soil, a perfect sponge for holding oil, dominatedwetland ecosystems. The spill also occurred during breeding season for pelicans, shrimp, and alligators, andmost other Gulf coast species. Ecologists anticipated that entire generations of these animals could be lost ifthey were contaminated with oil.
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In terms of direct economic damages, the sinking of the Deepwater Horizon rig represented a $560 millionloss for Transocean and Lloyds of London, the insurance company which had unwritten the rig. Theunprecedented loss of an entire semi-submersible rig was predicted to change underwriting policies for alloil rigs. As one underwriter noted, “It’s never happened that a semi could burn into the sea and completelysink. Now underwriters have to include that as a risk. That’s probably $10,000 to $15,000 more per day inrig insurance. They’ll make it up by charging more on a per-rig basis.” BP’s price tag for the lost oil — five million barrels at the average market crude oil price (for April 20, 2010through July 15, 2010) of $74.81 per barrel— was $374 million. In addition, if a federal court ruled that thecompany was grossly negligent, BP could face up to $3.5 billion in fines, or $4,300 per spilled barrel. Ofcourse the company’s losses didn’t end there. On April 15, five days before the disaster, BP’s stock wastrading on the NYSE at $60.57 and on June 25, it hit a 14-year low of $27.02. In addition to the frustrationfelt by shareholders and the public at large that the company had failed at several attempts to stop the leak,they were also unimpressed with BP’s PR strategy, citing skepticism over the company’s offer to payfishermen if they signed a waiver promising not to sue the company.Alongside those companies directly involved with the Macondo well project, the Deepwater Horizondisaster affected the oil industry as a whole. On May 28, 2010, Secretary of the Interior Ken Salazar issued amoratorium on all deep water oil drilling in U.S. waters. The purpose of the moratorium was to allow time toassess the safety standards that should be required for drilling, and to create strategies for dealing with wildwells in deep water. Government analysts estimated that about 2,000 rig worker jobs were lost during themoratorium and that total spending by drilling operators fell by $1.8 billion. The reduction in spending ledto a decline in employment—estimates indicated a temporary loss of 8,000 to 12,000 jobs in the Gulf Coast—and income for the companies and individuals that supplied the drilling industry. The moratorium alsoreduced U.S. oil production by about 31,000 barrels per day in the fourth quarter of 2010 and by roughly82,000 barrels per day in 2011. This loss, however, was not large relative to total world production, and wasnot expected to have a discernable effect on the price of oil. The moratorium, originally intended to last untilthe end of November, was lifted in mid-October 2010.The economic losses also extended to the thousands of coastal small business owners including fishermen,shrimpers, oystermen, and those whose livelihood depended in whole or in part on fishing or tourism. Thetourism industries in Alabama, Louisiana, and Florida were particularly hard hit.Ironically, analysts had previously predicted that tourism in the Gulf region, which was devastated byHurricane Katrina in 2005, would return to pre-Katrina levels in 2010. Between the energy, fishing,shrimping, and tourism industries, the Gulf region lost an estimated 250,000 jobs in 2010.In anticipation of the economic aftershocks that would be felt from the oil spill, BP pledged to compensatethose individuals whose livelihoods would be affected. On June 16, 2010, in agreement with the U.S.government, the company established the Gulf Coast Claims Facility (GCCF), an escrow fund of $20 billionto pay for the various costs arising from the oil spill. GCCF staff evaluated the claims of companies and
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individuals who suffered demonstrable damages from the oil spill. The fund was also intended to paymunicipalities, counties, and state organizations for lost tax revenue or additional clean-up costs. KennethFeinberg, who led the September 11 Victim Compensation Fund, was appointed to oversee the GCCF.By February 28, 2011, the GCFF had received over 500,000 claims, and 170,000 people andbusinesses had been paid over $3.6 billion. Some people accused the facility of not acting quickly enough toprocess claims and make payments. In response, the GCCF increased transparency of the system and hiredstaff in the Gulf to answer questions from applicants in person. The GCCF was scheduled to remain in placeuntil August 2013.CASE OBJECTIVES
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