Strategic Asset Management: Analysis of the Deepwater Horizon Disaster

This report analyzes the concept of asset management and proposes a strategic asset management plan for British Petroleum in the light of the Deepwater Horizon disaster of 2010.

Running head: STRATEGIC ASSET MANAGEMENT
STRATEGIC ASSET MANAGEMENT: ANALYSIS OF THE DEEPWATER
HORIZON DISASTER
Name of the Student:
Name of the University:
Author’s Note:

1STRATEGIC ASSET MANAGEMENT
Table of Contents
1.0 Introduction.....................................................................................................................2
2.0 Overview of the concept of asset management in engineering setting...........................2
3.0 Benefits of the process of asset management in engineering setting..............................4
4.0 Deepwater Horizon disaster of 2010...............................................................................5
5.0 Strategic Asset Management Plan for British Petroleum................................................7
5.1 Risk Management Plan....................................................................................................7
5.1.1 Risk Identification.....................................................................................................7
5.1.2 Risk Mitigation Plan.................................................................................................8
5.2 Operations Plan..............................................................................................................10
5.3 Equipment or Asset Maintenance Plan..........................................................................10
5.4 Asset Recapitalization Plans and Strategies...................................................................11
5.5 Asset Capital Planning and Strategies............................................................................11
5.6 Asset Disposal Plan........................................................................................................12
6.0 Conclusion.....................................................................................................................12
7.0 References.....................................................................................................................13

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1.0 Introduction
As opined by Byrne (2016), the primary focus of the different modern business
enterprises is on the enhancement of their annual profitability and the resultant effect of this
is that take the help of different kinds of machineries, equipment and others to facilitate the
manufacture of the goods or services offered by it. Campbell, Jardine and McGlynn (2016)
are of the viewpoint that the advancement in the technological as well as the engineering
fields have greatly improved the quality of the machineries or for that matter the equipment
which are being used by the contemporary business enterprises. As a matter of fact, it had
been noticed that the effective usage of the modern machineries, equipment and other kinds
of tools had greatly reduced the operations cost of the business enterprises while enhancing
the quality as well as the quantity of the goods or the services offered by them (Hastings
2015). This in turn had helped the contemporary business enterprises to maximise their
profitability and it is on the score of these aspects that these machineries, equipment, tools
and others which are being used by the enterprises are commonly referred to as assets of the
enterprises (Gârleanu and Pedersen 2018). However, the major problem arises because of the
fact that despite the plethora of the benefits that the different assets which a particular
business enterprise boasts of offers to the concerned enterprise yet no additional measure is
being taken by the enterprises for the effective maintenance of these assets or for that matter
for the prolongation of their life cycle (Zambrana and Zapatero 2017). The purpose of this
report is to analyse the concept of asset management and propose a strategic asset
management plan for the enterprise British Petroleum in the light of the Deepwater Horizon
disaster of 2010.

3STRATEGIC ASSET MANAGEMENT
2.0 Overview of the concept of asset management in engineering setting
Kashyap et al. (2018) have articulated the viewpoint that asset management can be
defined as a systematic or a scientific approach for the governance or the maintenance of the
different tangible or the intangible assets of an enterprise. Likewise, Gârleanu and Pedersen
(2018) have stated that the asset management can be seen as the process through which the
business enterprises develop, operate, maintain, upgrade and finally dispose the assets which
have completed their life cycle in a cost-effective manner. On the other hand, Nenonen and
Storbacka (2016) have noted that the primary objective of the process of strategic asset
management is to maximise the life cycle of the different assets of an enterprise and thereby
to derive the maximum amount of benefit from the concerned assets during the entire life
cycle of the asset. In this regard, it needs to be said that the different assets of the business
enterprises can be segregated into two categories, namely, the tangible assets and the
intangible assets (Omeje 2017). The different physical objects that an enterprise holds like
physical space or building, machineries, equipment, tools and others belong to the category of
the tangible assets whereas the entities like goodwill or brand image, financial assets,
intellectual capital, human capital and others belong to the category of the intangible assets
(Perrons and Jensen 2015).
Cannizzaro and Weiner (2015) are of the viewpoint that the process of asset management
becomes an integral one within the spectrum of the business operations of the enterprises
which heavily rely on the engineering setting like petroleum drilling companies, mining
companies and others. As opined by Gilchrist (2016), this can be explained on the basis of the
fact that this genre of enterprises require the extensive usage of large as well as costly
machineries, equipment, tools and others which are integral to their business activities or the
goods or the services that they manufacture and often prove to be very difficult to maintain or
service. The resultant effect of this is the fact that these enterprises have to dispose the

4STRATEGIC ASSET MANAGEMENT
machineries when they start to show signs of malfunctioning even though they have not
completed their life cycle (Shaeri, Adaoglu and Katircioglu 2016). More importantly, it is
seen that many enterprises because of the capital, resources, expertise and others which are
required for the effective management as well as maintenance of their assets choose not to
undertake the concerned process and this in turn can lead to serious hazards or disasters like
the “Deepwater Horizon disaster of 2010” and others (Beyer et al. 2016). As discussed by
Wan Ahmad, De Brito and Tavasszy (2016), important trend seen within the modern business
world is the fact that the different business enterprises are increasingly taking the help of the
services offered by the diverse asset management companies for the effective management of
the assets of their own enterprise. Thus, it is seen that these enterprises are increasing
resorting to the services offered by the asset management companies so as to effectively
manage the assets which are integral to their business operations.
3.0 Benefits of the process of asset management in engineering setting
There are various benefits that the effective usage of the process of asset management
offers to the business enterprises especially the ones in engineering setting. Daly et al. (2016)
are of the viewpoint that one of the most important benefits that the process of asset
management offers to the business enterprises is the fact that it not only enhances the
efficiency of the assets but also their life cycle as well and thus saves the business enterprises
a substantial amount of capital that they would have spent for the purchase of the new assets.
This in turn substantially reduces the operations cost of the business enterprises which in turn
offers them the opportunity to enhance their profitability (Kashyap et al. 2018). In addition to
these, it had been seen that the effective usage of the process of asset management helps the
business enterprises to avert different kinds of disasters or risks and thereby helps them to
conduct their business in a safe and secure manner (Campbell, Jardine and McGlynn 2016).
Furthermore, the process of asset management also offers the opportunity to the enterprises to

5STRATEGIC ASSET MANAGEMENT
dispose their faulty machine parts or for that matter the entire machines itself in a manner
which will not cause any substantial damage to the environment (Cannizzaro and Weiner
2015).
4.0 Deepwater Horizon disaster of 2010
Nixon et al. (2017) are of the viewpoint that the Deepwater Horizon disaster (2010) or
more popularly called by the name of BP oil spill/leak or the Gulf of Mexico oil spill or
others is perhaps one of the worst marine oil spills that the world has faced in the recent
times. As a matter of fact, the concerned disaster which took place on 20th April, 2010
discharged more than 4.9 million barrels or 210 million US gal; 780,000 m3) as per the
records of the national government of the USA (Kim 2017). As noted by Fingas (2016),
reports of a leak or an oil spill of a small nature were even being reported in the 2009
however because of the smaller amount of oil which was released or leaked during that leak
no special precautionary measures were used. In this regard, it needs to be said that the oil
spill under discussion here covered an area of more than 200 miles which clearly indicates
that the surface of the water was covered with three-four centimetres of oil (Kessler et al.
2017). More importantly, this oil spill not only adversely affected the financial prospects of
British Petroleum but at the same time the natural economy system of the Gulf of Mexico
was adversely affected by it as well (Arora and Lodhia 2017).

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Figure 1: Biggest oil spills of the world in terms of the gallons of oil released by them
Source: Kim 2017
Beyer et al. (2016) have articulated the viewpoint that there are various factors which
contributed towards the disaster under discussion here like the disregard of the safety
parameters or the regulations that the oil and the gas companies are required to follow,
disregard of the process of asset management, usage of outdated and faulty equipment and
others. As a matter of fact, immediately after the disaster, the Chief Executive Officer of
British Petroleum in an interview said that the “bad cement job by Halliburton” done at the
sight of the oil spill was one of the major reasons for the disaster (Arora and Lodhia 2017).
On the other hand, another report of BP stated that the blowout preventers which were
supplied to it by Transocean Rig owners failed to perform the desired functions and this in
turn led to the disaster under discussion (Kessler et al. 2017). More importantly, the process
of asset management had never really been an integral part of the workplace culture of BP
and the resultant effect of this was that the equipment which were being used by the
enterprise were rarely serviced or for that matter checked for faults (Kim 2017). Furthermore,
the majority of the equipment or the machineries that BP used were being supplied by

7STRATEGIC ASSET MANAGEMENT
Transocean Rig owners and they themselves negated or disregarded the different quality or
safety parameters related to the equipment that they were supposed to follow (Nixon et al.
2017). In addition to these, BP did not formulate any contingency plan for the effective
management of the situations like the disaster that it faced in the year 2010 which as a matter
of fact complicated the situation even further (Fingas 2016). Moreover, because of the
disregard of regulations and also the damage that the incident caused to the environment, BP
had to pay a penalty of £7.9 billion whereas Transocean Rig owners had to pay $40 billion
and the majority of this fund was used for clean-up and also the improvement of the marine
ecosystem of the Gulf of Mexico (Beyer et al. 2016).
5.0 Strategic Asset Management Plan for British Petroleum
Campbell, Jardine and McGlynn (2016) are of the viewpoint that the primary purpose of a
strategic asset management plan is to enhance the life cycle of the asset through effective
maintenance or servicing and thereby maximise the benefits from the same while minimizing
the risks that the assets can pose. It is pertinent to note that BP would have been able to avert
the disaster that it faced in 2010 had it taken the help of a Strategic Asset Management Plan.

Running head: STRATEGIC ASSET MANAGEMENT
5.1 Risk Management Plan
5.1.1 Risk Identification
Risk
Refer
ence
No.
Risk
Category
Risk Description Risk Cause Risk Consequence Impact Likelihood Rating
1 Financial The usage of faulty
equipment is likely to
enhance the operations cost
of BP and this in turn would
reduce its profitability
Disregard of strategic
asset management
The profitability of BP is likely
to get reduced because of the
high capital that it had to spend
to procure new equipment on a
regular basis
Severe High High
2 Security The faulty equipment or
machineries which are being
used by BP can give rise to
disasters like Deepwater
Horizon on a regular basis
Disregard of safety or
security measures
regarding the
management of assets
BP would have to pay different
kinds of penalties or fines like
the £7.9 billion fine that it paid
after the Deepwater Horizon
incident
Major Major High

8STRATEGIC ASSET MANAGEMENT
3 Customer The quality of the products
offered by BP to their
clients is likely to diminish
on the score of the faulty
equipment that it uses
Lack of effective
maintenance of the
equipment or the
assets
The loyalty of the satisfaction of
the clients is likely to get
affected and this in turn can
affect the profitability of BP
Major Major High
5.1.2 Risk Mitigation Plan
Risk
Reference
No.
Treatment
Strategy
Treatment Description Treatment Resources Risk
Owner
Timeframe
1 Mitigate Use of effective asset management system for
regular assessment and also adequate
maintenance of the assets or the equipment
Governmental regulation manuals,
asset management plan manuals
and others
Engineers,
Resource
Manager
6 Months

9STRATEGIC ASSET MANAGEMENT
2 Mitigate Effective integration of safety and security
regulations or the stipulations given by the
national government
Governmental regulation manuals,
asset management plan manuals
and others
Engineers,
Security
Officers
6 Months
3 Mitigate The decline in the quality of the product can be
checked through the use of stringent quality
parameters
Quality Manuals and others Quality
Analyst,
Engineers,
PR
6 Months

Running head: STRATEGIC ASSET MANAGEMENT
5.2 Operations Plan
The entire decision-making process regarding the management as well as maintenance
of the different assets should be undertaken by the engineers of the enterprises rather than the
Board of Directors as is the case in BP presently. More importantly, the panel of engineers
entrusted with the effective management of the machineries, equipment, tools and should try
to follow the standard asset management trends so as to make the asset management which is
being follow a risk-free as well as a cost-effective one. More importantly, the engineers need
to prioritise the different tasks on the basis of the need or the demand of the situation and the
risk that the concerned action poses rather than on the basis of the profitability that the
concerned action yields. In addition to these, a contingency plan also needs to be devised so
as to avert disasters like the Deepwater Horizon. It is likely that the long-term usage of these
actions would substantially reduce the cost incurred by the enterprise for the purchase of new
asset through the effective management of them.
5.3 Equipment or Asset Maintenance Plan
BP for the formulation of an effective equipment maintenance plan firstly should
begin by appointing a team of specialised engineers who would undertake the concerned job.
In this regard, the engineers can begin by analysing the different equipment as per the latest
trends in the oil and gas sector and then service the equipment on the basis of their condition.
More importantly, priority should be given to those machineries which are faulty or
malfunctioning and the decision-making process should be entrusted with the engineers itself.
In addition to these, the engineers would also have to devise a plan through which regular
maintenance work will be conducted on all the machineries of the enterprise so as to enhance
their life cycle without affecting the budget of the enterprise in any substantial manner.

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5.4 Asset Recapitalization Plans and Strategies
BP rather than disposing off the machineries which are not working as per the
requirements of the enterprise should look to take the help of the process recapitalisation or
renewable strategies for the reuse of these machineries. For example, the different parts of a
machine which is not working can be used in other machineries if they are in the right
condition and this in turn can help the enterprise to save a substantial amount of their
operations cost. In addition to this, rather than always buying the required machines the
engineers of the concerned enterprise can also look to manufacture them from the spare parts
of the faulty machines. Furthermore, the decision-making power for this should be given to
the engineers since they would be the best individuals to analyse or understand the condition
of the machines. It is pertinent to note that these measures would not only help the enterprise
to reduce its operations costs but also reduce the wastage that it generates which adversely
affects the environment.
5.5 Asset Capital Planning and Strategies
BP rather than purchasing new machineries, equipment, tools and others should look
to prolong the life cycle of the same through the usage of adequate asset management process
and investments. The decision-making power regarding should be entrusted with the
engineers of the engineers of the enterprise and they should create regular report regarding
the manner in which the assets should be maintained and also the fresh investments that
would be needed for the same. This is likely to substantially reduce the operations cost of the
concerned enterprise and would also reduce the risks that it faces on the score of usage of
machineries which are not adequately maintained. More importantly, the investments should
be made on priority basis as per the needs of the machineries and the risks that they pose so
as to avert disasters like the Deepwater Horizon.

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5.6 Asset Disposal Plan
BP rather than straightway disposing the machineries, equipment, tools and others
which are not working and thereby adding to the environmental pollution should look to
recycle them or reuse them. More importantly, the decision whether or not to dispose a
particular machine should rest entirely with the engineers rather than the Board of Directors
who often have no technical idea about the machineries and merely look to reduce their
operations cost. Thus, the engineers should look to reuse the different parts of the
machineries which are no working into other machines to enhance their efficiency rather than
simply getting rid of them. Another option that the enterprise can use is to sale off the
machines or the parts which are not working as per the desired and buy new machines from
the capital that they have got from the same. This in turn would help the enterprise to
contribute in a substantial manner towards the improvement of the condition of the planet.
6.0 Conclusion
To conclude, the process of asset management had become an integral one within the
spectrum of the modern-day business world that the different business enterprises are
required to follow. As a matter of fact, it is seen that the process of asset management offers
various benefits to the enterprises like prolonging the life cycle of the assets, the benefits that
are being offered by these machineries, reduction in operations cost and others. However, at
the same time it needs to be said that the failure of the business enterprises to effectively use
the process of asset management can make them susceptible to different kinds of risks related
to the assets that they use and can also led to disasters like the Deepwater Horizon that BP
faced. These aspects of the process of asset management become apparent from the above
analysis of the Deepwater Horizon disaster that the enterprise BP faced in 2010.

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7.0 References
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effects of the Deepwater Horizon oil spill: a review. Marine pollution bulletin, 110(1), pp.28-
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14STRATEGIC ASSET MANAGEMENT
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