The Impact of the BP Deepwater Horizon Oil Spill: A Financial Analysis

This report analyzes the financial and regulatory implications of the BP Deepwater Horizon oil spill, the largest marine oil spill in U.S. history. It examines the role of interest theory, regulators, and the shortcomings of existing regulations. The report emphasizes the need for more dependable environmental accounting and reporting to ensure stricter regulations for global oil and gas activities. It discusses the difficulties in measuring ecological and socio-economic damages, the motivations of politicians, and the impact on ecosystem services and the Louisiana commercial fishery. The author argues for increased environmental accounting and reporting to hold companies accountable and ensure the protection of the environment and future generations. The report concludes by highlighting the failure of regulators and BP to adequately address the crisis and the need for a shift towards prioritizing societal interests in the oil and gas industry.

Running head: ASSIGNMENT 2 – GROUP ASSIGNMENT
Assignment 2 - Group Assignment
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Summary
This paper will focus on an article discussing the financial effects the manner in which
BP responded to the Deepwater horizon spill or the Gulf of Mexico Oil Spill which is the biggest
marine oil spill in the history on the United States. The Gulf of Mexico Oil Spill occurred in
2010 at approximately 50 miles of the southeast of the Mississippi River delta, April 20 and was
the result of an explosion on the Deepwater Horizon offshore oil platform. This article will
emphasize on the importance of imposing more dependable environment accounting and
reporting as a way to make regulations for global oil and gas activities more strict. This article
also features the difficulties involving measuring ecological and socio-economic damages of the
Deepwater Horizon oil spill. In analyzing this article, the paper will discuss the interest theory
and the role that regulators play as well as my personal opinion on the issues that the article is
discussing.

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Introduction
The Deepwater Horizon spill is a very controversial topic and although in the beginning
the general public put full responsibility on BP for what they perceived to be negligence and
disregard for the environment on the company’s part that caused the manmade disaster, the
blame quickly shifted on the American’s government because its response was not deemed strict
and impactful enough given the serious nature of the situation. The Gulf of Mexico Oil Spill out
more than twenty categories of important and profitable ecosystem services in the Gulf of
Mexico as well as around it, some of it generating at least US$12-47 billion per year as it is the
case for ecosystem services for the Mississippi River Delta. The Deepwater Horizon spill almost
caused the extinction of the Louisiana commercial fishery which would have been a hard hit to
the economy of the state as it generates US$2.5 billion per year (Houdet, & Germaneau, 2011).
To understand the full magnitude of the situation as well as the appropriate responses the
involved parties need to have had it is important to look at the public interest theory as well as
the role of regulators meaning politicians.
Interest theory and role of regulators.
According to the interest theory, regulations are policies that are determined by market
forces, supply and demand but in this case, it is between the government who is the supply
component and other interests groups who make the demand component (Uno and Bartelmus,
2013). The interest theory states that regulations are not developed by politicians but by
industries, and the main purpose of these regulations is to create advantages for every player
operating in those industries. So it is understandable why the general public felt that the
government was being too lenient when setting sanctions for BP as the Oil and gas industry is
one that designed the regulations that govern the market including lenient penalties for oil

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leakage because the well-being of its members matters the most. Also, industries operate these
regulations without any interference from external mechanisms. Further, regulators permit
players in an industry to participate in the decision-making regarding economic matters that
affect them, and although these representative groups are small in size to minimize running costs
they will always act for the benefit of the members of the industry first, and the society comes
second (Russel and Dey, 2017). So consumers that were affected by the Deepwater Horizon spill
like the twenty categories of ecosystem services will not be the focal point when sanctions are
being set because of the phenomena of cross-subsidization meaning that the regulations in the
Oil and gas industry were developed to benefits companies the industry such as BP more than
related industries in which the Louisiana commercial fishery operates in.
The role of regulators is to impose the regulations that the industry has designed for itself
to accomplish the economic goals of a country. So it would not have been possible for the
American government to give anything else other than a pretax charge of US$40.9 billion as a
penalty for the Deepwater Horizon oil spill because doing otherwise would have violated
industry regulations and interfere with the accomplishment of some of the country’s economic
goals. Another role that regulators have always had is to find ways to use the least amount of
energy, time and money when dealing with different issues and to allow industries in develop
regulations that will govern them is the best way to accomplish that role (Gray and Owen, 2014).
Motivations of politicians as regulators and my personal opinion
On paper, what motivates politicians to regulate an industry is the best interest of the
society or the general public, but in reality politicians, they enforce regulations for their own
benefit, and as a result, they are not predictable (Bebbington and O’Dwyer, 2014). For example,
the regulations in the oil and gas industry are lenient because most of them have invested in

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companies like BP and it would not be in their best interest for the company to fall even if a lot
of people depend on the ecosystem services. As regulators, politicians have perfected the art of
not taking into consideration certain groups in the decision-making process to ensure that proper
and fair decisions are not made regarding regulatory measures to enforce. Most of the time, the
best interest of the society is not taken into consideration because all politicians are focusing on
is ensuring that the members of a particular industry are happy and content in exchange for
political support for example funding campaigns. Another thing is that when government
establish regulatory agencies, they are usually controlled by people who have personal interest in
certain industries so when it comes to enforcing regulations they will never act against them, and
as a result they allocate resources per the needs of industry instead of the society(Gray and
Owen, 2014).
Because their personal interest drives them when regulating industries, I agree with the
article that regulation for oil and gas activities needs to be increased and more reliable
environmental accounting and reporting is one of the best ways to achieve that. Companies are
responsible for most environmental problems we are facing today because of their goals for
profit maximization, rapid technological developments and well as reckless consumption of
natural resources. Oil and gas are one of the industries who greatly impact the environment due
to the overproduction and emission of carbon dioxide (CO2) causing air and water pollution as in
the cause of the Deepwater Horizon oil spill.
Environmental accounting will be greatly beneficial for both internal and external
stakeholders as it will help evaluate the environmental impact errors will have on organizational
operations involving water, air, and soil as well as the health and safety of employees and the
society in general. More reliable environmental accounting will facilitate compliance with

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internal, local and national environmental standards which will allow companies to develop
much more effective techniques in preventing environmental errors (Gandhi, & Dalvadi, 2017).
More reliable environmental reporting will be greatly helpful in ensuring that companies are
careful in their operations in order them to discharge any responsibilities to the society and future
generations as inefficient use of natural resources and pollution of the environment will interfere
with their quality of life. More reliable environmental reporting will also strengthen a company’s
responsibility to its stakeholders because by disclosing full environmental information will make
it less likely for companies to commit any act that does not have society’s best interest at heart.
Increased environmental accounting and reporting would have increased the legitimacy of BP
because, after the Deepwater Horizon oil Spill, internal and external stakeholders needed be
reassured that the company has learned from its mistakes and that it will do everything possible
to ensure that an incident that like never occurred again but BP failed to do that.
Conclusion
The Deepwater Horizon spill or the Gulf of Mexico Oil Spill was a serious and extreme
environmental crisis that should receive equally serious and extreme responses from both
regulators and BP, but they failed to that in an attempt to hide the real nature of the situation to
both internal and external stakeholders. Regulators should ensure that interest of the society is
the main focus, but they choose to put their personal interests first which creates a reckless
atmosphere in the oil and gas industry when it comes to the use of natural resources. There is the
need to have more reliable environmental accounting and reporting as it benefits both
organizations and the society in general with its future generations.

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References
Bebbington, J., Unerman, J. and O'Dwyer, B. eds., 2014. Sustainability accounting and
accountability. Routledge.
Gandhi, T., & Dalvadi, Y. (2017). An analytical study on social & environmental accounting and
reporting. International Journal of Research in Management & Social Science, 5(2).
Gray, R., Adams, C. and Owen, D., 2014. Accountability, social responsibility and
sustainability: Accounting for society and the environment. Pearson Higher Ed.
Houdet, J., & Germaneau, C. (2011). The finaicial impacts of BO’s response to the Deepwater
Horison Oil Spill: Comparing damage evaluation approaches & highlighting the need for
more reliable environmental accounting and reporting. Synergiz.
Russell, S., Milne, M.J. and Dey, C., 2017. Accounts of Nature and the Nature of Accounts:
Critical reflections on environmental accounting and propositions for ecologically
informed accounting. Accounting, Auditing & Accountability Journal, (just-accepted),
pp.00-00.
Uno, K. and Bartelmus, P. eds., 2013. Environmental accounting in theory and practice (Vol.
11). Springer Science & Business Media.