BP April 2010 Oil Spill Crisis- The Beginning

On April 20, 2010, the Deepwater Horizon drilling rig, which was owned by the Swiss company Transocean and was under contract by BP, exploded in the Gulf of Mexico. As a result 11 men, working on the rig lost their lives- 9 of whom were Transocean employees and two were employed by BP. Together with Halliburton (the cement provider), these three companies, mostly BP, were associated the most with the incident and were perceived as the main culprits.

louisiana-oil-spill-bun

After the incident on the Deepwater Horizon platform, BP had three main communication aims: (1) to explain how it was trying to stop the leak of oil in the ocean; (2) to inform stakeholders about its intentions to compensate the victims of the incident; and (3) to keep stakeholders content, thereby avoiding court. For the first one, BP explained it was using a variety of techniques to stop the spill, none of them successful but the last one- relief wells were drilled, which resulted in stopping the leak in July 2010, two months after the blowout. However, as a result of the prolonged oil spill and the blowout, many businesses and individuals were affected. That is why the company set up a $20bn victim compensation fund to show its concern and willingness to pay all legitimate claims. Moreover, BP provided grants for promoting the tourism in the affected states of Louisiana, Mississippi, Florida and Alabama and committed $500m to a 10-year independent research on the consequences from the spill over the environment. In order to avoid going to court, the organisation took further steps, such as offering coastal residents cash payments in return for giving up their rights to sue the company at a later stage.

If the strategy had been successful, then one might have seen some recovery in the image of BP in the eyes of its stakeholders. However, it is hard to call BP’s initial attempt at image repair successful. BP’s initial crisis communicationchart campaign was trying to satisfy one stakeholder group- the victims- at the expense of another stakeholder group- the investors and shareholders. An interesting fact is that even though BP is a British company, the biggest percentage of its shares is owned by American shareholders. BP’s ten biggest shareholders own together 23.95% of the shares, 11% of which belong to US shareholders. That is why the American market is so important for the company and it put so much effort to restore its reputation and regain its stakeholders’ trust there. Moreover, five months after the accident on the drilling platform, BP replaced the British chief executive Tony Hayward with the American, Robert Dudley.

ceo bp

A year after the incident in the Mexican Gulf, BP recovered a lot and escaped bankruptcy; however, the company’s share price was too low and still too far from recovery. BP had hit the bottom on June 25, 2010 with $27.02 a share but in a year’s time – in 2011 – had risen to $45.91 a share. However, this was still too low, compared to the share price on the night of the incident – $60.48 (25% above). What made things worse for shareholders was BP’s decision to sell $30 billion in assets in order to be able to pay the cleanup and victim’s compensation instalments. While selling down non-core assets meant that the company could meet its short term obligations, the shareholders would see this as damaging its longer term growth prospects.

As opposed to BP, the other companies involved in the Deepwater Horizon accident have recovered much more. Transocean, the owner of the drilling rig, which is the other most widely associated organisation with the crisis in the Mexican Gulf, fell to $75 a share in 2011, from $90 a share the year before. On the other hand Halliburton’s (the cement provider) shares rose from $30 in 2010 to $46 in 2011. Cameron International’s (the manufacturer of the blow-out preventer) shares also increased from $45 to $54 as well as the share price of Anadarko Petroleum, having 25% stake in the Macondo project, rose by $5 from $75 in 2010 to $80 in 2011.

The results above show that when a big crisis of global significance occurs, the one to blame and collect most of the negative reputation is the one that is most recognisable and the one with the “deepest pockets”. Even though many other companies were involved in the incident, the only one that was almost bankrupted was BP. Because BP is a globally known company, the focus was on it as well as the public and US Government pressure.

The next blog post in this section, will be discussing the mistakes BP made as part of its crisis communication strategy. Don’t miss it!

Lidiya Kirilova

References

Mehta, N. (2012). The Image Restoration of BP. University of Houston

BP Annual Report and Form 20- F 2010, retrieved July 20, 2013 from: www.bp.com

Harlow, W. F. et al (2011). BP initial image repair strategies after the Deepwater Horizon spill. Public Relations Review, Elsevier

BP: Its 10 Biggest Shareholders – June 4, 2010 (The Telegraph); retrieved July 23, 2013 form: http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/7802978/BP-its-10-biggest-shareholders.html

Reed, S. and Swint, B. (July 27, 2010). BP Board Backs Plan to Replace Hayward with Dudley. Bloomberg, retrieved July 23, 2013 form: http://www.bloomberg.com/news/2010-07-25/bp-said-preparing-to-replace-hayward-with-dudley-as-board-seeks-recovery.html

Gelsi, S. (April, 20, 2011). BP Shares Still Limping After Gulf Spill. Market Watch, retrieved July, 25, 2013 from: http://www.marketwatch.com/story/bp-shares-still-limping-after-gulf-spill-2011-04-20

 

 

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