Wednesday, April 5, 2017

BP BLOWOUT, a thorough analysis of the most expensive corporate-caused disaster in history

BP BLOWOUT: Inside the Gulf Oil Disaster

Brookings Institution Press
$23.00 hardcover, available now

Rating: 4* of five

The Publisher Says: BP Blowout is the first comprehensive account of the legal, economic, and environmental consequences of the disaster that resulted from the April 2010 blowout at a BP well in the Gulf of Mexico. The accident, which destroyed the Deepwater Horizon oil rig, killed 11 people. The ensuing oil discharge—the largest ever in U.S. waters—polluted much of the Gulf for months, wreaking havoc on its inhabitants and the environment.

A management professor and former award-winning Justice Department lawyer responsible for enforcing environmental laws, Daniel Jacobs tells the story that neither BP nor the federal government wants heard: how the company and the government fell short, both in terms of preventing and responding to the disaster.

Critical details about the cause and aftermath of the disaster have emerged through court proceedings and with time. The key finding of the federal judge who presided over the civil litigation was that the blowout resulted from BP’s gross negligence.

BP has paid tens of billions of dollars to settle claims and lawsuits. The company also has pled guilty to manslaughter in a separate criminal case, but no one responsible for the tragedy is going to prison.

BP Blowout provides new and disturbing details in a definitive narrative that takes the reader inside BP, the White House, Congress and the courthouse. This is an important book for readers interested in the environment, sustainability, public policy, leadership, and risk management.


My Review: At the very beginning of this infuriating book, the author makes this statement:
The federal government brought criminal charges against BP and four of its employees. The company pled guilty to manslaughter and other charges to resolve the criminal case, agreeing to pay a record $4 billion in fines and penalties. Two BP employees were acquitted, and two pled guilty to misdemeanors. No one will go to prison for the accident. In stark contrast, the federal government prosecuted hundreds of individuals for filing false claims against BP. Seventy-five were incarcerated.
And this was under the late, lamented Obama administration. Can you even imagine what would happen if this were to happen under the current kakistocracy? The peons would be out polishing BP's tankers, chanting how sorry they were for the trouble their childrens' deaths were causing the corporation, the US Army guarding them with live ammunition in their guns.

The book is a good case study, at a high level, for what lies at the root of the epic disaster that has spawned a CGI-fest of a film, though few other tangible results outside the Gulf Coast. The disaster is, in hindsight, apparent from the get-go. BP filed the paperwork to gain drilling rights to this piece of the Gulf of Mexico that was, shall we say, slipshod:
On March 19, 2008, BP purchased from the federal government for $34 million the lease rights to a nine-square-mile area off the coast of Louisiana anomalously named the Mississippi Canyon. After making the purchase, BP went through the process of submitting to federal regulators the necessary plans to obtain permission to drill a well in the area.

BP's lengthy Initial Exploration Plan (EP) for the Macondo well was submitted in February 2009. In the section entitled "Blowout Scenario," BP wrote that "a scenario for a potential blowout of the well from which BP would expect to have the highest volume of liquid hydrocarbons is not required for the operations proposed in this EP." In other words, the worst case scenario question was not applicable.

BP also submitted an Oil Spill Response Plan. It described the various species of wildlife that supposedly could be affected by an accident in the Gulf. In an indication that the Macondo plan was a cookie-cutter extract from another plan, some of the species identified in it (such as sea lions, sea otters, and walruses) exist not in the Gulf's warm waters but in frigid Alaskan waters. ... William Reilly, administrator of the Environmental Protection Agency at the time of the 1989 Exxon Valdez accident and later co-chair of the Presidential Commission investigating the BP disaster, said that he was "shocked" that BP was not better prepared than Exxon had been more than two decades earlier.
Sea lions in the Gulf. Man, I must have worse vision than I thought, living down there and going to the beach all those years and never so much as catching sight of one. So clearly we're not talking about a regulatory agency with much interest in the paperwork that's submitted to it. Not even the most cursory glance could possibly have been given to this farrago and had it pass muster.

And yet it did pass, like intestinal gas, and it's symptomatic of a far nastier problem that was fixing to blow. BP has a long history of taking the easiest way to get to its profits. It has been fined many times for careless operations resulting in human and environmental problems. Nothing, however, has yet been seen to equal the explosion and subsequent sinking of the Deepwater Horizon. The event itself is largely offstage for most of the book, forming the backdrop for the author's primary focus: and then what happened? The answer is, for all that it's contained in under 200 pages, admirably complete. Author Jacobs is in his element when relating the details of the disaster to the people and places they describe:
The National Institute of Environmental Health Sciences, part of the National Institutes of Health, is conducting the GuLF Study, the largest ever study of the potential health effects associated with exposure to oil. The study plans to follow more than 30,000 members of the affected communities (cleanup workers and local residents) for ten years.
Preliminary results, reported in 2014, revealed that cleanup workers were 30 percent more likely to suffer from depression or anxiety. Results reported in 2015 showed that the incidence of wheezing and coughing in cleanup workers was 20-30 percent higher than normal.
After noting the clarity of Author Jacobs' presentation of the facts, I'll note their worrisome content and fret over the likelihood of the current administration's having cut or eliminated the funding for this study and its eventual report. The data would, I have little doubt, be very useful to the anti-oil lobby and will most likely be sent to live with the three-eyed, five-finned fishes around Macondo.

An issue that arises in almost every debate I've ever had with right-wing radicals is the stupidity of charging corporations with other-than-civil-law crimes. A corporation isn't a person, I've trapped a few into saying; if that's so, I counter, why does the law treat the corporation as a person? And after a horrible event like the Macondo well blowout that was primarily caused by the careless actions and reckless inactions of BP, can the fact of criminal culpability really not be considered and assigned?
What purpose is served by pursuing a corporation criminally instead of civilly when the primary sanction to be imposed in either case is a monetary penalty? The company itself cannot be sent to prison, and its directors, officers, and employees cannot be punished for the company's own ctiminal acrs. ... Reasonable minds differ on the question, with some legal scholars taking the view that the criminal justice process is wasted on corporations when civil sanctions are available. Although the concept of double jeopardy does not bar the government from seeking both criminal and civil penalties for the same transgression, arguably there is some overkill in its doing so.

In BP's case, however, there was very little overlap between the criminal offenses and the civil violations. Of the criminal charges brought against BP, the only negligent discharge count also constitutes a civil violation under the Clean Water Act. Moreover, when a company is responsible for such a huge calamity as the BP disaster, arguably it should be subject to both civil and criminal enforcement actions.
The nightmare that millions of people will continue to endure, in the form of a radically degraded environment that most likely will continue to suffer consequences of BP's bad business practices, seems to me to call for assignment of criminal culpability. Luckily, the courts agreed; also luckily, BP itself realized it was in new territory here and pled guilty to and/or settled almost all the suits brought against it.

This was not cheap, and it will continue to be not cheap for quite some years to come:
The nation's worst offshore oil discharge has resulted in what appears to be the world's most expensive manmade corporate disaster. At $61.1 billion, BP's estimate of its total costs broke all known records.

Significantly, the taxpayer bears all the risks of any unknown natural resource damage costs that exceed [a court mandated] $700 million cap. Depending on those potential costs—as well as how other societal costs are valued—all told the cost of the disaster might wind up growing substantially.

No matter how one values the costs of the BP disaster, they were enormous. Enormous for the company, its shareholders, the American taxpayer, and society as a whole. BP may have all but closed its books on the disaster, but the taxpayer and society may be left holding the bag.
BP's share price took a big hit after the Macondo disaster. The company used accounting chicanery to disguise the fact that, as a whole, it has yet to break a sweat paying the bills from their collective wrongdoing. They're profitable in spite of a lower market valuation. They're still drilling in US waters, in fact. Earning money from robbing the same nest they've already epically fouled. So their shareholders, from state pension funds down to index-fund shareholders, aren't in danger of losing real as opposed to fantasy money. That hasn't stopped a plethora of shareholder lawsuits from being filed. Some well-intentioned, suing to prevent the corporation from abusing the value of their shares by taking stupid risks, down to stupid stuff meant to be just annoying enough to get the suing parties a go-away payoff.

Ain't greed grand.

Author Jacobs advocates for a retreat from that kind of shareholding, described as shareholder-value management. The central presumption of this system is that managers have an affirmative legal duty to place the maintenance of shareholder value above any and all other concerns insofar as no laws are broken. There's a wink in there. No *important* laws, meanong ones that anyone can enforce expensively to the company's detriment. He cites a distinguished Cornell law professor, Lynn Stout, who claims that's a self-serving myth, "[c]hasing shareholder value is a managerial choice, not a legal requirement." Author Jacobs continues:
[Stout] maintains that BP shareholders do not necessarily want to raise share value to the exclusion of any other interest. "Real human beings own BP's shares, either directly or indirectly through pension and mutual funds, and real human beings care about much more than jusr whether BP stock rises."

A more enlightened current view of a corporation's purpose is known as the stakeholder theory. It teaches that a corporation owes a duty not just to its shareholders but to all of its stakeholders. These stakeholders include its business partners, customers, employees, and communities, among others. ...[M]any of BP's stakeholders were adversely affected by the BP blowout. They included BP's shareholders, whose stock plummeted. [The CEO]'s focus on being [primarily] an "operating company" backfired from any perspective.
The operating company that was supposed to save value for the shareholders by cutting corners has, with this disaster, received its death blow in my opinion. The current U-turn in social thinking will, I am confident, be short-lived. Too many people understand what it means and oppose its efforts.

Chapter 12, "Have We Learned or Only Failed?", is probably the most iportant part of the book. The question as phrased contains a big clue to the author's apparent purpose in writing this careful, complete overview of the Deepwater Horizon's death while drilling the Macondo well: Is past prologue, as it almost always is? "It depends," says Author Jacobs. It always depends. This book came out mere weeks before the 2016 election. The somewhat dubious tone of chapter 12 might have turned apocalyptic had it been published even a month later. The quoted paperwork above, filed by BP in pursuit of profits from the Macondo well, might be appalling but the agencies now in charge of licensing and inspecting oil drilling are not going to get larger or better funded now. The past is prologue. This time even the preface hasn't changed. It will most likely get worse before it gets better.

Sleep well.

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