Monthly Archives: June 2010

Safety Performance vs Production Costs

Are these two forces at loggerhead?

The Wall Street Journal just published an article on June 29, 2010 on this thorny topic. This generally pro-business newspaper wrote a scathing expose on how cost cuttings at BP have affected its safety performance.

The paper cites an internal BP investigation that a small oil spill from a BP oil platform in 2008 was caused by a “defective pipeline pump that BP had put off repairing” in the “context of a tight cost budget.” The budget was “underestimated” resulting in “conflicting directions/demands.” Management decided that the problem with the pumps “was not in itself a cause for safety or environmental concern.” The repair was deferred until the following budget year.

The Journal reports that “after a six-month inspection of the Texas City refinery last year, OSHA hit BP with an $87 million fine, the biggest in the agency’s history. About $57 million of  what OSHA describes as failure to abate hazards similar to those that caused the 2005 explosion which killed 15 people.”

It is also reported in the Journal that senior management at BP “focused on meeting performance targets, which determined bonuses for top managers and low-level workers alike.”

According to a former BP health and safety manager who was quoted in the Journal, workers had “high incentive to find shortcuts and take risks.”

The CEO of BP also spoke of “slaying two dragons at once; safety lapses that led to major accidents, including a deadly 205 Texas refinery explosions; and bloated costs that left BP lagging” Shell and Exxon Mobil.

After the small BP spill in 2008, BP’s internal report “warned of lax safety oversight and tight budgets.” As reported in the Journal, the BP report went on to conclude: “A key question to ask, especially with apparently minor and disconnected defects, is ‘what’s the worst thing that could happen?'”

I think we all know the answer to that.


Lessons we can all learn …..

The US Chemical Safety Board (CSB) conducts chemical accident investigations and issues findings and recommendations. Several years ago, it conducted an investigation on a refinery explosion in Texas that killed 15 and injured 180 persons. Here are some of its findings:

  1. “Cost cutting, failure to invest and production pressures” from senior management impaired process safety performance at the refinery.
  2. “Reliance on low personal injury rate” as a safety indicator failed to provide a true picture of process safety performance.
  3. There was a “check the box” mentality at the plant where people simply just checked off on safety procedures even though they had not been completed.
  4. “Personnel were not encouraged to report safety problems and some feared retaliation for doing so.”
  5. There were “numerous surveys, studies and audits identifying deep-seated safety problems” but management’s response was often “too little, too late”.

We can all learn from these fatal mistakes.

The issue of reward structure at manufacturing facility is a tricky one. Many companies offer bonuses to middle managers for meeting production deadlines. Fewer companies offer similar rewards for excellence in safety. And when they do offer reward on safety, it often pertains mainly to personal safety and not process safety. That is understandable since it is harder to quantify process safety. There are lots of safety indicators for personal safety.

One of the findings by the CSB was that the refinery relied too much on its low personal injury rate as a false indicator that the process was safe. Just because people are not getting injured working next to a building that is about to collapse does not mean that the building will not collapse.

Measuring the wrong thing is worse than not measuring anything at all.

Another fatal mistake this refinery made was that it failed to act on the findings of its own numerous studies and audits. What is the point of doing all these audits if you are not going to fix the problems?

The “check the box” mentality at this refinery is most likely a result of the lack of ownership and training on the part of the employees. If an employee does not feel that he is part of the safety process and does not understand the rationale behind a long check list that he is given to complete, he is likely to just check them off. That’s just human nature.

We can all learn from these mistakes.

More lessons from the BP oil Spill

The CEO of BP Oil went before Congress today and testified under oath. For most of the time, he was bobbing and weaving trying to avoid admitting errors – for obvious legal liability reasons. However, there was one statement he made that has a lot of bearing on what we are going to discuss here. He said that accidents happen for two reasons: equipment failure and poor human judgment. That is absolutely TRUE!

So how do we avoid accidents?

To avoid or greatly minimize equipment failure, we need to design the equipment under worst case scenarios. We also need to have a backup system when the “fail-safe” equipment fails. The BP CEO actually said that his “ultimate fail-safe equipment” failed – which lead to the oil spill. Note that there was no relief well designed as part of the deep water well system. That’s why BP is now drilling two relief wells to kill the blown-out well but that won’t be completed until August – 4 months after the blowout and millions of gallons of oil spilled!!!

To combat error in human judgment, the following need to be in place. Employees must receive adequate training to do the job. They must know what to do in case of emergency. The emergency response plan must be realistic and specific to the worst case scenario. It must also be specific to the facility – none of this cut-and-paste stuff. Finally, the management/bonus/reward structure must be designed to discourage corner cutting.

So keep all of this in mind when you prepare your next SPCC plan, your RCRA Contingency Plan and your storm watre pollution prevention plan.

Equipment failure and human error!

New revelations about the BP oil spill

In my earlier posts, I wrote about the perils of cut-and-paste emergency response plan and the feelings that BP workers were cutting corners before the accident happened. Facts have since proven me right.

Watch this video from a Congressional hearing where it was discovered that the regional emergency response plans for many major oil companies (Exxon, Chevron and BP) look eerily similar and they all have identified walruses as an animal that would be affected by an oil spill in their Gulf of Mexico Plans. So there was a lot of cutting and pasting going on among the companies.

In another hearing, emails from BP engineers obtained by Congressional staff show there was evidence that they were cutting corners because the production well was behind schedule and the delay was costing the company thousands of dollars a day. The big irony is that the delay cost turned out to be a chum change in comparison to BP’s eventual financial liability.

Here is a video of a BP employee’s sworn testimony before Congress on what happened before the explosion.


What are the lessons we learn from this: Don’t cut-and-past your emergency plans. Don’t cut corners to buy time and “save” money and don’t write emails if you don’t want the world to read them.

What is BP’s potential liability?

Under Section 1002 of the Oil Pollution Act – which was passed as result of the Exxon Valdez oil spill – any responsible party is “liable for the removal costs and damages”. The removal costs are just that. However, the damages include the following:

  1. Damages for injury to, destruction of, loss of, or loss of use of, natural resources;
  2. Damages for injury to, or economic losses resulting from destruction of, real or personal property;
  3. Damages for loss of subsistence use of natural resources;
  4. Damages equal to the net loss of taxes, royalties, rents, fees, or net profit shares due to the injury, destruction, or loss of real property,personal property or natural resources;
  5. Damages equal to the loss of profit or impairment of earning capacity due to the injury, destruction, or loss of real property, personal property, on natural resources.

There is a cap of  $75 million over and above the total removal costs. But this cap will not apply if there is gross negligence or willful misconduct involved.

The real big liability comes under the Clean Water act. Under Section 311 of the Act, BP would incur much higher civil penalties. The Clean Water Act calls for a civil penalty of $1100 per barrel of spilled oil. The amount of oil spilled has been estimated to be as high as 40,000 barrels a day. As of June 11, BP will have spilled 2.08 million barrels of oil into the Gulf of Mexico. This translates to a civil liability of $2.28 billion as of June 11. If the government can demonstrate gross negligence on the part of the discharger, the Clean Water Act calls for a penalty of $4300 per barrel. This would increase the civil penalty to $8.9 billion as of June 11.

Now you understand why the estimated amount of oil spill has varied over a large range depending on who’s doing the estimating. We are talking big bucks here.

BP Oil’s share price has been cut in half since the spill began 7 weeks ago. The company is now valued at $105 billion on Wall Street. Perhaps that’s the real penalty.

The story behind the BP Oil Spill – as told to 60 Minutes

There is a story behind the deepwater blowout and subsequent oil spill. Here are two parts of the 60-Minutes interview. It is a very compelling story. It was a high stake race against time BEFORE the blowout. Watch:



You decide.

What can we learn from the BP oil Spill?

The massive oil spill from BP’s offshore drilling rig began on April 20, 2010.  It is now officially the worst environmental disaster in U.S. history.

There will be government investigations into what caused the accident and how it could have been prevented. The federal government has initiated a criminal probe into the accident and a Presidential Commission has been formed to look into the root causes of the incident. Someone will probably end up in jail.

What can we learn from this environmental disaster now? Here are some things that we know for sure at this point.

There is no such thing as a fail-safe system. Engineers and experts have assured the public repeatedly that an accident of such magnitude could never happen or are extremely unlikely to happen. Well it happened. The experts have been proven wrong. In fact BP’s 582-page emergency plan entitled “BP Gulf of Mexico Regional Oil Spill Response Plan” dated June 30, 2009 does not contain specific plans to deal with an accident of this magnitude. According to the plan, the TOTAL worst case discharge from an uncontrolled blowout from an exploratory well off shore was 250,000 barrels. The low estimate from the federal government on the amount of oil spilled is around 20,000 barrels per day. That’s 600,000 barrels per month and the spill began on April 20 with no end in sight.

There was no detailed discussion on how to stop a deep water blowout in the response plan. There were no Plan A, Plan B or Plan C outlined in the plan to address this magnitude of a spill. There was no mention of “Top Hat” or “Top Kill” in the plan. That’s why it has taken BP so long to stop the blowout. In fact, the Financial Times of London quoted BP’s CEO on June 3 as saying it was “entirely fair” to criticize the company’s preparations. The CEO went on to say that “what is undoubtedly true is that we did not have the tools you would want in your tool kit.”

The second thing we know is that too many emergency response plans contain a lot of fluff and extraneous material just to make them look substantive and impressive. One would have thought that a 582-page document would have the room to cover ALL possible worst case scenarios – including a blowout of a size that matches what actually happened. But that was not the case.

The 582-page plan was prepared by outside consultants. There is evidence that parts of the BP plan contain boilerplate languages used by other plans elsewhere. One example that has been cited by the media and much to BP’s embarrassment is that the BP plan actually lists walruses as among the Gulf of Mexico’s sensitive biological resources (see section 11 of the report). We all know that walruses live in the Arctic and sub-Arctic regions. They simply do not live in the balmy waters of the Gulf of Mexico. The fact that no one has caught this glaring mistake in the plan during the review process should be a cause of concern. The consultants who prepared this plan has offices in Alaska. A reasonable person could reasonably infer that the reference to walruses came out of a spill response plan that had been prepared for the frigid waters off Alaska. Cutting and pasting did not work this time around. It seldom does, It also tells us that the regulatory agencies responsible for reviewing the BP plan missed the mark by a wide margin.

So what else does this 582 page plan tell us? Size does not matter. It is the content and specifically local contents that really count. Despite its massive volume, the plan contains none of the different remedies that BP has actually tried out since the spill. One valuable lesson we learn from this disaster is that next time when we prepare a spill response plan or a contingency plan we need to focus on site-specific environmental conditions and not pad those plans with boilerplate cut-and-paste languages and fluff. All that flowery language in its 582-page has not helped BP plug that hole. Another valuable lesson we learn is that if we engage the services of an outside consultant or contractor to write our plan, we need to READ it carefully before sending it on to the agencies.

One final lesson we have learned is that if we spend a lot of money to develop a new manufacturing process to make a new widget, we need to also spend some money on how to control the pollution coming out of this new process. That’s one thing the oil industry has failed to do. It spent billions of dollars developing new deep water oil drilling technology without considering new technologies to deal with spills at such great depths.