Bp 2010 Oil Spil

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Annual Report Project

Did BP responded adequately and efficiently after the Oil Spill in April 2010

TABLE OF CONTENTS

Introductionp. 1

BP Oil spill characteristics p. 2

Cost Analysis of the spillp. 6

Clean-up of oil spill and recover environmentp. 6

Estimation and recognition of the cost………………………………………………..p. 6

Financial highlights…………………………………………………………………….p. 7

1.Sale of Assets/ Opportunity Cost

2. Share Price Drop

3. Debt Increase

Legal.p. 7

Claims

Government fines

Impact on reputation

Conclusionp. 11

Reference Listp. 13

Appendicesp. 14

Appendix A – Key statistic 2010p. 14

Appendix B – Table: Gulf Expensesp. 15

INTRODUCTION

As the news of BP oil spill broke out in April of 2010, our first thought as human beings was the loss of human life and its effects on the environment. But as the situation was unravelling and the death of 11 men with several others injured was announced by BP, some of us started to question if BP will be able to survive as an entity?

According to Bob Dudley who replaced Tony Hayward as the CEO of BP during the crisis, “The accident on 20 April 2010 turned into an unprecedented oil spill with deep consequences for jobs, businesses, communities, the environment and oil industry. From this grew a corporate crisis that threatened the very existence of the company.” (Bob Dudley, Summary review 2010, www.bp.com/summaryreview).

Was this disaster too big even for a mammoth like BP to swallow? As commerce students, we were curious how the costs for this oil spill will be allocated by BP. Interesting BP oil spill in itself presents a Case study for any Cost accounting student.

COST OF THE SPILL - Analysis of the research question (from 5 to 8 pages)

BP Oil spill characteristics

British Petroleum was considered to be one of “the world's largest oil and gas companies in terms of production capacity and revenue”. BP explores for oil and natural gas in approximately 30 countries and possesses proved reserves of 18.1 billion barrels of oil equivalent. Through its 16 raffineries, BP processes 4 million barrels of crude oil per day. It markets these products in 80 countries and through its network of 22,400 gas stations. (http://www.wikinvest.com/stock/BP). BP has been successfully operated more than 20 year when the huge wellhead blowout happened in April 2010 and put the BP oil spill in the Gulf of Mexico among “the world’s largest accidental releases of oil into marine waters”. The volume was up to 4.9 million barrels (210,000,000 US gallons; 780,000 cubic meters). The spread area was 2,500 to 68,000 sq. mi (6,500 to 180,000 km²).

The cost cutting and bad management is one of the reason to "Run to Failure: BP and the Making of the Deepwater Horizon Disaster," opinion of the investigative reporter Abrahm Lustgarten (ProPublica), who offers “a detailed portrait of a corporate culture that seemed to value controlling costs above human life”.

In support of the cut costing idea comes a statement by Transocean, one of the BP suppliers. BP was blamed that the company had made several cost-saving decisions that in some cases, severely increased the risk of a disaster. The statement of Transocean was response to the BP 193-page report which blames two of the BP suppliers: Halliburton and Transocean.  The report of BP describes “a bad cement job by Halliburton”.  Transocean was also blamed by BP because of “its crew members who failed to notice that gases had seeped into the wellbore just before the explosion”.

Cost analysis

BP incurred significant costs in 2010 in response to the Gulf of Mexico oil spill. The spill response cost of $13,628 million includes amounts provided during 2010 of $10,883 million, of which $9,840 million has been expended during 2010,...
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