Table of content

Executive Summary ……………………………………………………………………………...2

1.0 Introduction ……………………………………………………………………………….…3

2.0 Identification of BP’s Ethical dilemmas……………………………………………...………3

2.1 Deepwater Horizon oil spill………………………………………………………………..3-5

2.2 Prudhoe Bay oil spill……………………………………………………………………….5-7

3.0 Evaluation of BP’s Ethical Dilemmas………………………………………………….…..7-9

3.1 Evaluation of Deepwater Horizon……………………………………………………….…7-8

3.2 Evaluation of Prudhoe Bay oil spill…………………………………………………..……8-9

4.0 Evaluations of BP’s Best Practices……………………………………………………...10-12

4.1 Alternative Energy Program………………………………………………………..……10-11

4.2 Emission Reduction Program……………………………………………………………11-12

Reference
1.0 Executive Summary

The focus of this report is an audit of BP’s actions, identifying and evaluating its ethical dilemmas.

It will include general information about the company, identification and evaluation of ethical

dilemmas based on the recent oil spills happened in Prudhoe Bay and Deepwater Horizon.

To achieve some clarity, both dilemmas will be observed from the different stakeholders’

perspectives. Furthermore, in the dilemmas evaluation phase utilitarian theory will be used to

determine whether BP’s actions were ethical or unethical, using a relatively straightforward cost-

benefit analysis.

Finally, BP programs for the preserving natural environment and scarce resources for the future

generations which were launched after company’s realization of its unethical behavior will be

discussed in the last part.

In summarizing, it could be said that the report will shed more perspectives on these serious issues

and could help the reader to have a better understanding on the problem as well as options for

action to solve the issue.

2.0 Introduction

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British Petroleum is one of the world’s largest integrated energy companies, operating in all

activities which are connected with the oil and gas industry, which include exploring and

producing, refining, distributing and marketing these products to the world market. It is also

heedful of the renewable sources of energy, for instance, wind and solar power (BP, 2012).

Every day, BP produces almost four million,3,8 million, barrels of crude oil and natural gas, with

market capitalization of 135 billion, revenue of 386 billion, and 83 thousand employees in 2011,

operating in more than 100 countries and owning 27,800 service stations (BP, 2012). All of these

attest that BP is amongst the world’s most important multinational corporations.

Business ethics is a theory of how business and society are interconnected, being observed from

two points of views. Regarding to business, the goal of any business is to become involved in

profitable activities. Contrarily, society considers business as a part of society and its activities

should be acceptable according to society law and will not be harmful to society. In situations,

where it could be seen that some business activities result in profits for the company, but it could

be damageable for the community who are of special interest to business ethics. These kinds of

situations lead business individuals to make difficult decisions, called “business ethical dilemmas”

(Ghillyer, 2008).

3.0 Identification of BP’s Ethical dilemmas

The definition of Ethical dilemma, states that it is a situation that happens when two or more social

work morals are in conflict. BP scandals, like the environmental pollution and the unsafely

performance conditions discovered during the Prudhoe Bay and Deepwater Horizon oil spills.

These dilemmas have impacted on BP stakeholders.

3.1 Deepwater Horizon oil spill

The Deepwater Horizon, BP’s Drilling platform in the Gulf Mexico, had an explosion on April

20th, 2010, which caused the largest oil spill catastrophe in the petroleum industry history. In the

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accident 11 men working in the rig were killed, and 17 others suffered injuries. More than 150

thousand barrels of crude oil gushed into the sea, every day, for almost 5 months. Up to 68

thousand square miles of the Gulf's surface were covered (Burdeau, Cain, 2010).

There were many problems that contributed to the explosion on the rig, discovered during the

investigation of the oil spill by many non-governmental and governmental organizations that

proved BP’s unethical behavior led to the disaster. But the main reason, in spite of the

recommended decision by Halliburton, one of the largest multinational corporations, providing

oilfield services, was not to install an oil platform. Nevertheless, BP continued the installation of

a drilling rig, even using the cheaper well design that some investigators considered as “risky”.

There is no doubt that many parties were affected, directly, or indirectly, with this environmental

disaster. Everyone who works in the seafood or tourism industries was obviously affected. The

pollution that led to the mutating and the killing the fish, put workers at the risk of losing their

jobs, subsequently, increasing seafood prices, affecting the restaurant and supermarkets industry,

as well. Moreover, the tourism sector was affected because people refrained from going to the

beaches covered in oil, staying away from water sports, or other fun attractions, meaning all those

involved in tourism, such as hotels, tour operators, restaurants, boat renting companies were

affected with the oil spill (BP, 2012).

Likewise, after the blow-out in the Deepwater Horizon, the profit figures showed disappointing

results, falling to 35 percent, as the result of increased expenditures and obligations for individual

compensation and penalties, thus losing revenue. It has damaged BP reputation and finances,

losing the “faith" of investors and stockholders (Beam, 2010).

Moreover, besides losing investors, the company also started to lose customers. There was a

boycott campaign that started in the social media. Thus, the Facebook society gathered more than

75 thousand users who were negative towards BP. The massive oil spill also had the negative

influence on gasoline stations, affiliated with the oil company. For example, petrol stations in

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middle Tennessee were facing boycotts from clients who were upset with the continuous spill

(Hayslip, 2010). Another owner of a BP station in Chicago had a 20-percent fall in sales at his

filling station during the disaster (Gutierrez, 2010).

Lastly, the absence of the professional behavior by Tony Hayward, the CEO of BP at that time,

could be observed, prejudicing the ethical behavior of BP’s social responsibility. People could see

how he was enjoying a yachting holiday during the crisis, which created a negative image on the

whole administration of the company (BBC, 2010).

3.2 Prudhoe Bay oil spill

In late February, 2006 an explosion and subsequently oil spill happened in Prudhoe Bay, Alaska,

releasing 267 thousand gallons (1 million liters) of crude oil in the tundra of the Alaska’s North

Slope. However, it was discovered only after 5 days. The disaster was the largest oil spill in the

history of this region. A pipeline corrosion problem was a cause of the rupture and leaking of oil.

The corroded pipeline was detected two years before the catastrophe and the London headquarters

were informed, however, they did not pay enough attention to correct the problem (National

geographic, 2010).

The oil spill significantly influenced many groups and institutions whether positively or

negatively.

Firstly, gasoline consumers were extremely affected, due to the cleaning cost which have been

paid by BP, thus increasing the price of oil, since the petroleum companies, jumped to $2.22,

closing at US$76.98 for each barrel, because of the budget cleanup expenditures and other costs

injected in their sale prices (CNN, 2010). Besides that, the accident created a shortage on the

Alaskan gasoline market because of the closing Prudhoe Bay oil facility, which produced,

approximately, 2.6% of the US demand for petroleum, again affecting the oil-product users

negatively.

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Moreover, oil spill caused other oil-producing companies, because additional limitations were

imposed on the areas where companies can drill, reducing the total amount of demanded oil,

requiring additional extraction from places where work conditions are more difficult like, oil

shares. Also, there are numerous new restrictions on oil drilling and production in the future and

new regulation in Clean Water Act, the Clean Air Act and the Pipeline Safety Act.

This spill damaged the corporate image of British Petroleum, impacting the shareholders,

employees and its technologist. BP shares decreased in price, almost 2 percent. BP employees and

people in the nearest communities began to report about their health, complaining on the symptoms

such as often having headaches and chest pains, resulting from the cleanup and released chemicals

into the environment (Taylor, 2010). Furthermore, the cleanup techniques have not been useful at

cleaning up the pollution. Moreover, BP technologists were criticized for oversighting the

corrosion problem, giving them incentive to find better and faster way of determine and stopping

leaks in pipelines (Klein, 2010).

Next, society has become more provocative in the support of restrictions, like stricter limitations

on coal mining and carbon tax charges. Other party includes scientists because this incident has

given greater motivation for them to discover new ways of cleaning an oil spill, such as bacteria

that eats the oil and to research the renewable sources of energy.

Finally, knowing that North Slope region of Alaska is home to thousands of migratory birds,

caribou, and other habitants the spill had an enormous effect on the environment. The oil spill

covered, approximately, over two acres of snow-covered tundra and hard-frozen lake. Only the

cold conditions made it easier to clean up the area, affected by the oil spill (Rosen, 2006).

4.0 Evaluation of BP’s Ethical Dilemmas

4.1 Evaluation of Deepwater Horizon

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Next, from BP oil catastrophe, the oil spill in the Gulf of Mexico in 2010, arises the dilemma

between the saving costs by unnecessary risk taken and meeting safety criteria in the terms of large

number of fatalities on the platform rig. I am going to use the utilitarianism theory to determine is

BP actions were moral or immoral towards the society.

The Utilitarian theory states that an individual’s actions should be based on moral rules, defining

whether an action, is morally relevant, or not. This theory concentrates on the consequences that

bring about the utilities and person should sacrifice some cost from them, in order for larger group

to gain some benefits (Ghillyer, 2008).

BP’s oil spill minimizes the benefits of others who were affected as much as possible.

The coastal beaches and people, who were in the tourism and fishing industries, were damaged

seriously by the spill. The accident caused not only danger to people’s health, but it cost the

business millions of dollars. The oil that covered the marine ecosystem had a negative impact for

the decades to recover. In addition, the cleaning caused negative impacts as well, because of the

utilization of chemicals and the burning off the oil, led to creature’s mutations and increased

mortality because of the oil and water pollution. Although of these attempts, the damage had

already been and people are still suffering from the negative consequences that will continue for

years. Furthermore, BP has been fined because of their negligence.

Nevertheless, the BP’s disaster has positively influenced people’s opinions of oil use, has had

people to consider about switching the alternative energy sources because they observed the

negative consequences to the environment from the oil spill. Moreover, the company’s

representatives attempted to repair the damage by taking charge and providing a cleaning

campaign. These actions created benefits and many people have been beneficial from the cleaning

up activity, because the devastation of the marine and wildlife species being reduced, the fishing

and the tourism sectors could recover faster.

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Alternatively, BP could be more concern about the construction standards of oil drilling rig. Thus,

it could save money on cleaning and other fines and invest in future projects, such as alternative

energy. Moreover, it could allow the decrease of the oil price by supplying more oil products to

the U.S. market. This would be beneficial for the economy, due to the fact that today many

industries include petrol in the list of their expenses. Thus, if the expenses would have been less,

the cost of the products also would have decreased. This alternative creates only positive

consequences, excluding any costs, except the some negligible expenses for the better platform’s

construction.

In summary, according to the benefits and cost mentioned above I one can say that the utilitarian

theory suggest this BP’s action was completely unethical because the oil spill caused only harmful

effects and no real benefits were provided from the disaster.

4.2 Evaluation of Prudhoe Bay oil spill

The Alaskan Oil spill arises the dilemma, the negligence of the company’s board of directors,

together with saving money and the unnecessary risk that seriously affected the environment.

Using the utilitarian theory to comprehend, whether it was moral or immoral.

No utilities were provided for this oil spill, neither to BP, nor to the society.

Firstly, because BP’s negligent actions, cost the company a large sum of money, up to $20 million

dollar fine. Secondly, it harmful affected the environment of the Alaska’s natural environment,

home to numerous animals and birds. In the long-run could lead to the extinction of one of the

species, disinheriting future generations of seeing the beauty of our world. Next, BP accepted the

fine suffered damages of losing the revenue because of the stopping the operation line and large

amount of oil wasting, together with the large expenses for the cleaning up. Furthermore, it

increased oil prices that are harmful for the society and for the county’s economy as well, because

oil products, such as petrol are inelastic products that are difficult to substitute.

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The benefits, described are all indirect. First of all, because people became more concern about

the consumption of renewable sources of energy, allowing to pay more attention and investment

in research and development actions. Moreover, it required the technologist to find better methods

to determine leakage in the pipelines, that in long-term will play a significant role in the preventing

other oil spills. Finally, owing to the spill, society and the government have become more aware

of BP’s negligence towards the environment, employees and the security of their assets, thus

implementing new policies, restriction and rules for the gas and oil industries that will help to

avoid many environmental and safety performance issues of BP and other companies.

The alternative actions that BP could have implemented in this situation, were to consider

employees concerns about the corrosion in the pipeline and to take appropriate measures to remedy

the defects in it. In this case company could avoid many problems, such as huge fines, damaged

image, unnecessary expenses, without hurting the environment and the US petrol market. These

could relate to the benefits of this action. The only cost would be the expenditures to renew the

pipeline.

To sum up, renovation the pipeline in the right time could ensure BP in the consistent profit and

supply for the American market, making BP actions unethical.

5.0 Evaluations of BP’s Best Practices

5.1 Alternative Energy Program

After the serious disaster in the gas and oil, BP tried to recover its image. Nowadays, stakeholders

are more concerned about toxic emissions, rising gas prices and pollution that create a very

unpleasant picture of the oil industry as a whole. Therefore, BP has chosen the campaign to focus

more on global warming and greenhouse emissions, supporting the right of future generations for

the clean environment, together with the saving the natural scarce resources for later uses.

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First, British Petroleum changed its name to BP and raising the range of alternative energy being

offered to the market. John Browne, ex-CEO of BP proclaimed (BP, 1998) that “we are all citizens

of one world, and we must take shared responsibility for its future and for its sustainable

development.” BP has become the first world global energy company to acknowledge the problem

of climate change.

Secondly, in 2005, BP launched its alternative Energy program. The company sees itself as a

“going green” by expanding its business and becoming more profitable to do so, going beyond the

oil and gas, investing money in the biofuels, wind and solar production sectors. For example, in

biofuels, BP produces ethanol, using the feedstock of sugar cane from Brazil. In addition, it is

developing technologies in order to use the energy of grasses as a source of the lignocellulose

ethanol (BP, 2010). For this program BP investments constitute of $8 billion until 2015, $5 billion

of which has been already invested for acquiring a Brazilian biofuel company and another

Brazilian producer of sugar and ethanol that can produce 480 million liters of ethanol per an

average of year (BP, 2012). Moreover, the company invested over $500 million for the past 10

years in the Energy Bioscineces Instituted, where leading scientists find new and more efficient

ways to produce biofuels (BP, 2012). All of these enable BP to become the leader in the production

of biofuels.

Furthermore, BP embraces wind power, which is playing a significant role in the recovering its

image, because wind power is clean, safe, renewable and could remove approximately one billions

tons of carbon dioxide each year. Today, BP possesses eight wind farms that generate more than

1,200 megawatts, providing electricity to a city with a population of 700 thousand people (BP,

2012).

5.2 Emission Reduction Program

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The world consumption of natural oil and oil products increases every year, showing a growth of

2.7% on average every year and the production of carbon dioxide, reaching 34 billion tones in

comparison to 23 billion in 2000 (Joint Research Center, 2012). Therefore, in 1998, BP chose the

strategy for reducing the amount of greenhouse gases emitted in to the atmosphere from its

operations over the coming ten years, regardless of the company’s growth. By the tackling the

problem of global warming, BP has the advantage to become more ethical in relating to society,

doing its moral duty of protecting the welfare and the environment from its own harmful gases

emission regardless of its costs.

BP support policies stress the efficiency of the production and use of energy, because the amount

of energy used can have an effect on carbon dioxide emissions. Also, BP concentrates on the

support of lower-carbon, high-ponetional energy methods, such as solar and wind energy. Finally,

BP invests in technology research and innovations that could create lower-carbon options for the

future (BP, 2011).

In 2012, BP invested $3.4 million in the Clean Air Agency for projects directed at emission

reductions in Whatcom, Skagit or Island counties of Washington state in the U.S. (Schwarts, 2012).

In 2011, BP participated in the Australian debate on climate change, cooperating with other

government and non-government organizations, in order to realize and impose potential policy

solutions. BP actions led to creating the clean energy legislative package, where they shared its

analysis of world energy projections, business impacts in nations where have been already imposed

carbon prices and knowledge of renewable sources of energy.

To sum up, after 10 years BP could manage to achieve their intentions and decrease the production

of carbon dioxide by 10% (BP, 2009). It can reduce emissions by almost 80 million tones, owing

to, combining better technologies, with simple operation efficiencies, such as stopping leaks and

eliminating the unnecessary burning of natural gas. The reduction can come from various

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developments, which included the use of new technology, clean and renewable sources of energy

and the elimination of flaring. All of these testify that BP does it duties towards the society about

caring the environment and preserving it to the future generations.

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