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[answered] BRITISH PETROLEUM (PLC) AND JOHN BROWNE: A CULTURE OF RISK


Assignment 3: Risk Workshop and Risk Register


Due Week 6 and worth 240 points


Note: The assignments are a series of papers that are based on the same case, which is located in the Student Center of the course shell. The assignments are dependent upon one another.


Write an eight to ten (8-10) Risk Workshop and Risk Register Component paper in which you:

  1. Identify the required pre-workshop activities.
  2. Prepare a risk workshop agenda based on Figure B-8, Sample Agenda for a First Risk Assessment / Two ? Day Risk Workshop (Appendix B of the Hillson and Simon text). Include suggested time intervals for each activity and justify why each agenda item is relevant for this case.
  3. Determine the top five (5) threats in a risk register following Figure B-11, Sample Simplified Risk Register Format (Appendix B of the Hillson and Simon text). Include information from the case for each threat.
  4. Justify the assignment of probability and impacts for each threat identified in criterion number 3 of this assignment.
  5. Document the top three (3) opportunities in a risk register following Figure B-11, Sample Simplified Risk Register Format (Appendix B of the Hillson and Simon text). Include information from the case for each opportunity.
  6. Justify the assignment of probability and impacts for each opportunity identified in criterion number 5 of this assignment.
  7. Use at least two (2) quality resources in this assignment. Note: Wikipedia and similar Websites do not qualify as quality resources.

Your assignment must follow these formatting requirements:

  • Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
  • Include a cover page containing the title of the assignment, the student?s name, the professor?s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

  • Assess and prioritize risks to the project through an analysis of the active threats and opportunities presented.
  • Apply the Active Threats and Opportunities Management (ATOM) process to ensure a consistent, measurable result of this analysis.
  • Use technology and information resources to research issues in project risk management
  • Write clearly and concisely about project risk management using proper writing mechanics.

BRITISH PETROLEUM (PLC) AND JOHN BROWNE: A CULTURE OF RISK

 

BEYOND PETROLEUM (A)1

 

In April 2007, the board of British Petroleum (BP) faced a difficult decision. A month earlier,

 

two independent reports (the first commissioned by BP and chaired by former American

 

Secretary of State James Baker; the second commissioned by the U.S. Chemical Safety and

 

Hazard Investigation Board) were released investigating an explosion in 2005 at a refinery in

 

Texas City in the United States that killed 15 people and injured more than 180. After exhaustive

 

investigations, the reports identified a history of poorly regulated safety measures in the plant

 

and risk management, the blame for which seemed to focus on the firm?s group chief executive,

 

Lord John Browne.

 

After the Baker report was released, the company attempted to mitigate the damage in its 2006

 

annual review:

 

Importantly, the panel did not conclude that BP intentionally withheld resources on any safetyrelated assets or projects for budgetary or cost reasons. The panel interviewed hundreds of

 

employees in the course of its work and observed that it had seen no information to suggest that

 

anyone ? from BP?s board members to its hourly paid workers ? acted in anything other than

 

good faith.2

 

In fact, there had been other independent reports, one in 2004 and then again three months after

 

the 2007 Baker report, that were less forgiving of BP?s ?culture of safety.? The 2007 report

 

from the U.S. Chemical Safety and Hazard Investigation Board suggested that safety in the

 

company?s facilities had been compromised in favour of profits, cost savings or lack of

 

management supervision.

 

The Texas City disaster was caused by organizational and safety deficiencies at all levels of the

 

BP Corporation. Warning signs of a possible disaster were present for several years, but company

 

officials did not intervene effectively to prevent it.3

 

These reports were just the most recent of many concerns hurting the reputation and performance

 

of the world?s second-largest super major oil company and leading to a drop in share price from

 

US$70.41 on January 17, 2006, to US$63.28 on January 16, 2007.4 As well, the public release

 

of this information had destroyed nearly US$39 billion of market capitalization since August

 

2006.5 (Exhibit 1 presents a comparison of the stock performance of the world?s super-major oil

 

companies). During this period, the price of crude oil had risen nearly 20 per cent.6

 

In January 12, 2007, Browne announced that he would retire from BP. This was somewhat of a

 

shock to the board and the investment community because his retirement date was roughly 18

 

months before his mandatory retirement date7, and, in the past, he had campaigned to remain in

 

his post past the retirement date. Others were concerned that his successor may not yet be fully

 

prepared to step into the top job. What was also a shock was the announcement of the over US$50 million severance package Browne was set to receive upon retiring. Many wondered

 

how the board could award him such a large package after such poor performance over recent

 

years.

 

Browne had been credited with saving and taking BP to new heights and was one of the most

 

respected business leaders in the United Kingdom. At the same time, however, it was clear that in

 

recent months the firm?s performance had suffered significantly. More and more evidence

 

pointed to systemic problems within BP that had been allowed to grow during his tenure,

 

creating the culture of risk in which the BP board now found itself reducing shareholder

 

confidence and risking lives and the firm?s reputation. It was up to the board to decide what to do

 

next.

 

BRITISH PETROLEUM

 

British Petroleum plc, (BP) was founded in 1908 as the Anglo-Persian Oil Company and was

 

started with a single well in a remote area of Persia after nearly eight years of searching. From

 

this humble beginning, in less than half a century, the firm grew to be the largest in the United

 

Kingdom and one of the largest in the world, employing over 100,000 people in over 100

 

countries.8 (Exhibit 2 presents selected financial information for the year ending 2006, and

 

Exhibit 3 presents the biographies of the BP board, as published in the 2006 Annual Report.)

 

The petroleum industry, while lucrative due to insatiable global demand, was also one that

 

involved enormous risks. The days of cheap, easily accessed oil appeared to be over and what

 

remained was often located in areas that were politically and socially unstable. Huge amounts of

 

capital were required to find oil, refine it and then deliver it to the many end users. Risk also

 

stemmed from the fact that although the timing was up for debate, no one doubted that,

 

eventually, either through the development of new technology to replace petroleum or through a

 

simple lack of product, a company that was focused only oil would go out of business. To that

 

end, BP tried to protect itself by attempting to stave off the loss of product by spending billions

 

on exploration for new reserves and on the downstream technology of refining and distribution to

 

control the entire value chain. At the same time, BP also tried to diversify into new energy

 

generation technologies.

 

BP?s business was divided into three segments9: oil exploration and production; oil refining and

 

marketing; and gas, power and renewables.

 

Oil Exploration and Production

 

In 2007, BP was actively exploring for oil in 26 countries around the world, which over the years

 

had provided the firm with proven reserves of 18.5 billion barrels of oil and gas equivalents

 

leading to daily production of roughly four million barrels per day. BP had plans to start 24 more

 

major projects by 2009, which would provide additional reserves of over 3.7 billion barrels with

 

an additional production of 850,000 barrels per day. Oil Refining and Marketing

 

Oil refining and marketing took the crude oil BP pumped from the ground and turned it into

 

various products like gasoline, kerosene and motor oil, products which were then sold to

 

consumers either through the firm?s own distribution network of over 25,000 gas stations or to

 

other sellers. Oil refining was a technically complex and highly capital-intensive activity. In

 

2006, BP owned outright or was part owner of 18 refineries processing the equivalent of 2.8

 

million barrels a day.

 

Petroleum could also be refined into chemicals known as acetyls that were used in numerous

 

consumer products. A statement from the firm indicated the acetyls? pervasiveness:

 

Our acetic acid can be found in jars of pickles. Our acetyls feedstock is used to make Viagra. We

 

invented the purified teraphthalate acid (PTA), used in both clothes and polyethylene

 

terephthalate (PET) bottles for water and soft drinks (and we recycle many of those bottles into

 

fleece pullovers). We are proud to have a world-class PTA business. We also make paraxylene

 

(PX), the raw material for PTA.10

 

Gas, Power and Renewables

 

As one of the leading oil producers for most of the 20th century, BP, in more recent years, had

 

attempted to reposition itself. The slogan ?BP: Beyond petroleum? had been coined to present

 

BP as a company that was preparing for a world that was past its dependence on petroleum. In

 

2005, BP Alternative Energy was launched to consolidate the company?s low-carbon energy

 

initiatives. By 2006, BP claimed to be a world leader in power generation from solar, wind and

 

gas-fired power plants, with plans for additional investment and research into hydrogen power

 

generation.

 

JOHN BROWNE

 

John Browne, The Lord Browne of Madingley, became chief executive officer of BP in 1995 at

 

the age of 45. He was knighted in 1998 and was made a life peer in the British House of Lords in

 

2001. By all accounts, Browne was one of the most successful CEOs in the firm?s history,

 

credited with turning BP into one of the largest and most successful energy companies in the

 

world. Browne became known for his willingness to take risks and to pursue big deals and,

 

under his leadership, in 1998, the acquisition of American oil company Amoco was engineered.

 

The deal was worth more than US$60 billion, an amount that literally doubled the firm?s sales

 

and reserves. In 2003, BP created a joint venture with Russian oil giant Yukos, providing the

 

firm with 50 per cent access to reserves of over 44 billion barrels of oil or oil equivalent and

 

additional production of about 1.2 million barrels a day, at a cost of US$6.8 billion and the

 

associated risk of operating in the Russian business environment.11 By many accounts, Browne was a well-respected business person who, while being one of the

 

most powerful business executives in the United Kingdom, was also very private; little was

 

known about his personal life. He was reputed to be a close friend of then British Prime Minister

 

Tony Blair.

 

Along with turning the firm around, Browne was credited with setting the vision for BP as one

 

that would focus on life beyond petroleum. That slogan meant more than merely planning to

 

become an energy company rather than a petroleum company; it meant BP was a firm that cared

 

about the environment and the safety of its employees more than it cared about oil and profits.

 

Blair had appointed him to the U.K.?s Sustainable Development Commission. The commission

 

described itself as:

 

The Government?s independent watchdog on sustainable development, reporting to the Prime

 

Minister, the First Ministers of Scotland and Wales and the First Minister and Deputy First

 

Minister of Northern Ireland. Through advocacy, advice and appraisal, we help put sustainable

 

development at the heart of Government policy.12

 

The firm took great pains to provide evidence of its focus on the environment and safety in

 

numerous reports and websites, and it undertook investments and made contributions to

 

environmental groups. Codes of conduct for employees covering numerous activities ?

 

including safety and the environment, policies on corporate governance and statements about

 

social responsibility ? were all crafted under Browne?s watch. The webpage on the BP

 

corporate website entitled ?Responsible Operations? had links to topics like ?Health and

 

Safety,? ?Management and Compliance,? ?Environment,? ?Compliance and Ethics? and

 

?Our People.?

 

A CULTURE OF RISK: THE TEXAS CITY REFINERY EXPLOSION

 

Having been involved in the process of refining crude oil for over 70 years, the Texas City Oil

 

Refinery, the third largest refinery in the United States, had long since paid for its initial

 

investment. The facility came to be a BP asset with the 1999 acquisition of Amoco, and although

 

the explosion on March 23, 2005, which killed 15 people and injured more than 180, was the

 

worst in company history, it was by no means the first accident at the facility.

 

Described as ?being held together by little more than Band-Aids and superglue? by Don Parus,

 

the refinery?s director,13 there had been 23 fatalities in the previous 30 years. Since 2002, when

 

Parus took over operations at the plant, there had also been an average of one fire a week,

 

ranging from 50 to 80 a year.14 Parus is quoted as wondering why his staff actually came to

 

work: ?killing somebody every 18 months seems to be acceptable at this site . . . why would

 

people take the risk, based on the risk of not going home??15

 

In 2004, an independent Texas consulting firm called Telos Group was contracted by the Texas

 

City refinery director to assess the safety culture of the plant. In its report, Telos exposed numerous pieces of evidence to suggest that safety at the refinery was being compromised as

 

repairs or servicing were not effectively completed in attempts to save money or when workers

 

simply were unable to follow the safety procedures. A report in the Financial Times mentions

 

?broken alarms, thinned pipe, chunks of concrete falling, bolts dropping 60 feet, and staff being

 

overcome with fumes?16 as well as ?numerous workers at the plant complaining of pressure

 

not to report injuries and safety violations.?17

 

The Telos report suggested that although there seemed to be a willingness on the part of the

 

refinery?s management team to maintain a safe working environment, desire and reality may

 

have been two different things. Exhibit 4 provides excerpts from the Telos Report. The

 

consultants concluded that there seemed to be an ingrained culture of risk at the refinery, which

 

would require a great deal of effort to change, and that, in the past, after an accident, efforts to

 

make changes started out strong but faded as management?s attention drifted back to profits and

 

efficiency.

 

Many still too easily see a future where it all slides back to ?the way it was before the incidents,?

 

and so people ?pray and hope that this will not pass? . . . we were told many stories about times

 

that left the distinct impression that margins could beat out safety as long as they were good

 

enough . . . ?here we are today and they still haven?t kept promises that make our people out

 

there feel safe?. . . ?Soon becomes never around here? mentioned one person in the refinery,

 

pointing to successive postponements; starting with fixing it ?soon (meanwhile we put a clamp

 

on it), which then becomes next week, which becomes next month, which becomes next

 

turnaround, which becomes never.?18

 

In apparent support of this statement, a few months after the March 2005 explosion, there were

 

two additional explosions causing over US$ 32 million in property damage, and then, in 2006,

 

another worker was killed on the job.

 

The 2007 U.S. Chemical Safety and Hazard Investigation Board (CSHIB) report, which

 

examined the explosion and BP?s safety culture in general, revealed that after the 1999

 

acquisition of Amoco, rather than making much-needed safety improvements, BP ordered a 25

 

per cent cut in fixed costs at all its refineries. The report went on to condemn the firm by

 

suggesting:

 

The combination of cost-cutting, production pressures and failure to invest caused a progressive

 

deterioration of safety at the refinery. Beginning in 2002, BP commissioned a series of audits

 

and studies that revealed serious safety problems at the Texas City refinery, including a lack of

 

necessary preventative maintenance and training. These audits and studies were shared with BP

 

executives in London and were provided to at least one member of the executive board. BP?s

 

response was too little and too late. Some additional investments were made, but they did not

 

address the core problems in Texas City. In 2004, BP executives challenged their refineries to

 

cut yet another 25 per cent from their budgets for the following year.19 These comments echoed the findings of the Baker report. This report, which BP had stated was

 

very supportive of their safety culture, could be interpreted differently than BP?s own

 

interpretation. Exhibit 5 presents excerpts from the report?s Executive Summary entitled

 

?Corporate Safety Culture.? Clearly there were differences of opinion between the firm and the

 

independent observers with respect to the depth of BP?s culture of safety. Despite the difference

 

of opinion, since the explosion, BP had paid out about US$2 billion in terms of compensation

 

payouts and lawsuits.20

 

CONCLUSION

 

With Browne?s impending resignation, there was undeniable evidence of big problems

 

throughout the organization with regard to safety and the firm?s reputation. As a result, BP?s

 

lack of public credibility affected the already-stated strategy and goals of the firm. The board

 

knew that changes needed to take place from the top down. The obvious question: Where to

 

begin?

 


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