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The problem that is being investigated in this paper is the effects of the 2006 oil spill on BP’s business operations. In March 2, 2006 there was an oil spill in Alaska at a pipeline belonging to BP Exploration, Alaska. The oil spill took place at Prudhoe Bay, and it was estimated that two hundred and sixty seven US gallons of crude oil spilled, covering one point nine acres (Surhone, Tennoe, & Henssonow, 2010). The oil spill was caused by a hole of about a quarter an inch on the BP pipeline. The oil spill that took place in Alaska negatively affected BP Exploration Company both financially and image wise. After the leak, Prudhoe Bay oil field was closed, and this made BP to lose revenue that amounted to hundreds of millions (Jennings, 2009).
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The ethical issue brought in the case is that BP endangered the life of its employees and the public by failing to take preventive measures that would deter the oil leak. Several employees had raised concerns about the possibility of an oil leak as early as 2004, but BP either ignored them, or transferred them to other stakeholders, hence endangering the life of its employees and the public as well. The negligence brought out in this case is that BP used the coupon method of detecting leakages as opposed to industry standards that require the use of smart pig detection. In addition, BP had not carried out any smart pig detection in this pipeline since 1998, and the conduit had also not been cleaned since 1992 (Jennings, 2009). BP also reduced its corrosion monitoring crew from eight to six, and ignored a prior warning from employees about the possibility of a leakage. Cost reduction strategies embraced by top BP executives led to these neglectful practices (Reed & Fitzgerald, 2011).
With regard to the environment, the report indicates that BP has a poor environmental record. For example, in 2003, oil leaks from BP pipelines had damaged caribou the sea where it occurred. BP’s poor environmental record has made environmental groups call for further investigations on drilling activities, oil refinery, and oil pipelines owned by it. BP found itself in the 2006 oil situation due to years of safety negligence and cost cutting (Jennings, 2009). This cost BP a substantial amount of money and damaged its reputation to a large extent. This could have been avoided through carrying out corrosion safeties regularly and using methods that have been approved by the oil industry. The effects of the 2006 spillage saw BP pay a fine of twenty million dollars, and this led to the closure of the Prudhoe pipeline that increased fuel prices and cost BP a lot of money (Surhone, Tennoe, & Henssonow, 2010).
The emphasis on cost cutting inculcated a culture of safety and security negligence in BP’s operations. This culture of safety and environmental negligence negatively affected the performance of BP. The oil leak adversely impacted on the performance of BP and as a result, the prices of its shares fell by two percent. It was also estimated that the corroded pipeline would cost BP approximately one hundred million dollars to replace (Surhone, Tennoe, & Henssonow, 2010). BP did not take full social responsibility in the explosion incident and pipeline issue. This is evident from the statement made by its top executive that “bad things happen to good companies” (Jennings, 2009).
From the BP experience, companies can learn that it is not prudent to forego safety measures in the name of cost cutting as this could cause huge damages and losses. In future, stiffer penalties and stringent legislations should be passed to ensure safety and prevent environmental damage in oil drilling, oil refinery, and the gas business.