RSK4801 ASSIGNMENT 02 FOR 2020

Instructions:
Consider the case study below and answer ALL the related questions.
Remember to submit your final document in PDF format on myUnisa.

Case Study: Operational risk – Deep Horizon

(Some of the information for this case study was sourced from: “Blame BP for
Deepwater Horizon” authored by J.B. Meigs - although some information added are
fictitious for teaching purposes)

On 20 April 2010, the Deepwater Horizon oil rig was destroyed by an uncontrolled
eruption of oil and gas. The explosion killed 11 crew members and set off the worst oil
spill in US history. The rig owned by Switzerland-based Transocean Ltd. and its
experiences crew were some of the best in the business. BP was the world’s 6 th largest
oil company at the time and was leasing the oil rig and was drilling in the Gulf of
Mexico. Only months earlier, the BP and the Deepwater team celebrated the record
for the deepest oil well ever completed. Moments before the disaster, an award was
handed to the installation manager on the drilling platform for an excellent safety
record. While the award ceremony was held, high-pressure oil and gas were
threatening to surge up the pipe from the seafloor. Despite all their experience and
advanced technology, the crew members did not spot the signs of trouble, and once
the blowout started, they did not act quickly enough to contain it to save the rig. It was
mentioned that “disasters are not so much the initial accident, but the failure to identify
the accident early in its birth.” This disaster was an example of how a series of small
mistakes and misjudgements, when not caught in time, can escalate into a
catastrophe. It was said that BP consistently made some decisions that favoured
speed over safety, and the company had a reputation for being particularly hard-
driving to reach targets. The Transocean crew was also involved in dubious decision-
making, and the federal regulators who supervised drilling in the Gulf signed off on
their plans at every stage. The reality is that both BP and Transocean had grown
dangerously overconfident and were pushing too close to the edge. Perhaps overly
impressed by the team’s excellent safety record, federal regulators routinely rubber-
stamped the BP/Transocean proposals.

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Furthermore, none of the drilling companies operating in the Gulf had a workable
scheme to cope with a massive oil spill. The entire industry succumbed to risk creep.
Over the decades, the drillers gradually moved into deeper waters and sunk wells that
involved much greater internal pressures and hazards. The technologies and
regulations originally developed for shallow waters were updated in response, but not
to a degree commensurate with the growing risks. So, even as drillers were getting
more proficient, disaster was becoming more likely.

There were some severe issues, which were identified that could have caused
problems. For example, the alarm system on the rig was deliberately put out of order
to prevent false alarms from waking crew members. A smoke detector was broken,
and the pipes and valves known as the blowout preventer were poorly maintained.
This blowout preventer was supposed to be the last defence against a high-pressure
gas and oil bursting out of the well.

In designing the structures that would stabilise the pipe and prevent leaks below the
seafloor, BP repeatedly opted for the quickest, rather than the most secure,
approaches. This caused the total operation to be regarded as high-risk and
dangerous. Researchers who studied disasters found that long periods without an
accident can be a risk factor in itself as workers learn to expect safe operation as the
norm and cannot conceive a devastating failure. It seems that managers and workers
with the most experience are often the last to recognise when risks are getting out of
control. In this case, it appears that some of the senior managers refused to identify
that there was anything wrong and continuously ignored an alarm system which
indicated that the pressure is too high and rising and blamed it on a false alarm.
However, a second test hinted that there was no problem, and the first alarm was
ignored. The work continued as per normal proceedings, and during the next few
hours, the crew overlooked several signs that pressure was growing in the well.
Eventually, the blow out caught the crew off guard, and it took the crew on the bridge
over a minute to sound the general alarm and much longer to engage the disconnect
button that would separate the rig from the well which could have prevented the
disaster. This is an indication that the crew were bad at their jobs, and not fully skilled
in the actions to be taken in a case of emergency, resulting in human error.

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The pressure valves on the pipes were monitored on a continuous (hourly) basis.
According to data, the pressure was indicated in table 1 before the blowout. The
threshold for requiring attention was 300bp, and when it reaches 400bp, it is serious,
and control measures must be deployed. The normal safe operating pressure should
stabilise between 200bp and 300bp.

Table 1: Pressure (psi) of the oil pipe on the day of the blowout (Fictitious data)
Day 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00
6/Hour
Psi 400 410 410 440 450 460 430 440 480 580 600 0

Table 2: Pressure of the oil pipe on the week preceding the blowout (Fictitious data)
Day 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00
1/Hour
Psi 200 210 250 300 280 280 280 280 280 280 280 270
Day 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00
2/Hour
Psi 270 280 280 290 290 290 290 290 290 290 290 280
Day 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00
3/Hour
Psi 290 290 290 280 280 280 280 280 290 290 290 290
Day 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00
4/Hour
Psi 290 300 310 310 310 300 320 350 360 370 370 370
Day 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00
5/Hour
Psi 400 390 380 390 390 410 410 420 430 440 420 450

The data in the above tables were supposed to be monitored closely by the crew and
breaches of the approved threshold should have been reported to the chief engineer,
however, the crew did not perform this duty adequately and only informed the chief
engineer on day 5. However, at 11:00 on the day of the blowout, the chief engineer
decided that the pressure indicator was faulty and that drilling should continue.

BP’s decision to attempt extraordinarily deep and hazardous drilling operations in

order to reap major profits without implementing effective risk control measures
caused this major disaster and the more than $60 billion in fines and settlements.

You are required to analyse the case study and answer questions 1 – 4 from an
operational risk management point of view.

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Question 1 (20)
Define operational risk and explain three operational risk factors identified from the
case study and provide a mitigating control measure for each identified factor.

Question 2 (2)
Analyse the data tables and determine the following:
 The day and time the lower threshold was breached for the first time.
 The day and time the upper threshold was breached for the first time.

Question 3 (14)
Ideally, the psi should have been monitored as a key risk indicator. Discuss the
concept of a key risk indicator (KRI) as a typical operational risk management
methodology in detail. Indicate by means of a line graph the behaviour of the psi for
days 5 and 6, indicating the thresholds and the times when the chief engineer should
have taken emergency measures.

Question 4 (14)
Illustrate by means of an appropriate graph (column) the status of the psi on each day
at 09h00, 14h00 and 20h00. Interpret the graph and submit concluding remarks to top
management on the status of the psi on each day. Indicate the thresholds clearly and
determine when the crew should have alerted the chief engineer of a potential problem
with the psi.

Question 5 (10)
Discuss how operational risk is different from other risks. Illustrate your answer with
examples.

Question 6 (10)
Define risk appetite. With the aid of a diagram, discuss the different approaches to
operational risk appetite at the four management levels in a firm/organisation.

[TOTAL MARKS = 70]