Preventing Oil Spills and Other Disasters by Risk Analysis of the Consequences and Probability of Failure: A Look at the BP Oil Spill in the Gulf Coast

TASA ID: 897

Risk assessment in the oil industry is a potentially useful tool to minimize failures, both equipment and human, and combines methods to quantify the costs of those failures with the probability of the failures actually happening.  I worked in the oil industry for almost a decade, exploring for oil on the North Slope of Alaska in the Beaufort Sea as well as in California.  Even in the 1980s, oil companies realized that it was difficult to evaluate the risk of uncertainties associated with drilling the wildcat well, a well without nearby geologic control on which to base the interpretations.  Due to the remoteness of the wildcat well in relation to known production, geologic risks associated with the existence of an adequate oil reservoir, the existence of the oil source rock, the generation and the timing of the migration of the oil, and other factors, oil exploration geologists and geophysicists would use techniques in risk assessment to evaluate these uncertainties.  Computer analysis using a Monte Carlo simulation was performed prior to all federal lease sales to better assess these unknowns posed by a costly exploration well with enormous uncertainties.  Ironically, the risks and uncertainties associated with the drilling equipment, emergency procedures and safety methods were not apparently evaluated to the degree that would have been prudent, to the great regret of BP. 

Oil spills happen when physical degradation of the facilities (pipes, pumps, wells, instrumentation, tanks and tankers) occur due to a variety of physical factors, including but not limited to corrosion, puncture, earth movement), as well as human errors.  Although the reason why complex systems fail is well beyond the scope of this article, we can nonetheless minimize the potential for failures and accidents by proper risk-based evaluations of complex systems so that labor and financial resources can be focused in the areas where the highest risk elements emerge.  The risk-based assessment approach described below can address the physical condition of an asset, by examining the various consequences of failure and the likelihood or probability of failure within each component evaluated.  The aspects of human error that can cause oil spills can only be addressed through rigorous proper training and knowledge transfer. 

The conflict for maintenance challenges relates to two the highly cherished American values of frugality and safety which are constantly at work in complex systems.  The airlines have overcome this dilemma and have implemented risk reduction strategies related to regular inspections, required maintenance and replacement of key components before the parts wear out or fail due to fatigue.  The airline industry knows that the consequences of failure are completely unacceptable.  In addition, updating and training of personnel is also required in the airline maintenance departments.

Managing an oil or gas field requires that production and safety are maintained and leaks and spills are prevented.  Should a gas leak or oil spill occur, effective safety management and employee training will help minimize the event and work towards quick clean-up with minimal environmental damage.  One of the issues in a complex system like an oil field is to know when the physical assets of the field, including wells, piping, pumps, alarms, instrumentation, tanks or other fixtures, will fail catastrophically or degrade so slowly that the gradual decline in physical condition, service or safety goes unnoticed.  Most oil and gas fields have plenty of safety notebook binders:  injury illness prevention plans, emergency files, operations manuals, and OSHA documents on the proper and safe operations of the oil or gas field.  The key is to be able to make sure that the procedures described are properly adhered to by the staff.  Regular and ongoing training, and documentation of that training, is a key part of this challenge.  

For an operating oil or gas producing field, or an exploration well, the capital budget must address updates in environmental regulations and be large enough to maintain the existing infrastructure.  Although exploration wells are only at a location for weeks to months, well infrastructure and equipment must be constantly inspected and evaluated, as conditions and objectives change.  In some cases where the oil and gas fields predate 1980, the assets at many of these oil- and gas-producing facilities, including pipes, wells, pumps and instrumentation, are nearing the end of their useful lives, or at least should be carefully inspected so as to avoid an easily preventable leak or spill.  The balance between frugality and safety becomes a real challenge as corporate management focuses on production, and in some companies, seems to avoid focusing on worker safety, environmental protection and risk aversion.  One way to handle this issue of prioritizing capital improvement budgets of older producing fields and facilities is to focus on the most critical repairs and replacement of components by performing an overall assessment of the assets with the risk analysis of the costs and consequences of a potential failure.  This can be done with producing oil and gas leases, but it could have easily been done with the infamous BP exploration Macado252 well which was being drilled by the Transocean Deepwater Horizon drill ship. 

The risk assessment of an asset or activity, such as drilling an exploration well or continuing to produce from an oil or gas field, weighs the consequences of failure on a 5-point scale, where 1 is no problem or negligible issues, 2 is minor, 3 is moderate, 4 is major and 5 is significant consequence. When each asset is rated as to condition and each activity as to the risk of damage to equipment, the environment or potential injury to employees, the overall risk can be evaluated in a quantitative manner.  A rating of 5 would indicate that if the failure in a particular category would occur, the consequences to the company would be severe.  Each aspect of failure is evaluated, and each point on the scale is given a description of the consequence of failure for a particular asset, such as a pump, a pipeline, a well, a blowout preventer, etc.  The description of consequences includes the following:

  • Environmental compliance (ranging from compliance to excessive regulatory fines or violations)
  • Impact of a failure on the ongoing activities (ranging from continuing exploration drilling or producing crude oil to the cessation of all on-site activities)
  • Financial impact of possible failures (ranging from no problems to a complete loss of revenues, claims for environmental damage, loss of future opportunities, regulatory fines and legal actions)
  • Health and safety (ranging from no injuries and a safe work place to major injuries and deaths)
  • Community public image (ranging from good relations to extensive community complaints and opposition) 

In the risk assessment, a full evaluation of the consequences of failure for each component or activity can be systematically evaluated by field workers and compiled into an accurate risk assessment of vulnerability assessment.  

The probability of failure, another category, has a similar rating system (1-5), and all assets and systems can be evaluated as to the physical condition, performance, repair history, maintenance issues, expected remaining useful life, cost of new versus cost of repair, and other factors.  Oil field activities can also be examined in the same way, to lower the risk of dangerous procedures.  In this case, the activities could be evaluated as to the consistency of the procedure (such as tripping in the hole with a specific tool), the time it takes for the procedure, the number of injuries for each procedure, etc.  After each of the aspects of potential asset or procedural failure is evaluated, they are weighted as to their total importance within each category.  At the end of the risk-based assessment, assets and procedures can be better evaluated based on the regular inspections and the knowledge that the consequences were linked to the risk and cost of failure, and the overall risk score was a weighted average of the consequence of failure times the probability of failure. 

Accidents in oil and gas fields can be managed, just as airlines have managed the enormous safety risks in their industry.  Part of the issue is proper regulations that enforce and mandate worker safety and environmental stewardship as well as maintaining engineering integrity of all operating systems.  In addition, rigorous ongoing assessment of the individual components (pumps, pipelines, instrumentation, well facilities, and tanks) must examine both the consequences of failure, the probability of the failure,  as well as the costs from the small or negligible failures to the massive spill or event.  The costs in dollars can be calculated as to the human, environmental, financial, and community losses should a massive spill or unpredicted event take place.  These risk assessments will allow for calculating actual costs of damage or replacement on the spreadsheets for each risk category and the likelihood of occurrence so that replacement programs can be initiated or preventative or emergency preparation measures can be planned and implemented. 

Why is risk assessment in the oil industry so important and overlooked?  There seems to be a human bias to ignore the potentially high consequence, low probability event.  The case in point is the BP Oil Spill of 2010.  In this case, had BP done a risk assessment, they would have put together the consequence of failure and the probability of failure spreadsheets.  They could have put costs into each of the categories, and it would have been obvious that although the probability may have seemed to BP as highly remote, the consequences, such a blowout, would have devastating effects, not only to the drilling facility, but also to the environment and the way of life along the Gulf Coast.  In addition, they could have envisioned that a catastrophic blowout might ruin the company's finances for decades and might prevent future offshore drilling opportunities.  Since the Santa Barbara Channel spill in 1969, the oil industry has been sensitive to public concerns generated by spilled oil.  Other spills have occurred as well, and therefore, it was surprising that a consortium of oil companies holding leases near the BP lease did not have several different emergency response tactics and oil skimming equipment just waiting for mobilization in a New Orleans warehouse.  Our communities don't purchase fire engines when we see the flames on the hills, but rather fire agencies have equipment and trained personnel prepared and ready to battle the next fire. It is a reasonable and methodical plan to avoid inevitable risks and uncertainties.  It is a sad comment that BP had not evaluated their Gulf Coast oil exploration activities with an accurate risk assessment of the consequences and probabilities of a catastrophic failure, for if they had, they would have been prepared for the spill. 

This article discusses issues of general interest and does not give any specific legal, medical, or business advice pertaining to any specific circumstances.  Before acting upon any of its information, you should obtain appropriate advice from a lawyer or other qualified professional.

This article may not be duplicated, altered, distributed, saved, incorporated into another document or website, or otherwise modified without the permission of the author, who will be contacted by TASA.

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