It’s tragically obvious now that BP has deep problems with operational risk management, but it’s no challenge to identify risks after the fact. For credit analysts the challenge is evaluating risks before they occur and to do it with limited information. Using publicly available information, what could a credit analyst have learned about safety at BP before the April 2010 Deepwater Horizon disaster?
We’ve been studying the safety data that all the major oil companies use to report on safety, and we think you may find it surprising. By most measures, BP has made great progress since an explosion and fire killed 15 people and injured 180 others at its Texas City refinery in 2005. By 2009, BP arguably had become the safest major oil company in the world.
You can see from the first chart how BP’s accident rate fell between 2005 and 2009 and how BP went from being the worst in the industry to closing the gap with long-time safety leader, Exxon.
The next chart shows how BP cut fatalities down to the lowest among the top three oil majors.
The third chart shows how BP reduced spills, an important indicator of process safety, to the lowest level among the industry leaders.
Before the terrible facts of the Deepwater Horizon explosion and the Macondo well spill, BP appeared to be in good control of its operational risks, but of course it wasn’t. So what’s the risk management lesson here? It’s that the conventional measures don’t always capture the complete risks.
That’s true not just for operational risk but for credit and market risk as well. Were there any signs of weakness in risk management at BP? We think there were, and we’ll talk more about it in our next blog post.