The Deepwater Horizon oil spill – the largest environmental disaster in US history

# I. What happened?

On April 20, 2010, the Deepwater Horizon oil rig, operated by British Petroleum Plc (BP) in the Gulf of Mexico, exploded and killed 11 workers. Around 3.2 million barrels of oil spilled into the ocean – polluting water, destroying beaches, and killing wildlife. The Deepwater Horizon explosion became the worst environmental disaster in US history. Related costs for BP had amounted to over USD 60 billion by mid-2016. This amount far exceeds the costs of the 1989 Exxon-Valdez spill, which had been considered one of the worst environmental disasters in US history, and had cost Exxon around USD 4.3 billion.

# II. Consequences for BP

This environmental catastrophe turned out to have extensive consequences for BP’s business and shareholders. Within months of the disaster, BP’s stock had plummeted nearly 50 percent, and six years after the disaster, the share price has not substantially recovered. Record costs for BP accumulated to an estimated USD 24 billion in spill-related expenses and an additional USD 20.8 billion fine for the 2015 settlement with the US Department of Justice. In the major lawsuits that followed, BP was found guilty of gross negligence.

# III. Was it predictable?

Prior to the Deepwater Horizon disaster, investors had expressed confidence in BP’s long-term growth prospects. In 2009, BP announced an increase in oil and gas production and more than 200 percent reserves replacement for the 17th consecutive year, and reported larger than expected cost cuts. In addition, BP was often championed as a role model for its reportedly exemplary environmental, social, and governance (ESG) practices. The company was not only a constituent of the FTSE4Good and Dow Jones Sustainability Indexes, but was also ranked the “most accountable large company” by Fortune, AccountAbility, and CSRNetwork.