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Knowledge Center Items The Need for Energy Companies to Mitigate Outsourcing Risks

The Need for Energy Companies to Mitigate Outsourcing Risks

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The film “Deepwater Horizon” recently hit movie theaters, bringing to life the tragic event that killed 11 and injured 17 crewmembers and spilled more than 4.9 million barrels of oil into the Gulf of Mexico – the largest spill in American history. The Deepwater Horizon rig, owned and operated by offshore-oil-drilling company Transocean and leased by oil company BP, was situated in the Macondo oil prospect in the Mississippi Canyon, a valley on the continental shelf. The oil well over which it was positioned was located on the seabed 4,993 feet below the surface and extended approximately 18,000 feet into the rock. On the night of April 20, 2010, a surge of natural gas blasted through a concrete core that recently had been installed by contractor Halliburton in order to seal the well for later use.

The petroleum that leaked from the well before it was finally sealed formed a slick extending over thousands of square miles of the Gulf of Mexico. To clean oil from the open water, 1.8 million gallons of dispersants—substances that emulsified the oil, thus allowing for easier metabolism by bacteria—were pumped directly into the leak and applied aerially to the slick. Booms to corral portions of the slick were deployed, and the contained oil was then siphoned off or burned. As oil began to contaminate Louisiana beaches in May, it was manually removed; more difficult to clean were the state’s marshes and estuaries, where the topography was knit together by delicate plant life. By June, oil and tar balls had made landfall on the beaches of Mississippi, Alabama, and Florida. In all, an estimated 1,100 miles (1,770 km) of shoreline were polluted.

The oil rig it was later learned was plagued with compliance issues leading up to the disaster, receiving six citations from the Mineral Management Service for safety issues including non-grounded electrical equipment and a non-functioning blowout preventer. The movie, “Deepwater Horizon,” documents the circumstances that led up to the disaster and you get an inside view of the horrific consequences of what could happen if safety isn’t adhered to, down to the subcontractor level. The importance of energy firms  – including oil and gas companies – vetting and working with subcontractors and/or suppliers to mitigate risk becomes ever more clear as the events unfold in this movie’s reenactment, which is based on testimony from survivors and other findings.

One of the challenges facing oil companies is the extensive network of contractors required to do the work. For example, a mid-size oil company utilizes a minimum of 1,000 contractors, which underscores the need for extreme vetting when outsourcing. This means performing a thorough risk analysis, finding the right suppliers, partnering and monitoring with suppliers during the project, and evaluating performance and areas of improvement. In addition, using a robust technology platform that allows an oil company to manage the data and workflows associated with supplier vetting is critical. This makes it possible to not only choose the right supplier but also allows the oil firm to communicate its standards, making the relationships stronger and more productive.

RPS specializes in insuring energy companies including securing coverage for oil and gas insurance programs.

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