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A High-Risk Industry Case Study

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Determination on whether British Petroleum Included Potential Costs of Explosion and

Environmental Disaster

The energy sector remains a high-risk industry due to multiple factors, including the

persistent risk of disaster during exploration, as higher-risk areas remain lucrative and promise

higher returns. In the case study, British Petroleum did not include the costs of an explosion and

possible environmental disaster associated with its drilling program in the course of its oil

exploration endeavors. The company failed to formulate a plan for crisis management. Hence,

when an incident occurred, the company moved to blame the contractors. The executives of the

company failed to make an accurate determination of the scope of the explosion.

Social-Ethics Considerations for British Petroleum

Deepwater drilling is a high-risk undertaking. There are social and ethical issues that

need consideration. First, it’s important to check for safety readiness (Schneider, 2011). This

necessitates proper technical, scientific, and predictive information via which businesses are

encouraged to conduct deep water drilling preparations. Transparency in incident response is

also crucial (Schneider, 2011). It is necessary to engage impartial specialists to determine the

risks and amount of harm for appropriate recovery procedures.

Horizontal Drilling and Hydraulic Fracking

Oil reservoirs may be conveniently accessed using horizontal drilling and fracturing.

Horizontal drilling has the benefit of reducing water and gas conning. Because more reservoir is

exposed to the wellbore during horizontal drilling, more oil is produced (Price & LeFever, 2011).

Rock is fractured during hydraulic fracturing, which encourages oil or natural gas extraction

from such areas.

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Ethics in Increasing Valuation of Drilling Projects and Stock Price

Although hydraulic fracturing and horizontal drilling may enhance the amount of oil

produced, they are linked to unfavorable environmental effects. These processes include the

cracking of rock, which is invasive for a sizable land area and results in the devastation of larger

land areas. Oil exploration is also less expensive than solar and wind energy due to its growing

worth. This makes switching to renewable energy sources even more difficult.

Impact of Falling Prices of Natural Gas on Solar and Wind-Powered Projects

Natural gas is a complementary product to solar and wind power. They represent the

battle of superiority between renewable and non-renewable energy sources. If natural gas is

cheaper, all stakeholders will have an associated increase in the lucrativeness of oil exploration.

It becomes cheaper to explore and consume natural gas than solar and wind-powered energy.

The overall result is that transition to renewable energy will slow down even further.

Stakeholders

Several energy industry stakeholders are involved in the process of producing energy.

Producers, transmission and distribution system operators, regulatory agencies, customers,

consumer advocacy organizations, and suppliers make up the majority of these parties. These

parties serve as a conduit between the consumers of oil and related products and the oil

exploration firms.

Capital Budgeting

Capital budgeting is an investment appraisal technique that estimates the financial

viability of capital investment during the investment. Unlike other investment appraisal
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techniques, capital budgeting focuses on cash flows, not profits. The value of a capital

investment includes future cash flows being taken into account and converted to the current

period to bring about the present value. According to the capital budgeting technique, oil

exploration techniques vulnerable to explosions reveal unsustainability. Hence, such an

investment has little future value, which according to the capital budgeting technique, will reflect

poorly on its value. Therefore, it will likely be rejected as an unsustainable investment.

Productivity versus Lowering Carbon Footprints

Approaches that reduce carbon footprint are preferred above those that emphasize the

higher values of energy-producing companies since they are more sustainable. This is due to the

fact that reducing carbon emissions is sustainable and ensures the continuous use of energy

sources. Therefore, the emphasis should be shifted to wind and solar energy, which are

renewable and so sustainable, rather than trying to improve oil exploration techniques.

Ethical Issue

An example dilemma is a conflict between profitability and sustainability. Today’s

energy sector agencies are likely to face an ethical dilemma from two ideologies. First, there is

the moral argument that oil is extracted for the benefit of society since it is a basis for

productivity (Hunnes, 2019). On the other hand, there are arguments against extracting and using

fossil fuels due to the associated emissions of CO2 and environmental degradation (Hunnes,

2019).
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References

Hunnes, J. A. (2019). More planet and less profit? The ethical dilemma of an oil producing

nation. Cogent Business & Management, 6(1), 1648363.

Price, L. C., & LeFever, J. A. (2011). Does Bakken horizontal drilling imply a huge oil-resource

base in fractured shales?.

Schneider, R. O. (2011). Ethics and oil: Preventing the next disaster. Journal of Emergency

Management, 9(3), 11-22.