Describe about the Accounting Theory for Market Response.
Oil spills are very known to be very common these days and in relation to UK, the biggest known oil spill was the BP oil spill that was also called as Deepwater Horizon oil spill. In the Gulf of Mexico, there was an explosion of the Deepwater Horizon that severely injured and destroyed the lives of many people. Due to the explosion, flames of the fire were on for over one and a half days continuously leading to destruction by damaging the environment, disturbing the businesses and impacting the activities of fishing and tourism. Companies that were associated with the spill had to counter various problems as they were bound to clear the spill and compensate for the huge losses caused by the spill. Furthermore, this led to a creation of financial problems for the companies (Broader & Krauss, 2011). To counter these difficulties, an attorney group was formed so that the relief proceedings could be carried out. BP had to face several lawsuits as the impact of spill was massive as it spread for over 480 miles affecting many states. Authorities felt a need for strict and regulative procedure in order to mitigate such kinds of risks in future. Thus, EIA (Environmental Impact Assessment), and other protection controls are considered very relevant when it comes to the safety of environment (Booz, 2010). The best strategy is systematic disclosure by companies by considering the environmental, financial and social factors.
As BP was the main operator in relation to the oil spill, it was implied that BP would be the only one to be burdened with several liabilities and exactly the same happened. Hence, the failure on the part of regulatory authorities will be taken into consideration together with an assessment of the stand of BP. Furthermore, an evaluation of the environment can also help to ascertain the effect of oil spill upon the environment itself and other stakeholders. With the support of this study, the financial impact on BP can also be obtained.
This research mainly focuses upon the failure of regulatory authorities and stand of the public interest theory. It is a major discussion of this research because of the prevalence of various flaws in the regulatory system. Simply saying, these weaknesses in the governance system and ethics have also proved to be a key contributor of oil spill. The report also highlights the failures by the regulatory agencies that led to the negative impact on environment. It also focuses upon the fact that if there were various rules and regulations framed by the government then such a tragic disaster would have been avoided (Channel News Asia, 2013).
Response of BP
Due to the massive and diversified impact of oil spill, BP was influenced to restore the Gulf of Mexico areas affected by the spill. It also decided to take various measures in order to re-establish the economy as well as the environment. In relation to this, BP took steps to expend millions of money in order to ensure the stabilization process that included settlement, compensation, clean up etc. It can be observed from the sustainability review of 2010 that around $37.3 billion was being kept aside for the re-establishment procedure. As discussed earlier about the massive and diversified impact of oil spill, different activities tend to rose that required huge expenditure and BP had to expend most of its money for all such activities in order to re-enhance its goodwill and remove the impact of spill as much as possible (Mason, 2010). It also had to frame an Oil Spill Trust in relation to these matters and altogether it costed a heavy expenditure of $20 billion. The entire image of BP was at stake because of the incident and this drove it to spend huge money on mitigating the aftermath of spill. It even spent a huge amount of $1.25 billion per quarter until 2013.
Corporate Social Responsibility or CSR is the voluntary activities undertaken by the companies in order to operate in an environmental, social and economic manner. Furthermore, it helps in compliance with the legal and ethical standards. This regulation is not compulsory in nature by many oil corporations such as the Indian Oil, Marathon and Chevron have adopted this into their system. In the present situation, it is the government and the legal system’s duty to frame policies and procedures in order to avoid such disasters and it should ensure the compensation of affected parties (Cherry & Sneirson, 2010).
Cleaning the spill was the key duty of BP as the effects were widespread. Hence, BP took various measures in order to clean the spill and for this purpose, it organized it arranged a fleet of vessels and other tools that could collect the spill floating in water. There were around 5000 vessels organized for this purpose with more than 90000 people engaged for cleaning. This removal process costed more than $14 million to BP and led to a collection of around 827,045 vessels containing the oil (Broder, 2012).
In order to bring more efficiency to control the aftermath of oil spill, BP associated itself with several federal agencies that supported in assessing the impact of the disaster on the environment. Furthermore, these agencies helped to ascertain a Natural Resource Damage Report that portrayed the exact picture of damage together with measures required to compensate the damage. BP spent a lump sum amount of more than $600 million for the evaluation process. This NRD assessment proved to be the biggest of all, even from the assessment taken under the Oil Pollution Act (Broder, 2012).
In relation to the aquatic and sea animals, BP took several measures to re-establish the past heritage. For this purpose, it carried out thousands of surveys for the birds and attempts was made for rescuing and protecting the sea animals by the introduction of rehabilitation centers. BP had to incur millions of expenditure towards the protection of wildlife foundation by conducting surveys in the entire Gulf region (BP Gulf Update, 2012).
BP was alone not at fault, the failure of government bodies were also to be blamed because competing interest was not focused upon by them that led to the violation of environment rules to a huge extent. The theory of public interest helps to highlight the functions and institutions that are relevant in the protection of economic efficiency. It is the responsibility of federal agencies to prepare themselves for any kinds of uncertainties arising in future and take corrective actions in order to get rid of them. It must also be determined when to delegate a decision to these independent regulatory agencies (CBS Chicago, 2013). Hence, the regulatory agencies failed to work inefficiently on their part because they mainly concentrated on the practical situations and thus it led to the loss of environmental benefits and other damages too.
Thus, it was evident that the legal system and regulatory bodies functioned inefficiently and due to the prevalence of several flaws in the system; such a disaster affected millions of people and diversities. According to the surveys, it was clear that the presence of strong and effective government policies and procedures could have proved to be a very strong advantage over such disasters. This clearly indicated a misbalance in the theory of public interest and concepts of good corporate governance and ethics. According to the theory of public interest, if the markets were to perform on its own, then it would act indifferently (Fodor & Stowe, 2010).
It was also evident that the federal agencies lacked various resources and tools in order to protect and safeguard the environment especially in relation to drilling and deepwater. This proves from the statement of the Department of Interior Official that even the resources for enforcement was lacked by the agencies as there were only 40 officials looking after the Mexico region according to the official. OCSLA failed because of the outdated regulations relating to the protection of environment.
It must be noted that politicians must act as regulators in order to protect the environment as they can bring sheer strength in the operations of the company. Regulatory policies and procedures can be easily framed by the politicians thus creating a well-being for public interest. They can prove to be an effective and strong regulator as they can act for the benefit of the economy and community as a whole if they are allowed various incentive schemes (Upton, 2011).
Due to this massive disaster, there were ways created for various innovative plans and procedures. The oil spill incident led to the destruction of various wildlife communities, businesses and the environment as a whole. This also gave rise to an urgent requirement of good corporate governance in companies as BP took precautions and steps only when the spill occurred and investigation was carried out. In the current scenario, punishing the companies by imposing various fines or penalties cannot be considered adequate because the main requirement is strengthening the regulatory policies by initiating new rules and regulations of healthy ethical standards so that the protection can be done on a whole. The functions and role of agency must also be made clear so that it remains strong even in worse situations (BP Plc, 2014). Even the monitoring and enforcement must be provided due importance so that the activities of production are done after approval.
It is also required that proper disclosures must be made in the annual report by companies so that they can be well-known about the conditions prevailing and can arrange certain precautions prior to the incidence of any disaster. In order to have a proper and effective estimate, disclosures relating to revenues, expenses etc must be properly made.
The main motive of BP was the maximization of profits and little did it concentrate on the environmental concerns. This indicates that the government must frame strict rules for oil companies so that such a disaster can be prevented in future. Not only the government, but the companies themselves must act ethically for the environmental protection by submitting hazard programs in order to ascertain any occurring of contingent events. This can in turn ensure safety and insured from danger. The agencies must also evaluate the rules and regulations on a regular basis so that environmental concerns can be given due importance (Jacobson, 2013). Advisory Boards can also be introduced that can independently function irrespective of agencies or any company.
Conclusion
From the above discussion it is clear that the organizations of larger stature always contain a legal team that helps in backing up the mishap and stem the financial loss. It has been noticed that the Oil Spill has immense effect on BP, as well as its associates. To make provision for the loss, around $30 billion was sold by BP. The huge expenses clearly reflect that immense problem were faced by it and hence, the stock prices received a massive blow. Hence, corporate social responsibility must be provided immense focus and hence, safety measures are the need of the hour. This helps to avert any adverse circumstances. It is a common parlance that the companies mainly focus on the concept of creation of wealth and compromise with the social responsibility. The Oil Spill of BP is a glaring example. To avert a situation like that it is strong advised to have major provisions and committee that will stress on the concern. Hence, it can be said that there is a strong urge to have strong practices and reporting that enables the company to prosper and enhance the environmental performance.
References
Booz, A.H 2010, The Offshore Oil and Gas Industry Market Response – Part One, Department of Energy, National Energy Technology Laboratory.
BP Gulf Update 2012, BP Protecting Wildlife, viewed 25 May 2016, https://www.bpgulfupdate.com/external/content/document/4699/1469631/1/WILDLIFE_Fact_Sheet_FINAL_2-23-12.PDF.
Broder, J. M 2012, Ruling Favours Owner of Rig in Gulf Spill, The New York Times, viewed 25 May 2016, https://www.nytimes.com/2012/01/27/business/energy-environment/transocean-not-liable-for-some-gulf-spill-claims-judge-rules.html.
Broder, J. M., & Krauss, C 2011, Regulation of Offshore Rigs Is a Work in Progress, The New York Times, viewed 25 May 2016, https://www.nytimes.com/2011/04/17/us/politics/17regulate.html?pagewanted=all&_r=0
BP Plc 2014, Annual report and accounts 2014, viewed 25 May 2016, https://www.bp.com/content/dam/bpcountry/de_de/PDFs/brochures/BP_Annual_Report_and_Form_20F_2014.pdf
CBS Chicago 2013, BP Settles Class-Action Lawsuit Over Tainted Gasoline, CBS Chicago, viewed 25 May 2016, https://chicago.cbslocal.com/2013/08/21/bp-settles-class-action-lawsuit-over-tainted-gasoline/
Channel News Asia 2013, BP says oil spill compensation fund running out, viewed 25 May 2016, <https://www.channelnewsasia.com>.
Cherry, M.A., Sneirson, J.F 2010, ‘Beyond Profit: Rethinking Corporate Social Responsibility and Green washing after the BP Oil Disaster’, Tulane Law Review, vol. 85, no.4, pp. 983-1038
Fodor, A., Stowe, J.D 2010, The BP Oil Disaster: Stock and Option Market Reactions, Working Paper, Ohio University.
Jacobson, M 2013, By the Numbers: The Oil Spill and BP’s Legal Troubles, PBS News Hour, viewed 25 May 2016, https://www.pbs.org/newshour/rundown/2013/07/gulf-oil-spill-by-the-numbers.html.
Mason, J.R 2010, The Economic Cost of a Moratorium on Offshore Oil and Gas Exploration to the Gulf Region, Working Paper :Louisiana State University.
Upton, H.F 2011, The Deepwater Horizon Oil Spill and the Gulf of Mexico Fishing Industry,
A look at Europe’s Financial Crisis, viewed 25 May 2016, https://hosted.ap.org/specials/interactives/_business/greece_imf/content.swf.
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