As oil firms grow, response may slow to crises like Gulf oil spill
Eleven days prior to the April 20 Deepwater Horizon blowout, Halliburton Co., the contractor in charge of cementing the rig's well, agreed to purchase a little-known company.
The firm, Boots and Coots, focuses on oil spill prevention and blowout response. Now, it is assisting with the relief well work 鈥� under contract to BP 鈥� to help stop the Gulf oil spill.
What appears to conspiracy theorists as more than a coincidence is nothing out of the ordinary, say oil-industry experts. Increasingly, oil-industry titans are buying up smaller companies that provide all manner of services.
IN PICTURES: The Gulf oil spill's impact on nature
But this trend is worrying in itself, the experts say. As companies grow and work both to drill wells and potentially clean up their own mistakes, the result can be unintentional but riskier decisionmaking over time due to a lack of focus 鈥� particularly in an industry that is poorly regulated.
Moreover, there is concern that 鈥� as the Gulf oil spill shows 鈥� big bureaucracies are not nimble enough in an emergency.
鈥淲orking on both sides of the fence鈥� is not uncommon in the oil industry, says Robert Gramling, author of 鈥淥il on the Edge: Offshore Development, Conflict, Gridlock."
But 鈥渋t makes for a very complex decisionmaking environment that can become problematic,鈥� he adds.
Creeping complacency
The concern is not so much about intentional negligence but creeping complacency.
鈥淣obody鈥檚 going to say, 鈥極h, don鈥檛 worry, we have a cleanup service, we鈥檒l be all right if there鈥檚 a spill,鈥� 鈥� says Hugh Gorman, author of 鈥淩edefining Efficiency: Pollution Control, Regulatory Mechanisms, and Technological Change in the US Petroleum Industry.鈥�
But reassurance about how diversified the business鈥� services are can lead to relaxed decisionmaking over time, some suggest.
This can be exacerbated by the fact that the oil industry is 鈥渧ery politically powerful鈥� and oil companies do not face the same strict regulatory and safety standards that, for example, airline companies do, says Mr. Gramling, a professor at the University of Louisiana, Lafayette. This can allow for big businesses within the industry and the industry as a whole to 鈥渂ecome too cozy,鈥� he adds.
Halliburton is among the most diversified oil-industry firms. In its $240 million purchase of Boots and Coots 鈥� which is still pending regulatory and shareholder approval 鈥� it sought to buy a company whose services are 鈥渄esigned to reduce the number and severity of critical events such as oil and gas well fires, blowouts, or other incidences due to loss of control at the well鈥� through both preventive and emergency response services.
In recent years, 鈥渢here鈥檚 a trend toward getting a broader set of offerings from larger companies,鈥� says Douglas Sheridan, managing director of EnergyPoint Research, a market research firm in Houston that serves the oil and gas industry.
But his company鈥檚 own customer-satisfaction surveys suggest that bigger is not necessarily better. 鈥淭here is a potential problem with companies becoming so large that they can鈥檛 provide the focus needed on specific services and on the execution of those services,鈥� says Mr. Sheridan.
Smaller, more-focused service providers generally rate higher in satisfaction surveys, and a spill of this magnitude 鈥� which involved 鈥渕ajor players鈥� like BP, Transocean, and Halliburton 鈥� could lead customers to invest more in companies that have a narrower business approach, Sheridan adds.
Halliburton's reputation
For its part, Halliburton is known within the industry for maintaining its quality despite its growth. 鈥淒oes Halliburton鈥檚 satisfaction suffer from it being a large and unwieldy company? Yes. But they鈥檙e doing a better job of providing quality service than some of their competitors,鈥� Mr. Sheridan said.
Other experts worry more about the impact of size on a company鈥檚 ability to respond quickly and effectively to disaster.
鈥淎 company of [BP鈥檚] size has to become a bureaucracy, and bureaucracies need stable environments. They鈥檙e like cement,鈥� says Cathie Currie, a cognitive social psychologist at Adelphi University in Long Island, N.Y.
Though bureaucratically managed companies can work well in some industries where there is little chance of a major unexpected event, they can struggle in high-risk industries such as drilling for oil.
Says Ms. Currie: 鈥淸The business model] doesn鈥檛 work when you need to be innovative."
IN PICTURES: The Gulf oil spill's impact on nature
[Editor's note: The headline was changed to better reflect the content of the story.]
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