ExxonMobil: Pipeline Negligence (2011-2013)

Controversy

ExxonMobile Pipline Co. logo

Oil company ExxonMobil is currently facing litigation, both private and federal, for its alleged willful negligence in prevention and response to a number of pipeline oil spills that have occurred in the last three years. The three most prominent pipeline spills are the Yellowstone River spill, which occurred in 2011, the Torbert spill, which occurred in 2012, and the Mayflower spill, which occurred in 2013. All of these incidents involved thousands of barrels of oil spilling into land and waterways, both public and private. As a result of spills such as these, ExxonMobil is being accused of a number of unethical actions. The US Department of Transportation found that ExxonMobil's pipeline tests provided enough information to suggest that sections of the pipeline that ruptured were prone to failure, and that ExxonMobil was not performing pipeline inspections every five years as is legally required. ExxonMobil was also found to be in violation of the Clean Water Act, as crude oil spilled into nearby waterways. ExxonMobil is accused of putting off repairs and selectively reporting risks to understate the vulnerable condition of the pipeline. ExxonMobil is also accused of having a delayed and insufficient response to spills, significantly increasing the level of damage. The Yellowstone spill occurred on July 1, 2011, in Montana, spilling 63000 gallons of crude oil into at least 70 miles of the scenic Yellowstone River. Federal regulators estimated this could have been reduced by nearly 2/3 if Exxon had been quicker in its actions. When the rupture occurred, the pipeline controllers did not immediately shut down the pipeline. Rather, it was partially shut down and oil continued to spill for another 46 minutes when the necessary valve was closed. (Brown) Exxon did not have the proper emergency procedures in place, which would have allowed the valves to be closed immediately. (AP) On April 12, 2012, there was a pipeline burst in the town of Torbet, Louisiana, about 20 miles west of Baton Rouge. In this incident, at least 2800 barrels (117000 gallons) of crude oil were spilled from the pipeline, spilling into a nearby stream and bayou. Government officials determined this to in violation of the Clean Water Act, which makes it illegal to spill hazardous substances in to waterways and shorelines in amounts that could be harmful to the environment or the public. (Young) On March 29, 2013, the Mayflower oil spill occurred. In this incident, a pipeline ruptured, leaking 210,000 gallons of Canadian crude oil into the town of Mayflower, Arkansas. After the spill, the people who lived in the small town began to report a number of maladies, such as “respiratory disorders, nausea, fatigue, nosebleeds, bowel issues, and throbbing headaches”. These are consistent with the effects of exposure to heavy crude oil from Canada, which is a rawer variety than what is mined in the United States. (Caplan)
Since at least 2006, ExxonMobil has been aware of the poor condition of its Pegasus Pipeline, which includes the sections that ruptured. The Pegasus pipeline was constructed in the 1940s, using materials that are considered especially brittle and that are more prone to fractures and cracks. Despite these facts, ExxonMobil chose to add additional stress to the pipeline, with heavy crude oil from Canada and with larger volumes of oil. (Douglass) In 2006, a hydrostatic test was performed on the pipeline, to determine its fitness. This test uses pressure to detect and eliminate cracks that could be problematic. In 2006, this test was conducted at pressure suitable for calibrating maximum operating pressures, but not at a high enough level to detect seam cracks – the kind that caused the rupture. It is also worth noting that the pressure used in 2006 was lower than the pressure Exxon used in 1991 to test a newer segment of the pipeline. (Douglass) During the 2006 test, 11 seam welds failed, despite the relatively low pressure. During a 2010 inspection of the pipeline, 12 seam cracks were discovered near what would be the failure area. This should have led the corporation to be more wary of increasing stress to the pipeline. It is alleged here that Exxon took a calculated risk when it decided to not properly maintain its pipeline. (Douglass) This would mean that ExxonMobil would not be in line with its own corporate ethical policy:

“The policy of Exxon Mobil Corporation is to comply with all governmental laws, rules, and regulations applicable to its business. The Corporation's Ethics policy does not stop there. Even where the law is permissive, the Corporation chooses the course of highest integrity.” Another line of the policy states that “The Corporation cares how results are obtained, not just that they are obtained”

These negligent actions would be against that corporate policy, as the company had the ability to prevent the resulting damage to the environment and the surrounding population, both human and wildlife. It took a gamble with the health and lives of the populations and of the local landowners, an action that would be deemed unethical even by the company’s own standards.

Stakeholders

Aerial photo of the Yellowstone River after the oil spill

ExxonMobil has one of the highest amounts of revenue in the world, posting revenue of $438.26 billion for 2013, ranked only behind Walmart. They have 75,000 employees. They have 25.2 billion BOE (barrels of oil equivalent) in reserves. Exxon Mobil is the largest refiner in the world with a daily production of 3.921 million BOE per day. Overall, this data can be used to show that ExxonMobil is one of the largest and most valuable companies in the world. ExxonMobil’s key player is Rex W. Tillerson, who serves as the current Chairman of the Board and as the CEO of the company, a position he has held since 2006.There are many stakeholders in this situation. The group impacted the most would be the local communities where the pipelines burst. These people have suffered the worst from the ruptures. There are direct personal health effects to them as a result of the exposed oil. There is also damage to their property, a direct monetary cost. Oil spills also have the effects of reducing desirability and land values of an area. As the pipelines have been in place for decades, many were even unaware of the presence of such a potential threat. The environment and wildlife of these communities was also affected, leading to oil-covered plants and animals. Oil was also spilled into waterways that run for several miles, putting even more distant communities at risk. ExxonMobil itself is also a stakeholder – both its employees and shareholders. Essentially, the company gambled on not maintaining risky pipelines to save money, and it failed. The company faces lawsuits, civil penalties, and cleanup and repair costs, and even though these amounts are in tens of millions of dollars, the impact can more or less be absorbed as the company has annual revenues in the hundreds of billions. There is also a negative image for the company, which can be harder to estimate the cost of. If the impact had been greater, costs could have been passed on to employees in the form of layoffs or reduced pay. The government is also a stakeholder. The government must use its resources to investigate the company’s negligence and enforce rules. By extension, the taxpayers are also stakeholders. In this case, the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) was the government entity most involved. It is also notable that PHMSA defined the pipeline’s location as a “High Consequence Area” (HCA) defined by the PHMSA as “specific locales and areas where a release could have the most significant adverse consequences.” An area will get HCA status for the presence of a population, a drinking water source, or for being an unusually sensitive ecological area.

Individualism

People protesting ExxonMobile's negligence towards the oil spill

The values of individualism are “the business, the owner’s choices, and business profits.” The ethical rule of individualism is described as “business actions should maximize profits for the owners of a business, but do so within the law.” (Salazar) The company should operate in a way that achieves the highest profit, within the boundaries of the law. In this case, an individualist could not ethically support Exxon’s actions as they were illegal. Exxon was not using its resources to be “socially responsible” here but it was also not following the laws put in place to prevent incidents such as this rupture. Specifically, the PHSMA found Exxon to have committed several probable violations of the Pipeline Safety Regulations, under Title 49 of the Code of Federal Regulation, as well as the federal Clean Water Act for polluting waterways with spilt oil. The report listed eight violations of §195.452 - “Pipeline integrity management in high consequence areas” as well as one violation of §195.402 - “Procedural manual for operations, maintenance, and emergencies”. The PHMSA states that “Once identified, operators are required to devote additional focus, efforts, and analysis in HCAs to ensure the integrity of pipelines.” Exxon was found to be in violation of not taking these extra precautions. As a result, all stakeholders were negatively affected. ExxonMobil was likely operating under the assumption that postponing repairs and ignoring pipeline vulnerabilities would allow for costs to be saved, resulting in higher profits. Exxon’s beliefs were in this case false, as the combination of repair, cleanup, and bad publicity are all more costly than what preemptive repairs could have been. Exxon was not operating in its long term interests in this situation.

Utilitarianism

Crude oil cleanup in Yellowstone river

The values of utilitarianism are described as “happiness of all conscious beings, often interpreted hedonistically as pleasure and the absence of pain, but also sometimes interpreted as the satisfaction of desires.” The ethical rule of utilitarianism is described as “business actions should aim to maximize the happiness in the long run for all conscious beings that are affected by the business action. (Salazar) According to author Joseph DesJardins in An Introduction to Business Ethics (2014), utilitarianism can be defined as “an ethical tradition that directs us to make decisions based on the overall consequences of our acts” (p. 24). By extension, a utilitarian would be a person whose beliefs are in line with those of utilitarianism. To a utilitarian, a morally good action will benefit as many people as possible (p. 29). A utilitarian view would likely not support Exxon in this case. The happiness created by not repairing pipelines would be negligible, as the cost would not dent a company that earns billions in annual revenue. The amount used to repair these segments of pipeline would not be enough to influence the decisions of creditors and inventors of the company. Employees would not have suffered if maintenance was done. As for the local community, only unhappiness could result. Many were unaware that a pipeline even existed, as they are small and underground. There could be no benefit for them if pipeline maintenance was ignored. They could also not have had their happiness increased by its maintenance, as most were unaware of its existence until the incident. Therefore Exxon knew the only effect of improper maintenance could be bad or neutral for the community. If the pipeline had been kept in proper shape, this would have resulted in the maximum happiness. Exxon would have benefited in the long term and there would have been no effect on the community. The negative effects of the spill could have been avoided.

Kantianism
The values of Kantianism are “rational decision-making, autonomy of individuals, honesty and freedom” with its ethical rule described as “always act in ways that respect and honor individuals and their choices. Don’t lie, cheat, manipulate or harm others to get your way. Rather, use informed and rational consent from all parties.” (Salazar) According to Kantianism, “You should act rationally – don’t act inconsistently in your own actions or consider yourself exempt from rules. Also, allow and help people to make rational decisions. Next, respect people, their autonomy, and individual needs and differences. Lastly, you should be motivated by Good Will, seeking to do what is right because it is right,” (Salazar) ExxonMobil seems to have considered itself “exempt from the rules” in this situation. The government created laws to explicitly state that pipelines must inspected at least every 5 years, and Exxon did not maintain its schedule, amongst its other violations. It was also not consistent, in the form of its pipeline testing. Testing was done on these old and weak pipelines are lower pressures than recommended. Testing was also performed using tools that were inadequate for detecting the type of fractures that caused the rupture. Rather than perform a hydrostatic test, which is comparatively costly and requires pipeline flow to be stopped during testing, Exxon chose a cheaper method that could not detect smaller fractures along seams. The company did not help people make rational decisions. Even for its own employees, Exxon did not have the proper emergency procedures in place and it did not provide them with information that could have stopped the spill. It offered very little support to effected residents of the community, and did not show respect for them or their humanity. The company was not motivated by good will in its actions, but rather by saving money. The company was aware of the fact that pipelines were old and brittle, and it knew or should have reasonably known that the cheaper tests were not sufficient in assuring the quality of the pipeline. Under the formula of humanity, Exxon would likely not be seen as using humanity as means to an end. Rather, the company was hoping to leave individuals unaffected and has attempted to compensate those that were impacted by its actions.

Virtue Theory

ExxonMobile headquarters in  downtown Houston, TX

The values of the virtue theory are “character traits that promote wellness or flourishing of individuals within a society.” The ethical rule of the virtue theory is described as “act so as to embody a variety of virtuous or good character traits and so as to avoid vicious or bad character traits.” The virtue theory is based on the four primary virtues of courage, honesty, temperance, and justice (Salazar). ExxonMobil and its decision makers did not appear to demonstrate courage at any point until the response, where courage has less of an impact. Exxon takes responsibility for the spill and as such is willing to pay for the cleanup and fines, as well as direct monetary compensation of $10,000 to the families that were forced to evacuate. It has also offered to buy directly affected homes at pre-spill value. As for honesty, Exxon can be seen as dishonest by not providing information. The PHMSA reported that Exxon modified its maintenance schedule to postpone maintenance by a year and did not notify the PHMSA as required. This was again followed by a postponement the next year, again without the proper notification. ExxonMobil also failed to report the discovery of four separate integrity issues along its pipeline between 2010 and 2013. In response to the spills, Exxon has not been forthcoming with information. Exxon did not show temperance in its actions. The PHMSA allows for reasonable exceptions to its rules if the company can demonstrate a valid reason. Exxon did not report any such reason and it is unlikely there was a valid reason at all. It is hard to paint Exxon as in control of its excess, as it consistently ranks as one of the largest companies in the world. Exxon did not display justice with its lack of prevention. As for response to the spills, Exxon attempts to be just by paying for cleanup and fines. Exxon does not appear to have avoided vices in this situation. It is likely that all the cost-saving measures were motivated by greed or just a disregard for others. Exxon had the ability to protect the community as well as its own interests, but it did not.


References 

AP. "Feds: Delayed Response Worsened Yellowstone Oil Spill." USA Today. Gannett, 02 Jan 2013. Web. 04 Oct. 2014.
Brown, Matthew. "Report: Yellowstone Spill Negligent." Concord Monitor. N.p., 2 Jan. 2013. Web. 04 Oct. 2014.
Caplan, Nora. "This Is What Happens When a Pipeline Bursts in Your Town." New Republic. N.p., 18 Nov. 2013. Web. 04 Oct. 2014.
DesJardins, Joseph R. An Introduction to Business Ethics. New York, NY: McGraw-Hill/Irwin, 2014. Print.
Douglass, Elizabeth. "Exxon Knew Its Ruptured Pipeline Was Old, Defective and Brittle, and Still Added New Stresses." Inside Climate News. N.p., 12 Aug. 2013. Web. 04 Oct. 2014.
Osborne, James. "Lawsuits against Exxon Mobil Mount over Big Oil Pipeline Spills." The Dallas Morning News. N.p., 14 Sept. 2013. Web. 04 Oct. 2014.
Pipeline and Hazardous Materials Safety Administration. "NOTICE OF PROBABLE VIOLATION and PROPOSED COMPLIANCE ORDER." (n.d.): n. pag. Pipeline and Hazardous Materials Safety Administration. 6 Nov. 2013. Web.
Salazar, Heather. The Business Ethics Case Manual. 2014.
Young, Renita. "ExxonMobil to Pay $1.4 Million to Settle Alleged Violation of the Clean Water Act in 2012 Torbert Oil Spill." NOLA.com. N.p., 27 Aug. 2014. Web. 04 Oct. 2014.