On this day in economic and business history ...
A thick, black cloud of smoke rose from the Gulf of Mexico on the evening of April 20, 2010. A fierce explosion had ripped through the Deepwater Horizon oil rig parked near the Mississippi River Delta, engulfing the rig in a fireball seen 35 miles away and killing 11 of the 126 crewmen on board. The burning rig would continue to burn for 36 hours, resisting all attempts to extinguish it, before finally sinking into the sea on April 22. By this point, BP (BP 2.17%), the primary rig operator, was already anticipating a leak of 1,000 barrels of crude per day into the Gulf. Other authorities offered much higher estimates -- a Coast Guard officer gave CNN an 8,000 barrel-per-day figure for the leak.
It was not the first time that BP's Macondo well (the site Deepwater Horizon was drilling) ran into problems. The previous fall, rig owner Transocean (RIG 1.66%) was forced to replace a different drilling platform with Deepwater Horizon after Hurricane Ida left it too damaged to continue work. By the start of April, the Macondo project had already turned up several concerns. An accident had damaged part of the rig's blowout preventer -- an essential part of any drilling operation, designed to prevent catastrophic eruptions -- in March. Services contractor Halliburton (HAL 3.04%) had warned BP that its methods ran counter to established drilling practices, and some of BP's own engineers expressed concern over the "nightmare well." BP and Halliburton had several major arguments, since well documented by the press, over the former's safety practices and fail-safe efforts. Even so, it's unlikely that any but the gloomiest engineer could have foreseen the catastrophe that would occur on April 20.
The Deepwater Horizon disaster captured America's (and the world's) attention for months. Within days of the rig's sinking, an oil slick hundreds of square miles in size had spread across the Gulf of Mexico. Cleanup efforts raced against the clock to contain the uncontrolled flow of oil away from ecologically sensitive coasts, and President Obama issued a moratorium on new Gulf drilling. Several efforts to cap and control the leak failed, and BP executives (particularly then-CEO Tony Hayward) created a self-inflicted public relations disaster by saying the wrong things at the wrong times, over and over. By mid-May, the leak was thought far larger than previously estimated, and new spill projections ranged from 20,000 to 100,000 barrels per day.
It was not until mid-September that the Macondo spill was considered permanently closed, although oil continued to appear on the surface of the water for nearly three more years -- and may still appear in the future before all is said and done. Nearly 5 million barrels of oil are thought to have spilled from the damaged Macondo well, which makes it by far the largest accidental offshore oil spill in human history.
From the time Deepwater Horizon caught fire to the time the spill was brought under control in July, Halliburton lost 15% of its value and both BP and Transocean saw their shares slide more than 35% lower. Only Halliburton has since seen its share price recover in the three years following the first day of the disaster. Thus far, BP has agreed to billions of dollars in penalties and settlements, including a $4.5 billion settlement for criminal obstruction of justice that ranks as the largest corporate criminal penalty in U.S. history, and a nearly $8 billion settlement for damage done to Gulf Coast businesses. If BP is found liable for all the violations it's charged with, it could wind up paying out $90 billion for the spill -- but by most estimates, BP will pay less than half that amount before all is said and done.
The other side of the oil-drilling coin
More than a century before Deepwater Horizon, on April 20, 1893, a pair of Los Angeles prospectors discovered one of the West Coast's largest oilfields. The discovery was right in the middle of Los Angeles -- in fact, it's near the current site of Dodger Stadium -- and it created one of the earliest California oil booms. Four years later, the Los Angeles skyline looked very industrial indeed, with more than 500 oil wells dotting the landscape. By the time the Roaring '20s came around, the Los Angeles oilfield was one of the largest producers in the world, contributing the lion's share of the oil that went toward making California a supplier of half the world's crude.
After more than a century and more than 9 billion barrels of oil, the Los Angeles oilfield remains one of the most productive in the United States. Even today, more than 30,000 wells mark the Los Angeles County landscape, extracting approximately 230 million barrels of oil each year.
The Sun comes up for Larry Ellison
Oracle (ORCL -0.25%) made one of the largest acquisitions in its history on April 20, 2009, when it made a $7.4 billion offer for server and software maker Sun Microsystems. The deal came soon after Sun had rejected a slightly smaller offer, and it was an ideal merger of Oracle's enterprise software expertise and Sun's established (but fading) position in the networking space. Competing offers might have threatened Oracle's software dominance if the acquirer had made Sun's Java platform open-source, which gave Oracle further impetus to snatch up the company at what was then a 42% premium over Sun's market cap.
Oracle's effort to control formerly open-source projects, particularly Java and MySQL, has led to some friction within the developer community. In response, several developers decided to "fork" several Sun-related projects (where the original source code is modified to create an independent piece of software). Oracle remained fiercely possessive of its acquired software and even decided to go after Google's Android platform, which uses Java-based application programming interfaces. That case has turned out in Google's favor so far, but things may change as the appeals work their way through the courts.
President Reagan signed a comprehensive (and somewhat controversial) set of Social Security reforms into law on April 20, 1983. At the time, Reagan said:
This bill demonstrates for all time our nation's ironclad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire.
The reforms greatly expanded and protected mandatory eligibility during a critical time, as lawmakers were under intense pressure to answer a deficit in the trust fund that would have disrupted the normal flow of payouts. But what were the costs? The payroll tax rate was increased -- placing a larger burden on low-income taxpayers. The retirement age was raised, and "windfall" benefits were to be taxed. The resulting expansion of eligibility brought in more money and left Social Security with a growing surplus, but it also added more people to the eventual benefit rolls -- and this may prove difficult to sustain in the future.
The early 1980s was the perfect time to expand the pool of Social Security taxpayers, as baby boomers were entering their peak earning years en masse. The wealth of the nation, which increasingly flowed into stocks, grew enormously, as millions of people watched the Dow Jones Industrial Average (^DJI -0.20%) increase by nearly 700% for the following two decades.
The Social Security trust fund grew right along with the stock market, expanding from a value of $25 billion to more than $1 trillion by the start of the 21st century. This growth dwarfed all previous expansion of the trust fund's holdings, as the trust fund had seen its nominal value increase by only 3,100% from the program's creation in 1937 to its expansion in 1982, compared with a 3,900% expansion during the boomer bull market. At present, Social Security's trust fund will reach a maximum surplus of $3.7 billion in 2022, after which it will remain solvent and able to pay out full benefits until 2036.
What new reforms might be necessary to push Social Security forward into its second century? Can the program survive without another population and wealth expansion like that produced by the boomer generation?