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Oil spill update - May 24

1. What caused the disaster?
Veteran analyst Art Berman consulted engineering experts before posting his interpretation of what occurred.

Berman’s central conclusion is, “The blowout and oil spill… was caused by a flawed well plan that did not include enough cement between the 7-inch production casing and the 9 7/8-inch protection casing. The presumed blowout preventer (BOP) failure is an important but secondary issue.”

He further points out that “a flawed, risky well plan… was approved by the MMS, and BP, Anadarko and Mitsui management…. A plan that does not include enough cement to overlap the final and previous casing strings, and that does not require running a cement-bond log to ensure the integrity of a seal is a defective plan.” If Art’s interpretation is correct, there was an inherent deficiency which originated at the planning stage, making this blow-out seem less like a tragic fluke and more like an accident waiting to happen.

Berman’s insightful analysis (and subsequent discussion) is available here.

Meanwhile, President Obama has begun assembling his bipartisan national commission to examine what happened and to revamp federal offshore regulations.

2. EPA weighs sanctions against BP
Negotiations between the Environmental Protection Agency and BP (regarding previous violations) were suspended recently. This article describes the range of sanctions which could be applied to the corporations’ US operations, including debarment.

3. Dispersants
Some provocative coverage of the dispersants issue has come from CNN, which on Friday explored why BP (which intended to use SeaBrat 4) has continued to use Corexit despite its higher toxicity. Curiously, BP America President Lamar McKay could (would?) not say who decided which dispersant to use.
Here is the link to the CNN report.

This NYT article provides other useful details.

4. MMS deficiencies in Alaska
In March 2010 the US Government Accountability Office (GAO) released a report which identified significant deficiencies in the ability of the Alaska OCS Region (of the Minerals Management Service) to properly conduct assessments of environmental impacts regarding offshore development. This NYT article provides a link to this thorough and timely GAO study.

An earlier NYT analysis is available here.

5. Increasing insurance costs
There are many uncertainties about the gulf oil spill and its effects on the future of offshore operations. But one thing appears to be fairly certain: insurers of such operations must now factor in the extraordinary scale of liability which can result from a severe oil spill. As this Rigzone analyst observed, “The potential alone may push offshore insurance rates higher.”

Meanwhile, legislation is being proposed in the USA which would increase the liability limit from $75 million to $10 billion. Such increased liability would be particularly burdensome to smaller companies. This article provides additional information.

What do you think? Leave a comment below.

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