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Deepwater Horizon watch - July 1


Exclusive: Was disregard for industry standards on BP rig worse than we thought?

Steve LeVine, The Oil and the Glory
BP's examination of the Gulf of Mexico oil spill still hasn't determined precisely what caused the blowout, the company says. But industry investigators crawling over the Deepwater Horizon rig and its data are finding that an accident of this magnitude required an almost perfect chain of events: One unlikely malfunction needed to be followed precisely by another, then another, and so on, according to a preliminary investigative report I've obtained.

The report was produced earlier this month by one of the teams now examining every aspect of the catastrophic spill; I received it on the condition that I would disguise its provenance. Reproduced below is what is probably the most interesting piece of it: A diagram created by the investigators to illustrate just how improbable this event was.

Until now, public investigations into the April 20 spill have asked what went wrong. But what one gleans from this report -- and in particular this diagram -- is that that may be the wrong question. Instead we should be asking, how did everything that had to go wrong do so, and at the same time? For the well operators, the implications are not good: Unless one violated standard industry practice every step along the way, such a blowout may have been all but impossible.

The Wall Street Journal has provided the best investigative reporting on what went wrong on the rig, most crucially the failure of seals and the decisions made on the type and testing of cement. The New York Times did a fantastic job of examining the failure of the rig's blowout preventer, the five-story-tall device that is the ostensible last line of defense against such accidents. But until you see the sequence arrayed before your eyes -- a full account of what actually had to go wrong -- the enormity of the coincidence of events is extremely difficult to grasp. That's what this diagram -- labeled "High Level Root Cause Tree" in the original document -- does (click here for a more legible PDF)...
(25 June 2010)



Deep Water Oil The Final Frontier

Andrew McKillop, The Market Oracle
BP's disaster in the Gulf of Mexico, leading to accusation by Obama himself of corporate recklessness, and to huge numbers of lawsuits for damages and loss of earnings, is also capable of leaving very long-term ecological damage. This disaster however underlines the basic problem facing all the major Western oil corporations, and most national oil companies - outside the OPEC states, Russia and a few other oil producer countries with large or relatively low cost, onshore and shallow offshore oil reserves and an export surplus.

The five-largest international oil corporations (IOCs) - shrunken from their previous Seven Sisters number and status - produce less and less oil and face ever-rising exploration and production (E&P) costs to find more oil, and cover their annual capacity loss from geological depletion. The five remaining majors, ExxonMobil, Royal Dutch Shell, BP, Total and Chevron now control less than 10% of remaining world oil reserves, and less than 15% of current total production capacity - in addition they have to give high returns on capital to their institutional and private shareholders.

This requirement is often much weaker for the national oil companies (NOCs): of the top 20 oil and gas producers worldwide, 14 are now NOCs or newly privatized national oil companies, according to Petroleum Intelligence Weekly. The most important are: Saudi Aramco, Gazprom, Iran's NIOC, Mexico's Pemex, Algeria's Sonatrach, PetroChina, Kuwait's KPC, India's ONGC, Brazil's Petrobras, Malaysia's Petronas, Russia's Yukos and Lukoil, and PDVSA of Venezuela. Within this group of NOCs, Saudi Aramco, PDVSA, NIOC, Pemex and PetroChina are now equal rank with the Western IOCs, either in terms of oil production capacity or refining, shipping and other transport capacities, or all three.

The role and strategy of the NOCs in the big importer nations - notably China, and increasingly India - is not only return on capital and shareholder performance, but basic supply of oil and gas for national needs. To be sure, profit and loss are important, but oil resource supply commands the prime role, for NOCs of the major oil importer nations outside the OECD group. This itself reflects the underlying problem of oil resource scarcity in the face of continuing high demand on a worldwide basis...
(24 June 2010)



Senate Panel Ends Liability Limits for Offshore Spills

Tennille Tracy and Siobhan Hughes, Wall Street Journal
A U.S. Senate committee voted Wednesday to remove all limits on damage claims that oil companies could pay for offshore spills, the leading edge in a wave of new industry regulations anticipated following the disaster in the Gulf.

But the measure to discard the current $75 million cap on spill liability, along with other proposals to tighten government regulation of offshore oil drilling practices, faces an uncertain future.

Democratic leaders are considering rolling some or all of the measures directly related to the Gulf oil spill into broader energy and climate legislation that may not have the votes to pass the Senate.

BP Amasses Cash For Oil-Spill Costs
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The elimination of the liability cap, which would be retroactive, has emerged as a potent issue on Capitol Hill as the projected costs of the Gulf spill rise, even though BP PLC agreed under pressure from the Obama administration to put up $20 billion to pay spill-related claims...
(2 July 2010)

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