BP: House Energy and Commerce Committee Chairmen Send Damning Letter to Hayward

The House Energy and Commerce Committee chairmen, Henry Waxman and Bart Stupak published the text of a 14 page letter sent today to Tony Hayward, BP’s CEO. The House website not only contains the text of the letter, but also 23 additional documents from BP, Halliburton, Schlumberger, and Transocean.

The letter itself provides a damning bill of particulars on BP’s lapses in warning Hayward of the topics on which he will be grilled later this week. The overview:

On April 15, five days before the explosion, BP’s drilling engineer called Macondo a “nightmare well.” In spite of the well’s difficulties, BP appears to have made multiple decisions for economic reasons that increased the danger of a catastrophic well failure. In several instances, these decisions appear to violate industry guidelines and were made despite warnings from BP’s own personnel and its contractors. In effect, it appears that BP repeatedly chose risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk.

At the time of the blowout, the Macondo well was significantly behind schedule. This appears to have created pressure to take shortcuts to speed finishing the well. In particular, the Committee is focusing on five crucial decisions made by BP: (1) the decision to use a well design with few barriers to gas flow; (2) the failure to use a sufficient number of “centralizers” to prevent channeling during the cement process; (3) the failure to run a cement bond log to evaluate the effectiveness of the cement job; (4) the failure to circulate potentially gas-bearing drilling muds out of the well; and (5) the failure to secure the wellhead with a lockdown sleeve before allowing pressure on the seal from below.

Each of the five major cost cutting actions are documented in considerable detail. The letter has extensive footnotes which reference the other documents on the website, testimony from other hearings, and other online sources). Effectively, the letter follows the format of a prosecution: it demonstrates motive (that BP was behind on the well and was therefore incurring additional charges above its original budget for leasing the rig. It also gives a good recitation of the typical procedures in drilling a deepwater well.

The letter highlights various points at which BP documents indicate that BP understood the risks it was taking. For instance, on p. 4-5:

An undated “Forward Plan Review” that appears to be from mid-April recommended against the single string of casing because of the risks. According to this document, “Long string of casing … was the primary option” but a “Liner … is now the recommended option.”

The document gave four reasons against using a single string of casing. They were:

• “Cement simulations indicate it is unlikely to be a successful cement job due to formation breakdown.”
• “Unable to fulfill MMS regulations of 500’ of cement above top HC zone.”
• “Open annulus to the wellhead, with … seal assembly as only barrier.”
• “Potential need to verify with bond log, and perform remedial cement job(s).”

In contrast, according to the document, there were four advantages to the liner option:

• “Less issue with landing it shallow (we can also ream it down).”
• “Liner hanger acts as second barrier for HC in annulus.”
• “Primary cement job has slightly higher chance for successful cement lift.”
• “Remedial cement job, if required, easier to justify to be left for later.”

Communications between employees of BP confirm they were evaluating these approaches. On April 14, Brian Morel, a BP Drilling Engineer, e-mailed a colleague, Richard Miller, about the options. His e-mail notes: “this has been [a] nightmare well which has everyone all over the place.”10
Despite the risks, BP chose to install the single string of casing instead of a liner and tieback, applying for an amended permit on April 15.

Yves here. I hope readers will look again at this list. This is corporate decisionmaking at its worst. The document may well have been prepared under duress (as in the person writing it was opposed but had to dress up plausible reasons). If I read this correctly (and oil industry experts are encouraged to chime in) reasons 1 and 3 in the first set of dot points look particularly damning, but it looks as if by listing an equal number of items arguing for the liner (no matter what weighting they deserved) that this could be made to look like a coin toss, when a realistic assessment of the risks would argue otherwise (of course, given the success Exxon had in getting it payout for the Exxon Valdez disaster delayed and then punitive damages on its leak reduced from $5 billion to $500 million. I’m curious as to what an NPV analysis on possible liability, using the Exxon precedent, would have shown). This move saved BP at least three days of drilling at $500,000 a day for rig rental plus contractors’ fees.

The other decisions hew to the same pattern. Halliburton recommended 21 centralizers (proper centralization is key to displacing the mud from the narrow side of the annulus, which if not done properly, leads to “bypassed mud channels and inability to achieve zonal isolation.” Even as few as ten centralizers would result in a “moderate” gas flow problem, per Halliburton. BP instead deemed it “too late” to get more centralizers out (again, clearly a budget rather than a real world constraint) and rationalized it would do just fine with artful arrangement of the six it had on hand (in fact, someone located 15 additional centralizers and could have flown them out, but the offer was rejected, with some spurious-sounding objections, plus the likely key one, it would take ten additional hours to put them in place.

The rest of the letter proceeds along similar lines. Halliburton urges BP to run a cement bond log (an acoustical test), as also appeared to be required by MMS rules. A Schlumberger team was flown out to conduct the test, and was curiously sent home with no test conducted. (Note that there are some Internet reports on what happened that appear wrong in some particulars [they allege that Schlumberger called for its own helicopter to evacuate its crew out of safety concerns, when it appears instead that they returned on a BP helicopter] but may still not be off base as far as the real reason as to why the test was not completed). BP again failed to circulate the mud fully, against Halliburton’s advice. BP did not install a lockdown sleeve, a device that helps prevent gases from breaking the wellhead seal and entering the riser.

Reader bill pointed to the AP coverage of the letter, the most complete version of which he found at the San Francisco Chronicle. Its take:

BP took measures to cut costs in the weeks before the catastrophic blowout in the Gulf of Mexico as it dealt with one problem after another, prompting a BP engineer to describe the doomed rig as a “nightmare well,” according to internal documents released Monday….

“Time after time, it appears that BP made decisions that increased the risk of a blowout to save the company time or expense,” the lawmakers wrote in the 14-page letter to Hayward. “If this is what happened, BP’s carelessness and complacency have inflicted a heavy toll on the Gulf, its inhabitants, and the workers on the rig.”

As reader Scott said, “This doesn’t look very good for BP.” Bloomberg is reporting that the oil company may lose its US oil leases and contracts, an outcome we had suggested was possible early on:

BP Plc may lose control of its U.S. oil and natural gas wells and be barred from doing business with the federal government as punishment for the worst oil spill in U.S. history, industry and regulatory analysts said. …

The U.S. may revoke BP’s status as operator of producing wells in the Gulf of Mexico, such as Thunder Horse, or of leases at Prudhoe Bay, said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC, a Houston investment bank. Separately, Congress is considering measures to bar BP from contracts with the Department of Defense and Environmental Protection Agency….

The administration has the power to force BP out as operator of existing leases on federal lands and offshore tracts. The operator, typically the partner with a majority interest, is designated before drilling begins. The Interior Department tracks each operator’s performance and may “disapprove or revoke your designation as operator” based on accidents, pollution events or other cases of noncompliance, according to federal regulations.

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55 comments

  1. Foppe

    So if they want to, senators /can/ in fact surround themselves with the necessary experts to get to the bottom of something. That only makes the banking crisis (and finreg) that much sadder.

    1. DownSouth

      I was thinking along the same lines.

      The wars in Iraq and Afghanistan, the financial crisis, healtcare reform and now the BP blowout, if nothing else the Obama administration has been consistent. It has relied on the same people who got us into the problems to get us out.

    2. Michael

      Well all this ‘damning’ can be used for another purpose too, and that is to support deep water drilling!

      i.e. deep water drilling is in fact safe, but BP were just negligent.

      Even if everything was done using best practices, an accident for which the well operators were ‘blameless’ could take 3 or more months to fix. This implies that the risks may be too high to even allow it in the first place – until the technology and equipment exists so that worst-case accidents (which will always happen eventually) only cause acceptable levels of damage.

  2. Gary Anderson

    I have a personal experience with BP. When they came in to take over Arco, my wife was an Arco employee. She was promised a fairly good bonus. But when BP took over, the bonus disappeared. I put a hex on this company and it didn’t take long to manifest itself.

    1. Timmy

      Well, from the size of oil reservoir they screwed, your hex certainly is working. From the gusher alone, this well suppose to be a giant money making. Instead, they are certainly going to lost a lot of permit and exploration opportunities.

      I for one think they should
      1. audit the entire company safety log, because they run pretty shoddy, lose and fast operation.
      2. They also need to look for oil flow/output log. I think they are cheating.

      Time to scan their book. And better install money tracer on all international banks on all their property too. Get the best/meanest international property lawyers.

      I for one am betting BP will either be bankrupt, or change into totally different little pieces of corporations. No way they gonna survive this without backing some serious political power. (Republicans political whores aren’t going to cut it this time around. Bush/Cheney/Halliburton gangs are too deep into Iraq, and they are being watched carefully already.)

  3. Sunny

    There is very little light (in this report) on the role of regulators – MMS during these crucial hours/days! Guess they were all exhausted after viewing the porno 24/7!

    There is total break down of integrity, law and order between the regulated and the regulators, in not just one but across the Industries of various kind under Federal and state regulatory agencies. Of course, the Fin Industry regulators take the ‘Oscar’ for their incompetency and complicity!

    1. Tao Jonesing

      Your first two things don’t help.

      Sec. 2716a doesn’t help because Sec. 2704 sets the maximum liability under Sec. 2716 for an offshore rig at $75M. We all know that BP is good for $75M. BP has undoubtedly complied with Sec. 2704(a) as required by Sec. 2716(c)(2), which means that it has complied with Sec. 2716, which means that 2716a is inapposite.

      The PTD doesn’t help because Congress spoke in Title 33 setting liability caps. Given the legislative intent to limit corporate liability, our corporatist courts will be loathe to apply the PTD here.

  4. Cieran

    What continues to amaze me are the continuing assertions that the well was “behind schedule”. Given that this class of oil-exploration technology is still new enough so that each well is essentially unprecedented in its scope and risk characteristics, how could any rational manager justify the notion of “a schedule”, much less of “being behind schedule”?

    We develop schedules when the work we do has ample precedents, and the schedule risks have all been well-characterized enough so that we can rationally plan for them. And even then, we apply appropriate contingencies, of time and money and personnel, to help mitigate the risks of unexpected events, i.e., Murphy’s Law in action.

    BP management using phrases like “behind schedule” is clear evidence that they simply do not know what they are doing. This isn’t rocket science: it’s project management 101A, and the fact that the highly-compensated executives of BP don’t understand these principles only further demonstrates that they have not earned that compensation.

    There were plenty of ways to use technology to help mitigate the obvious risks posed by this well. BP chose not to deploy them at virtually every stage, and now their incompetence should be amply penalized, so that companies that do know how to manage risk are put at a competitive advantage.

    Isn’t that how the free market is supposed to work?

    1. alex

      “We develop schedules when the work we do has ample precedents, and the schedule risks have all been well-characterized enough so that we can rationally plan for them. And even then, we apply appropriate contingencies, of time and money and personnel, to help mitigate the risks of unexpected events, i.e., Murphy’s Law in action.”

      Wow, where do you work? And can I get a job there?

      I’m used to schedules that somebody pulls out of their ass and then get whittled down when some genius program manager decides he’d like to see it sooner (usually they want a pony for Christmas too). Honestly I’ve never really developed my project estimation skills because every time I try to be realistic it gets shot down.

      1. Cieran

        I have worked in a wide variety of advanced technology venues, and started my engineering career working for Bell Labs. I have managed many important engineering projects, and always strive for best-practices in project management, especially since doing anything else amounts to wasting the client’s money, and that’s never a good idea.

        If you work in the setting you describe, you owe it to yourself to find another venue to work in. Experienced high-quality engineers are always in demand, and life is too short to waste your talents working for project managers who don’t know what they’re doing. Seriously.

        At least in your firm, it’s not likely that the risk of management incompetence includes “destruction of a large swath of the Gulf ecosystem for perhaps a generation or more”. But if your work environment is as you describe, it’s high time to find a new one. Don’t you believe you deserve as much?

      2. wunsacon

        >> I’m used to schedules that somebody pulls out of their ass and then get whittled down when some genius program manager decides he’d like to see it sooner

        Software biz? And, yeah, you’d better comply, or else the offshore company resident sales guy will promise your manager that his offshore team can do it. And, when they don’t, it’s the fault of the remaining Americans. So, to fix that problem, lay off the remaining American employees and hire more contractors (albeit at higher overall rates — but it’s “okay” because the onsite liaisions will make better use of that super team offshore). And so on. And so forth.

  5. Peter

    I’m sorry but you could look at ANY number of corporate entities in their day to day work and find them making decisions to cut costs. Part and parcel of management is to make a balance between cutting costs and getting the job done successfully.

    In hind-site BP failed to do this; but looking at the documents there is nothing here that would show gross negligence.

    “Cement simulations indicate it is unlikely to be a successful cement job due to formation breakdown.”
    This is hardly damming unless the context of an unsuccessful cement job is HIGHLY likely to lead to a complete blow-out and a catastrophe. Which with a BOP on the end; and ample opportunity to redo the cement work if it wasn’t successful the first time was not the case.

    The key thing is to what extent is there ALL of the time a direct correlation between an unsuccessful cement job and a calamity of the scale of the Macondo blow-out. I think the answer is very, very, very little indeed. Hence it was a rational – not a callously reckless – compromise to make.

    ““Unable to fulfill MMS regulations of 500’ of cement above top HC zone.””
    I would be interested to know vs drilling generally in the GoM how many drills were 100% compliant with 100% of the regulations. And where were the regulators?

    “Open annulus to the wellhead, with … seal assembly as only barrier.””
    I think this ignores the existence of the BOP.

    All in all… yes it doesn’t look good. But then any number of internal corporate documents showing ‘cost cutting’ are seldom going to ‘look good’.

    “BP engineer to describe the doomed rig as a “nightmare well,” according to internal documents released Monday”

    Wow! That’s awfully incriminating isn’t it? This is just the kind of meaningless soundbite that looks shocking but isn’it.

    A ‘nightmare’ job can mean simply trying, hard-work, stressful… I mean really what are they trying to imply with this statement?

    Yes indeed we know it wasn’t a spontaneous explosion that came completely without warning. The disaster brewed up. This does not mean that BP knew exactly what was going to happen; and took a massively reckless chance when they saved some costs.

    The probabilities are simply not stated.

    The document might read like a legal case against them… but it would be interesting to hear the opposing side of the argument. I wonder will Hayward have the opportunity to present a proper legal defence, call witnesses, present counter evidence and so forth at this ‘trial’?

    1. alex

      “Yes indeed we know it wasn’t a spontaneous explosion that came completely without warning.”

      Ok, I’ll give you that the failure to heed those warnings was even more reckless than these cost cutting measures. That doesn’t exactly exonerate BP.

      “This does not mean that BP knew exactly what was going to happen”

      When dealing with something this dangerous saying that you didn’t know it would screw up is no defense. You have to prove, to a high level of confidence, that you had good reason to believe it wouldn’t screw up. It’s called being careful.

      “The probabilities are simply not stated.”

      Because the probabilities aren’t known! There’s very little experience in water this deep. We’re not talking about something that’s been done thousands of times before so that good statistics have been developed. All the more reason to be careful!

    2. readerOfTeaLeaves

      ‘Quality’ is probably the best biz model. And apparently, it no longer exists as an ethos at oil corporations, nor on Wall Street.

      I’m personally not interested in what Hayward, nor BP, have to say.
      The type of decision-making that Yves highlights here is systemic.
      It appears to have been operating from the core behaviors of the BP corporate DNA.

      They’ve now placed Obama in a position where he has to shut them down and shut them out of US contracts.
      If he fails to completely shut them out, then he will look like a weak, corporate toady.

      They’ve placed him — and Congress — into a corner.
      If they continue to accept the information from a company with this pattern of myopic, short-term, go-go recklessness then Congress and Obama look like the worst sort of weenie tools.

      BP has repeatedly lied to the administration, the Congress, and the public – they should already bitterly rue their ‘1,000 gallons a day’ spin. When hte actual leaks are so many magnitudes larger, when they have no functioning backup plans, and when they’re incapable of accurately describing the mess they made — let alone clean it up! — they’ve backed the electeds into a corner.

      To underscore this point, recall that at least one BP engineer took the 5th and refused to testify before the Coast Guard commission seeking information about events leading to the spill — basically, we have BP personnel admitting criminal negligence and refusing to fess up publicly. So your point about BP somehow not having had platforms to make its case is simply not credible, in view of the many events and facts before us all.

      BP has behaved so recklessly and egregiously that they’ve left Obama, the DoJ, and the Congress no viable option but to dismantle their contracts and go after them for criminal negligence.

      No doubt BP insiders are in shock and can’t fathom this as a reality, but if Obama’s political costs in failing to dismantle BP are going to be so high that they’re really given him no options.

      Whether he takes it remains to be seen.

      1. sgt_doom

        ‘Quality’ is probably the best biz model. And apparently, it no longer exists as an ethos at oil corporations, nor on Wall Street.

        You know, this thing is the best motivating factor for socialism and a planned economy — while many lowbrows are against that, not ALL planned economies work as poorly as previous ones — and in the present completely corrupt economic cirumstances, as well as possible worldwide ecological degradations — a planned economy may be the only one which has a hope in hell of ever working.

        The closest thing to a meritocratic organization — and also the most socialist one — I’ve ever been in was the US military during the draft.

        Of course, with so much of it privatized today (can you say “mercenary”??) and thereby experiencing minimal command-and-control, it hardly counts anymore.

        And why do I have difficulty in believing, with all the remote-sensing and imaging by satellites they’ve done on Afghanistan, that they JUST NOW discovered this “mineral mountain”??

      2. Peter

        “BP has repeatedly lied to the administration, the Congress, and the public – they should already bitterly rue their ‘1,000 gallons a day’ spin. When hte actual leaks are so many magnitudes larger, when they have no functioning backup plans, and when they’re incapable of accurately describing the mess they made — let alone clean it up! — they’ve backed the electeds into a corner.”

        So when the US Coast Guard said the rate was between 12,000 and 19,000 but they then had to revise that because it could still perhaps still be higher this was also lies and spin?

        The fact of the matter is that it was and remains exceedingly technically difficult to ascertain the flow rate UNTIL you’re visibly capturing all of the oil. Even then you can’t necessarily look back retrospectively because you’re actions securing the full capture may have increased the rate.

        I don’t see any evidence that BP outright lied either before or after the event.

        The rest of the comment stating that Obama has been forced into the position that he must appropriate them and shut them out of the US is just not true. IN your opinion maybe he would look like this. To many other people if he did he would look like someone who is exceedingly rough and ready with the rule of law.

        The only prior occasion I can see when Obama bent the rule of law was in Chhrysler and the bond holders. But there a minority of hedge funds and private equity groups were affected. Here if Obama attempts to bankrupt BP he is not only affecting the 39% of BP Shareholders who are in the US (15% pension funds) but it also bankrupting the surgeon cleaning up the mess, the debtor who is paying compensation and cooperating fully to do this and finally to a degree something of a scape-goat who – if the clean up operation isn’t judged 100% successful; and indeed takes the eyes of the regulators role in this – can still receive some flack.

        For example as I stated at the top of my post.. look what happens when the Admiral releases flow rates but then admits they may have been wrong…

        “When dealing with something this dangerous saying that you didn’t know it would screw up is no defense. You have to prove, to a high level of confidence, that you had good reason to believe it wouldn’t screw up. It’s called being careful.”
        I think BP will do this. Hayward stated that what happened was a 1 in a million event. The documents released show that it wasn’t just one thing that had to fail but a number of failures each which had their own unknown probabilities. but BP – much more so than us – understand these probabilities.

        “There’s very little experience in water this deep.”
        Well exactly. So instead of focusing on the negative it would be good to recognise that a LOT will be learned from this event; regulations will be tightened up and all the players will revise their safety procedures.

        The fact this has happened makes it easier (or indeed more evidently necessary to calculate in a benign environment) the probabilities.

        1. LeeAnne

          we have 20 yeras of experience with Exxon Valdez here

          Litigation was filed on behalf of 38,000 litigants. In 1994, a jury awarded plaintiffs US$287 million in compensatory damages and US$5 billion in punitive damages. Exxon appealed and the Ninth Circuit court reduced the punitive damages to US$2.5 billion. Exxon then appealed the punitive damages to the Supreme Court which capped the damages to US$507.5 million in June, 2008. On August 27, 2008, Exxon Mobil agreed to pay 75% of the US$507.5 million damages ruling to settle the 1989 Exxon Valdez oil spill off Alaska.[10] In June 2009, a federal ruling ordered Exxon to pay an additional US$480 million in interest on their delayed punitive damage awards.[11]

          According to the National Oceanic and Atmospheric Administration, there are approximately 98 m³ (26,000 gallons) of Valdez crude oil still in Alaska’s sand and soil.

          1. LeeAnne

            and furthermore here Bankers profit either way as long as governments have the police power to FORCE taxpayers and tax beneficiaries like pensioners to back up corporate/banker risk/gambling profits:

            ‘”In light of the above and other findings, investigative reporter Greg Palast stated in 2008 “Forget the drunken skipper fable. … the radar was not turned on. In fact, the tanker’s radar was left broken and disabled for more than a year before the disaster, and Exxon management knew it. It was [in Exxon’s view] just too expensive to fix and operate.”‘

            In the case of Baker v. Exxon, an Anchorage jury awarded $287 million for actual damages and $5 billion for punitive damages. The punitive damages amount was equal to a single year’s profit by Exxon at that time. To protect itself in case the judgment was affirmed, Exxon obtained a $4.8 billion credit line from J.P. Morgan & Co. This in turn gave J.P. Morgan the opportunity to create the first modern credit default swap in 1994, so that J.P. Morgan would not have to hold so much money in reserve (8% of the loan under Basel I) against the risk of Exxon’s default.

        2. alex

          “Here if Obama attempts to bankrupt BP he is not only affecting the 39% of BP Shareholders who are in the US …”

          Cry me a river. If compensating for the damage they’ve done bankrupts BP, then so be it. The owners should be thankful for the limited financial liability of incorporation.

          “Hayward stated that what happened was a 1 in a million event.”

          Which is a total bullshit statement. You can’t estimate probabilities unless you have sufficient past data to establish statistics. See Richard Feynman’s “dissent” to the Challenger disaster report for a good example of this. NASA and its contractors kept talking about the low probabilities of space shuttle failure, but that simple minded Nobel prize winner Feynman pointed out that you can’t calculate probabilities without sufficient past data to obtain statistics, and you can’t possibly have that with new technology! (BTW, he tells a great story about how the dirty hands space shuttle engineers realized this and needed no convincing of his elementary argument).

          I’ll leave it as an exercise to the reader to discuss Hayward’s possibly biased position, to dissect the undoubtedly exhaustive calculations he performed to come up with his six figure accuracy “one in a million” statistic, and how they’re obviously so unlucky that with considerably fewer than a million deep water rigs they just happened to hit the long odds of that extremely rare event happening on this one.

          “The documents released show that it wasn’t just one thing that had to fail but a number of failures each which had their own unknown probabilities. but BP – much more so than us – understand these probabilities.”

          First you say that there were ‘unknown probabilities’ but the say that BP ‘understand these probabilities’. Which is it? And with all those ‘unknown probabilities’ how did Hayward come up with his seemingly known “one in a million” figure?

          BTW, I’m astounded that there had to be a chain of failures. Surely that’s unprecedented in a situation where the cost of failure is high. Normally high reliability is obtained by accepting catastrophes from single points of failure. It’s not like say, aircraft designers, design in redundant systems or safety margins.

    3. Doc Holiday

      Re: “I wonder will Hayward have the opportunity to present a proper legal defence, call witnesses, present counter evidence and so forth at this ‘trial’?”

      > As long as that oil keeps washing up on-shore, with dead animals, I kinda doubt if anything he has to say will matter — and the longer this goes on, he will have less and less to say!

    4. Anonymous Jones

      What Peter seems to fail to understand is that “negligence” and “gross negligence” are legal standards that slide on a scale and are based (and proportional to) the potential harm of a situation. It’s almost as if Peter equates negligence with carelessness and gross negligence with lots of carelessness. That would not be accurate.

      I’m sure there are many, many instances of corporate half-assedness that lead to the loss of a few thousand bucks.

      That is not the situation we have here.

      In fact, the standard of care seems to be vastly higher than what BP demonstrated because the expected value of the potential loss was so great. Even if the odds of a catastrophe were small, the magnitude of the catastrophe is so great that *almost every conceivable precaution* is necessary to avoid a charge of negligence. Here, in the face of so many decisions to shave a few bits of time, we are really approaching gross negligence. Of course, that is not for me to decide. It is for a court to decide upon hearing all facts worthy to be placed in evidence.

      1. Peter

        That’s an interesting point.

        But surely if this were true it remains very, very easy when seeking someone to blame for a very severe event that however many precautions were taken they were grossly negligent.

        I read a number of the documents listed; and although not of the technical understanding to fully comprehend what is being said, it strikes me that when one of the salient points the congressman brings up is a quote that than engineer believed it to be a ‘nightmare’ well. Well then clearly there is not very much there of real technical substance to suggest negligence.

        The emails strike me as an account of professional conduct. The congressman leaves out key qualifiers like “Let me know if you have any causes for concern” etc. at the end of the email… and indeed edits away text like a regional newspaper. e.g. “”””it will take 10 hours to install them. .. . I do not like this.””” What was edited out was “We are adding 45 pieces that can come off as a last addition”. i.e. which rather implies no that what was being proposed could also ‘come/fall off’ and not serve any useful function.

        1. Cieran

          I would suggest that you’re barking up the wrong legal tree here. This is not about a single act of gross negligence leading to one disastrous event: it’s about a pattern of willful misconduct by BP management that led to that disaster. And patterns are easier to prove in court, because of the inherent redundancy of the evidence provided.

          From the documents I’ve seen, BP virtually always chose the route that was cheapest, and was generally on or outside the envelope of accepted practice for deep-water operations. The argument between TransOcean and BP personnel shortly before the rig blew up appears to be one more example of BP decision-makers ignoring accepted deep-water practice, so they could get the platform off the site, and on to the next job. Short-sighted financial concerns over-rode technical expertise, and we all know where that leads…

          Companies that take unwarranted risks without due measures of mitigation must be held accountable for those penny-wise-and-pound-foolish actions, or else the resulting moral hazard skews the free market against those responsible competing companies that take precautions appropriate to the degree of uncertainty involved. BP management failed this in this important metric, and hence its shareholders should bear the burden of those unfortunate decisions. That’s how the free market is supposed to work.

        2. Glenn Stehle

          Peter,

          “I read a number of the documents listed; and although not of the technical understanding to fully comprehend what is being said…”

          Have you ever heard of the old saw: “Better to remain silent and be thought a fool than to speak out and remove all doubt.”

          Take it from someone who spent a lifetime in drilling and completion operations, you are really putting your ignorance on display here for all the world to see.

    5. Glenn Stehle

      Peter,

      How many oil and gas wells have you designed and supervised?

      While your management style might work fine for running a donut shop, it doesn’t suffice for things like drilling and completing oil and gas wells or for building and flying airplanes.

      In these latter sorts of enterprises, even if the risk of failure is one in a thousand, or one in ten thousand, the risk is still too great.

      How would you like to fly in an airplane if the design and operational standard was, as you put it, that the only things that merited resolution were “HIGHLY likely to lead” to a crash and “catastrophe”? The notion is so nonsensical that it hardly dignifies a response. We’re dealing with people getting killed here, not a failure of the donut dough to rise.

      Then there’s your comment that “ ‘Open annulus to the wellhead, with … seal assembly as only barrier.’ “I think this ignores the existence of the BOP.” That statement is tantamount to saying that if the plane experiences engine failure, there’s always the parachute. It also demonstrates beyond any doubt that you have never been anywhere near one of these high-pressure wells during a kick, for if you had you would know just how scary dealing with high pressure oil and gas is. Gas at 1000 psi escaping to the atmosphere through a pinhole will cut your hand clean off, smoother than a Samurai sword. And furthermore, it’s hard enough to circulate out a kick when you’re drilling ahead and you’ve got the drill bit on bottom. But in a case like this where the gas is coming up the annulus outside your casing, the bottom of your pipe is sitting at 8000’ and you’ve already circulated out the mud, the situation is infinitely more complicated, and dangerous. Once an operator gets himself into a situation like this he is walking a razor thin tightrope, and that’s assuming the blowout preventer shuts. These are situations one must avoid at any and all costs.

      Your cavalier and insouciant attitude is reflective of exactly the kind of management traits that are not needed in high stakes operations like the oilfield. Sadly, it looks like BP is run by people whose management skills are more in tune with running a donut shop than an oilfield.

  6. blunt

    When the regulators have been replaced by lap-dogs and the scions of the businesses that are regulated then, yes, the regulators sit and watch porn all day. And get fed occasionally from the tables of the regulated.

    The direct root of this mess, like the mess on the Street, is the fact that for over a generation people have bought the easy 3-Card Monte of the Reagan era: that gubmint IS the problem.

    Naw, that was never the problem with anyone other than the current kleptocrats who were kept somewhat subdued by that “problem.” And since Reagan we have had four administrations that furthered and extended his remarks. — And then there’s us.

    Us wanted to buy that hogwash, thinking we’d all get as rich as we dreamed we could, ignoring the fact that the kleptocrats only pays the hos and lap-dogs they find useful. The rest get treated similarly to the Molly Maguires or the women at the Triangle Shirt Factory.

    When Carter said energy conservation was a MUST; he was absolutely telling us the truth that we mostly didn’t want to hear and that the Oil and Bank and Pharma (you name it) industries also didn’t want us to contemplate. Making things that last, making things energy-efficient and non-wasteful?

    You gotta be kiddin’! How do the kleptocrats make money if you buy a car and it lasts and works well for 20 years and uses only about a gallon of $3.85/gallon of gas to travel 60 miles?

    The hugest lie is that we manage to lie to ourselves that we can have everything we wish and waste until the cows come home and everything will be fine.

  7. Doc Holiday

    Two things:

    Repeat:

    § 2716a. Financial responsibility civil penalties
    (b) Judicial
    In addition to, or in lieu of, assessing a penalty under subsection (a) of this section, the President may request the Attorney General to secure such relief as necessary to compel compliance with this [1] section 2716 of this title, including a judicial order terminating operations. The district courts of the United States shall have jurisdiction to grant any relief as the public interest and the equities of the case may require.

    http://www.law.cornell.edu/uscode/html/uscode33/usc_sec_33_00002716—a000-.html

    #2, from somewhere on the internet: “Recently, Dr. Rafe Sagarin, a marine ecologist and policy researcher at the University of Arizona’s Institute of the Environment, and Mary Turnipseed, a graduate student in Duke University’s Nicholas School of the Environment, wrote about a legal doctrine known as the Public Trust Doctrine: “…the Public Trust Doctrine (PTD), established in the earliest days of this country and since expanded through courts and state and federal legislative bodies, provides the power — and the legal responsibility — to manage public trust assets in a comprehensive fashion that balances competing short and long-term needs of all American citizens. It’s a mandate that if it had been implemented properly would likely have prevented the current catastrophe, and if applied to the full extent of its powers could prevent similar disasters in the future.”

    #3: Ok, three things and a small rant, while dinner cooks:

    I’m finding the partial media blackout fascinating, because, this BP matter is a matter of national Security, in terms of economic impacts, which impact many of our fellow American workers — but for those of us that don’t have the proximity to this tragedy, isn’t it fair to the rest of us that we know the full story of this tragedy? If there are hundreds of dolphins dead on the shores, and if that image has to be withheld from the public view — is that fair to those of us that want justice for your region? This BP-Gulf tragedy, is a story that needs to be shared — in order, that this type of stupidity doesn’t happen again …. if Homeland Security wants to keep us all calm, they need to tell us the truth and not add to BP’s lies! If we can’t trust Americans, then BP is obviously the real enemy!

    1. sgt_doom

      Great points, Doc Holiday (I believe we’ve communicated previously several years back), but I fear that Public Trust Doctrine went the same way as that Law of Fraudulent Conveyance went.

      But I really like it nonetheless….

  8. Roger Bigod

    I haven’t read the full text, but the summary is consistent with what experts on TheOilDrum have been saying for weeks.

    I don’t understand thier point (4). The rig people had the option of leaving the mud in the well putting in seals at the top and leaving. The most likely sequel would have been that when it was re-opened for production in a year or two, it would have blown out due to the faulty cement job. But the new team would have been maximally alert to the danger.

    The issue of gas in the mud seems confused.

    The cement job had problems that don’t appear in the summary. They used cement with a lot of nitrogen, less strong but faster setting. Standard industry practice is to
    let cement set for 24-48 hr and they gave it 10. And IIRC the cement job didn’t unambiguously pass pressure tests.

    The one set of facts that goes against their narrative is the tracings showing the well pushing mud back even with the pumps turned off, a big red flag. This and similar findings existed for up to an hour before the explosion. Either no one was watching or they were in a mental state where they weren’t registering the meaning of what they were seeing. So there’s possibly an element of human failure, but in a setting of terrible risk management.

    They did a good job of establishing the motive of cost saviings and the casual approach to risk. This appears to reflect a corporate culture. Other companies have standards and routine procedures well beyond the regulatory requirements. And they can respond to accidents. Exxon is said to be extremely uptight about safety.

    The big question is how to prevent a repeat. A moratorium is easy and politically a winner. Tighter regs are easy. But making people take risk seriously is a puzzle.

  9. LeeAnne

    “BP appears to have made multiple decisions for ECONOMIC reasons

    For PROFIT is more to the point. Let’s be clear about that. We’re in a war of words and the crooks and liars have won –so far.

    The word economic can have lots of meanings; its currently being used to confuse. So, BP appears to have made multiple decisions for personal MONEY for SHAREHOLDERS like himself, HAYWARD and his shareholding insider cronies; the entire ivy league university/finance/corporatist/government/transnational/taxpayer extortionist cabal involved in turning the entire civilized world and the US into one big Banana Republic while they salivate over the hundreds of millions of middle class workers coming on board in a few years from China and India after the US admired all over the world prior to George W. Bush and his exploitation of 9/11 is totally DESTROYED.

    For students of the markets check this out. An excellent page on Wikipedia to begin for Stock Markets 101 at here

    The word ‘economy’ is a political football as used by Obama and his corporatist cronies; the motivation for keeping the stock market up is to DEFRAUD the American people into believing the REAL ECONOMY (meaning JOBS) is improving.

    I’ve heard the meme “the economy is improving” on 2 separate occasions where naive people with no clue repeat it in front of vulnerable audience with a certainty that makes you want to slap them in the face: that is the power the POTUS bully pulpit.

    Even as the 401Ks of the naive and vulnerable improve to erase last year’s losses, they are grateful to be hustled into TREASURIES by the same mutual fund ADVISORS. What could be more profitable from the corporatist government point of view.

    The people are now all set up to sit patiently through the losses to come. Only those losses will not be returning.

    “Used in the plural, stocks is often used as a synonym for shares. Traditionalist demands that the plural stocks be used only when referring to stock of more than one company are rarely heard nowadays.

    In the United Kingdom, South Africa, and Australia, stock can also refer to completely different financial instruments such as government bonds or, less commonly, to all kinds of marketable securities.”

    The word conomic can mean concern for employees and the long term welfare of the business. But corporations are engaged in short term profits through the STOCK market system that encourages CEOs with no industry expertise, who have the credentials of transient WALL STREET hacks doing employed an average 3 years at any one company not necessarily in the same industry in a race to the bottom economically. There is nothing on the table that suggests changing the share issuing system of incentives -moral hazard is too fancy. INCENTIVES to STEAL from PENSIONERS, WORKERS and SAVERS, everyone not included in the global finance CABAL.

    Point being in the context of this situation, ‘economic’ is ambiguous; the currency of educated THIEVES.

    Everyone who want to should be taught to understand what’s going on. The more clear the better. Little ambiguities are BIG LIES. The entire structure of our discourse and law is riddled with intentional ambiguity.

    Now, I’ll go back and finish reading the post.

  10. Christian

    “This is corporate decisionmaking at its worst. The document may well have been prepared under duress (as in the person writing it was opposed but had to dress up plausible reasons)…. it looks as if by listing an equal number of items arguing for the liner (no matter what weighting they deserved) that this could be made to look like a coin toss”

    Too much caffeine Yves! The second set of bullets are reasons TO USE the liner. The first are reasons AGAINST the sleeve.

    1. Yves Smith Post author

      I suggest you read what I wrote again and the letter. The first set of dot points, as I indicate, argued against using a single string of casing. The second was in favor of the riskier option, the liner, the one BP chose. What I have is correct, and I’m not sure what your issue is.

      And not, I’m not on caffeine either.

      1. Bob S

        Yves,
        The liner with tie-back to the wellhead would have been the safer option as it would have provided more barriers.

      2. christian

        “Despite the risks, BP chose to install the single string of casing instead of a liner and tieback,”

        So why are you scolding me?

  11. Ronald

    Deep Water oil drilling is an American national security priority and this spill puts that mission in jeopardy. Its my belief that Obama along with his National Security Team have been working this issue since the incident and have been in complete control not only of events on site but news flow. One only has to look at the initial issue of leak flows to know that it was a complete fabrication that they did not know oil flows .They understood quickly what the flows were and its implications for the area on how long it would take to get relief wells in position. BP’s assets may get dinged and it may become XB corporation at sometime but it is the largest Deep Water Driller with intimate ties to the United States the largest user of oil in the World. I have stated before that its clear all these attempts to curtail the flow have been PR moves approved by the Presidents National Security Team with the intent to keep the public busy until the relief wells could be dug. The event occurred back in April its now the middle of June so the media will be switching gears soon to follow the relief wells and focus on the big ending story.
    Nobody on the Washington D.C. security team gives a shit about the environment,tourist interest,fisherman,boat operators, hotel operators in the GOM, their only concern is the resumption of Deep Water Drilling and the advancement of securing additional oil for U.S. Reserves.

  12. Alan von Altendorf

    Waxman’s letter to Hayward shows that BP is totally busted, guilty of killing 11 men. Hayward is personally responsible for instituting a cost-cutting campaign that offered cash bonuses for accelerated project completion. Macondo was behind schedule because they were pushing too hard and lost a drillstring in March, had to bypass and drill around it, then lost circulation when they reached the reservoir. The order to plug & abandon chop chop hurry up was to release the Deepwater Horizon to drill another hole. BP sent its drilling chief and three other execs on a VIP tour of the rig to make sure the Transocean crew finished fast, no excuses.

    What makes this tragic, and BP will use in their defense, is that Transocean’s Offshore Installation Manager (OIM) Jimmy Harrell was responsible for safe operation of the rig. It was his job to say no to BP, and he didn’t. Senior Toolpusher Miles Ezell could have stopped the displacement to seawater and personally supervised the concrete tests, and didn’t. They were bullied by BP and caved.

    The Macondo well was not exceptionally deep or difficult. BP and Transocean should both be banned from US waters as punishment for recklessness and gross negligence.

    1. Timmy

      Well from drill ship rental point of view, BP insurance is going through sure. Plus who is going to work for BP again? 11 men lost and couldn’t control the political play?

      Plenty of companies want to rent deepwater drill ship these days. (brazil, chinese, australia, etc)

  13. Blurtman

    A good friend of mine works in the environmental remidiation industry in N. California. His company cleans up waste sites from closed gas stations to much larger sites.

    He said that he was not surprised by the BP led disaster in the Gulf, In his experience, BP was the worst firm to deal with, ignoring advice on preventing spills and leaks, cutting costs whenever possible. And denying responsibility for environmental pollution that they caused.

    I expect to see some major denial and maneuvering by the company to escape liability for this horrendous disaster.

    Obama is wise to be on the offensive with these profiteers.

  14. ravi

    I think the outrage over BP ( justified in my opinion ) should be compared to the US Government action in the Union Carbide Bhopal gas tragedy . The US bribed , pressured & muscled its way to get Union Carbide off the hook . 26,000 people killed , countless maimed for life , generational damage ..

    “”…Robert Blake instead expressed the hope that the judgment delivered yesterday by a district court in Bhopal would give closure to the victims.

    The judgment – two years in prison and fines of $2,100 each for seven defendants, a $10,600 fine for Union Carbide India Ltd, and no mention of Warren Anderson – has left even American lawyers aghast….””

    End of the day your past gets back to haunt you …

    Ravi

    1. Gil

      On the bright side. Union Carbide is no more. The bhopal accident certainly do serious damage to their name that they can’t sell any household item globally anymore. DOW chem owns them.

  15. Toby

    I agree with Ronald (6/14/10 at 10:10pm) and Michael (6/15/10 12:13am) that this is all about protecting deep water drilling. The oil must flow. Priority 1, far above all others, is therefore showing with overwhelming force that BP was negligent and incompetent. This was a one off, an aberration, and has next to nothing to do with deep water drilling per se. Only by so doing can deep water drilling be promoted into the future, and the public’s perception of it be restored to — generally speaking — favourable. BP is nowhere near as important as oil itself.

    Hence, the reaction to this on the part of those who believe we must transition from oil to renewables is to push harder for wind, solar, biomass, tide etc. combinations, for electric cars, for a total upgrade of public transport, and so on. The stone age didn’t end for lack of stones, alternatives became viable. Alternative energies are now very viable indeed, only a powerful collection of vested interests will do everything in its power to slow down this transition, and even prevent it altogether if they can.

    This ecological disaster is, aside from being a terrible tragedy with as yet unknowable consequences, an opportunity to gain momentum towards renewable energies.

  16. OutsideLookingIn

    “BP appears to have made multiple decisions for economic reasons that increased the danger of a catastrophic well failure. In several instances, these decisions … were made despite warnings from BP’s own personnel…..”

    So BP warned itself but decided to go ahead anyway?

    [Feynman]tells a great story about how the dirty hands space shuttle engineers realized this and needed no convincing of his elementary argument.

    Exactly. As is the case in most corporations today the decisions were being made not by the engineers and the people with the expertise, but by the accountants and ‘executives’ above them whose only concern was the bottom line in the report they have to give to the high-ups
    like Hayward who have only the vaguest clue what is happening in places like the Gulf but could tell you to six decimal places what the Company’s stock price is and has been over the previous eight quarters.

  17. Richard Kline

    What we see in BP’s egregious decision process in the instance of the Gush-up in the Gulf is simply the endstate of cost-externalization as a modus operandi. Where one can successfully push all _effects_ of actions over the mid- and long-term off on others—suckers, bystanders, contractors, insurers, the state and its citizenry—the only thing that matters in decision making are the upfront costs, since these are the only ones certain to be paid the the perpetrator/externalizer. One would expect exactly what we see from 21st century capitalism, a maximal push to shove liability sideways and down the timeframe, and a mindless, indeed reckless, push to drive down upfront costs. The process of capitalism as we know it _makes_ BP what it is. What we see in the decision process here is that in fact many individuals did their jobs: they identified technical problems for what they were, made reasonably appropriate analyses and recommendations which went upchannel, only to see the corporate culture spit those out because, to be blunt, reality was not relevant, and the outcome desired was pursued despite the implausibility of achieving it and the substantial consequences of a failure to do so.

    Capitalism isn’t necessarily the enemy. For one thing, capitalism, while not the same as commerce, includes commerce as one process, and it’s difficult to be against commerce entirely. But modern corporate capitalism IS THE ENEMY. The corporation was designed _specifically to shed personal liability for the outcomes of group behavior_, or at least to limit personal liability as much as possible. As such, corporate capitalism LIVES to externalize costs.

    Human society makes mistakes. Slavery was a mistake. Monotheism was/is a mistake. If capitalism is a qualified failure, corporate capitalism is indisputably a mistake. We see why again now, hour by hour, gob by gob.

    1. Toby

      Yours are important and helpful observations, Richard.

      I would like to make one comment though. Capitalism, just like slavery and monotheism etc., is, as are all other isms and ‘solutions’ to various problems, temporary, in that it arises/grows out of limited knowledge and understaning of life, and hence is subject constantly to change and ‘upgrading’.

      In my eyes capitalism can only become corporate capitalism in the way an acorn can only become an oak. That said, the word ‘capitalism’ is quite slippery. What matters when defining it is our culturally changing understanding of it, which is itself reflective of where we are at, at any time, in terms of zeitgeist, knowledge and understanding in the sense I hint at above. Therefore, for me capitalism has become the enemy not because of what it now is, but because of how it evolves according to its own systemic properties — presumption of scarcity, private ownership, perpetual growth, etc. — and the effects it has on societal development generally. Factors like finite planetary resources, human population growth, the delicate fragility of those ecosystems that support human life, in combination with the aggressive ‘success’ of capitalism, doom capitalism to catastrophic failure, as far as I can see. I furthermore believe that at the root of this lies how we understand, create and wield money. Whether a new monetary system coupled with a new understanding of growth and scarcity/abundance can be called capitalism still, remains to be seen.

  18. LeeAnne

    While casting about for ideas for a revitalized economy and worthwhile satisfying employment for everyone who wants it, consider that were we to place restrictions on software products giving consumers the power to easily sue for malfunction, we would not only slow down innovation to manageable levels, but put the consumer back in the drivers’ seat where he/she can push back without cumbersome legal action,

    And if, at the same time public service status is elevated appropriately relative to incomes generated in corporations through the graduated income tax for regulation and oversight in numbers equal to their corporate executive and middle management decision making charges to properly police corporations, the CAPITALIST system will be hugely improved.

    We just happened to have in the 1960s when the need for strengthened institutions was at its postwar zenith, its opposite in the form of a little interruption in the form of the largest consumer demographic ever, literally children in charge, who set out to change the world, slipped up dramatically for a dollop in universe time, and have proven the need to grow up on the cusp of their dotage. Those not afflicted with dementia in the next 30 years have a shot at participation in a a peaceful revolution and time to read up on its own history.

    1. Toby

      You may be right LeeAnne, but perhaps the distinction between ‘market’ and ‘state’ your analysis relies on cannot be as distinct as it needs to be for your prescription to hold. Regulation by the right arm over what the left arm does fails to take the fact they belong to one body into account. Regulation has always been there, as have good intentions, but ultimately ‘state’ and ‘market’ are ‘one’ within the money-flow systems (economies) of nation states everywhere. Both have the money system as their metabolizing process, as it were. Once upon a time economics was called political economy.

      Inherent in our debt-based money system is scarcity of money supply, which fuels competition, which gives the struggle to become rich and stay rich its impetus, and which means, in the final analysis, we are systemically driven to equate ‘success’ with having and holding more money than the other guy. A new money is needed to change this deeply enough to yield a sustainable system of profoundly different values, deeply enough for this change to be something more than mere regulation. What we call the system thereafter is unlikely to be capitalism in my view, but who knows? Maybe we will do just that…

  19. charles

    Gulf oil disaster: a trillion-dollar corporate crime
    15 June 2010

    “The oil disaster in the Gulf of Mexico is a corporate crime whose magnitude almost defies comprehension. The eventual cost—combining damage to complex Gulf and coastal ecosystems, wiping out of the fishing and tourism industries, and long-term health consequences for the population of the region—is likely to total over $1 trillion

    http://www.wsws.org/articles/2010/jun2010/pers-j15.shtml

  20. AR

    Has anyone considered the possibility that BP decided to short the well, once they realized that the wellbore was likely breeched, and that they’d be required to seal the well if this was known? This might explain the cutting-corners in the final weeks, saving a few million here and there, at the same time increasing the likelihood of a blowout. Meanwhile, Tony Hayward and GS both sold huge blocks of BP stock in Q1: Hayward on March 17th (GS who knows when). Chunks of rubber, according to the ’60 Minutes- interview, were observed exiting the well approximately 4 weeks prior to the blowout, around March 23.

    What if the decision was made to increase the likelihood of a blowout as a way to make money ‘shorting the well’? Assuming that BP is TBTF, and that all of the politicians are bought off anyway, would it be beyond possible that the bankers and BP would consider a way to make back the money already spent on the Macondo well by shorting the well? If they knew there was a considerable likelihood that the well would blowout, then they surely would want to be able to make money on that possibility by selling shares prior, then buying them back when the share price plummeted, knowing theat BP would be bailed out, would cover the cost of the well, and then some.

    The blowout is now being used to push for cap and trade, noting that cap and trade was conceived of and fleshed out by BP and Enron a decade ago. So it’s possible that the indifference to the potential blowout could also have stemmed from a ‘disaster capitalism’ mentality, using the disaster to shock the people and the government into going along with the plan that was already on the shelf, waiting to be implemented, and which would greatly enrich BP and GS.

    The ideas I’ve expressed here were inspired by this bmaz post and the discussion thread: http://emptywheel.firedoglake.com/2010/06/14/bp-well-bore-integrity-nelson-statements/

  21. Listen to the People

    Rep. Joe Barton of Texas———BOO! on BP! BOO! Time to toss you out!!! Hands in the pockets of petroleum kings. Let the little guy pay the price? Apologize? BOO! If, you were playing Monopoly you’d go straight to JAIL!

  22. Samuria Johnny

    With all that has transpired with the BP oil spill and coverup including losing their dividend for the rest of the year, wall street is doing all they can to hold up the stock price.

    As soon as one of them starts dumping shares and going short, the rest will follow. Then the pension funds will start dumping. It will get ugly fast.

    Then bankruptcy?

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