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Tuesday, June 15, 2010

Now we know BP cut corners

Lawmakers accuse BP of 'shortcuts'

By Steven Mufson and Anne E. Kornblut
Washington Post Staff Writers
Tuesday, June 15, 2010; A01

To save time and drilling costs, BP took "shortcuts" that may have led to the oil rig explosion and the spill in the Gulf of Mexico, according to a letter released Monday by two House Democrats leading an investigation of the disaster.

The letter, sent in advance of congressional hearings with senior oil executives this week, paints a damning picture of five decisions the lawmakers said the oil firm took "to speed finishing the well," which was running "significantly behind schedule." Marshaling e-mails, interviews and documents, the lawmakers said: "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."

In one instance, four days before the April 20 explosion, Brett Cocales, one of BP's operations drilling engineers, sent an e-mail to a colleague noting that engineers had not taken all the usual steps to center the steel pipe in the drill hole, a standard procedure designed to ensure that the pipe would be properly cemented in place. "[W]ho cares, it's done, end of story, will probably be fine and we'll get a good cement job," he wrote.

Cocales could not be reached to comment Monday, and Andrew Gowers, a company spokesman, said only that "it would be inappropriate for us to comment ahead of the hearing."

The letter was part of another bad day for BP. The company's stock dropped 9 percent, to $30.67 a share. Investors fretted about a White House meeting Wednesday between top BP directors and President Obama, who will also make the oil spill the centerpiece of his first Oval Office address at 8 p.m. Tuesday. Speaking inside a large shelter at a Coast Guard clean-up staging area in Theodore, Ala., on Monday, Obama vowed that "we're going to continue to hold BP and any other responsible parties accountable for the disaster that they created."

That cost to BP will dwarf whatever amounts its rig workers were worried about. White House officials were working to strike a deal with the oil giant on a multibillion-dollar escrow account to compensate victims, administration advisers said. Led by White House counsel Robert F. Bauer, administration negotiators were hoping to finish an agreement before the meeting Wednesday. Obama called talks "constructive."

One potential area of disagreement loomed: whether the escrow account would be limited or whether it could be replenished, as the administration is demanding. BP is also seeking assurance that money be used only for reasonable or "legitimate" claims through an impartial administrator.

Investment analysts expect that BP might suspend or reduce its dividend to fund an escrow account that some lawmakers have demanded be as large as $20 billion. "Suspending the dividend would significantly reduce the political heat on BP and enhance its financial flexibility," said Fadel Gheit, an oil analyst at Oppenheimer. "BP can raise $20 billion in escrow account within days."

Meanwhile, rival oil companies, worried about new regulations or limits on deepwater drilling off U.S. coasts, began openly criticizing BP.

"What we do know is that when you properly design wells for the range of risk anticipated; follow established procedures; build in layers of redundancy; properly inspect and maintain equipment; train personnel; conduct tests and drills; and focus on safe operations and risk management, tragic incidents like the one in the Gulf of Mexico today should not occur," Kenneth P. Cohen, Exxon Mobil's vice president of public and government affairs, said in a blog.

But Exxon Mobil's criticism paled next to the 14-page letter that Rep. Henry A. Waxman (D-Calif.), chairman of the House Energy and Commerce Committee, and Rep. Bart Stupak (D-Mich.), chairman of the panel's subcommittee on oversight and investigations, sent to BP chief executive Tony Hayward, who will testify before the committee Thursday. After reviewing documents and interviews the committee obtained, the two lawmakers said that "BP appears to have made multiple decisions for economic reasons that increased the danger of a catastrophic well failure."

The money that BP allegedly saved seems trivial in light of the blowout that killed 11 Deepwater Horizon rig workers and led to the oil spill that has polluted large swaths of the gulf. But given the daily costs of $1 million to $2 million to run a drilling rig, they appear to have been a big factor in the decision-making.

"I know the planning has been lagging behind the operations, and I have to turn that around," Gregory Walz, a drilling engineering team leader, said in an e-mail to his superior, the well team leader John Guide.

One decision that looks questionable was the one to use only six devices for centering the drill pipe in the well hole instead of 21, as initially planned and recommended by Halliburton, the service company hired to put cement between the pipe and wall of the hole.

Halliburton warned that without the full complement of centralizers, the danger of cracks in the cement surrounding the pipe increased. The American Petroleum Institute's recommended practices say that if the pipe, or casing, is not centered, "it is difficult, if not impossible," for the cement to displace the drilling mud on the narrow side of the opening. That could create channels for gas to travel up the well.

But the equipment needed to center the well in all 21 places was not on the rig. A BP rig worker located some pieces in Houston and made arrangements to fly them to the rig, but more senior officials decided against doing so. In an e-mail April 16, BP's well team leader Guide said that "it will take 10 hours to install them. . . . I do not like this," according to the lawmakers' letter.

That sentiment reflected a pattern of time- and money-saving measures, Waxman and Stupak wrote. They said their investigation is "raising serious questions" about decisions made in the days and hours before the explosion on the drilling rig that sank. According to the committee's investigation, other decisions also "posed a tradeoff between cost and safety," including:

-- BP saved $7 million to $10 million by using a more risky option for the well casing, or steel tubing. The safer method, known as the liner-tieback option, would have provided more barriers to prevent the flow of natural gas up the space between the steel tubes and the well wall.

-- BP decided against a nine- to 12-hour procedure known as a "cement bond log" that would have tested the integrity of the cement. Although the company had a team from Schlumberger, a leading oil services firm, onboard the rig, BP sent the team home, saying its services were not needed.

-- BP did not fully circulate drilling mud, which would have taken as long as 12 hours. That would have helped detect any pockets of gas, which later shot up the well and exploded on the deck of the drilling rig.

-- BP did not secure the connections, or casing hangers, between pipes of different diameters.

The letter says that many of those decisions contradict the advice in other BP internal documents, which warned against the dangers of using certain types of pipe. And it reveals that even before the accident, BP engineers were struggling with unusual difficulties. On April 14, BP drilling engineer Brian Morel e-mailed a colleague, Richard Miller, saying: "This has been [a] nightmare well which has everyone all over the place."

Since then, the nightmare has spilled out across the gulf. BP has said it will bring in additional vessels to boost its ability to handle as much as 53,000 barrels a day, though it warned that the site was so crowded with vessels that safety is a concern.

"Several hundred people are working in a confined space with live hydrocarbons on up to 4 vessels. This is significantly beyond both BP and industry practice," BP chief operating officer Doug Suttles wrote in a letter to Coast Guard Rear Adm. James A. Watson.

Obama, struggling to appear in command in the face of the continuing spill, made a swing though Mississippi, Alabama and Florida on Monday. The trip was aimed largely at audiences in those three states rather than at the national viewing public. The president softened his tone measurably from the week before, when he said he was figuring out "whose ass to kick." On Monday, he acknowledged that there are problems complicating the quick payment of damage claims to those affected by the spill -- a relatively muted complaint and one that other senior officials had already made publicly.

"There are still problems" with the claims process, Obama said after a briefing in Gulfport, Miss., with several governors, Coast Guard officials and others involved in the response. Flanked by Mississippi Gov. Haley Barbour (R) and Coast Guard Admiral Thad W. Allen, the incident commander, Obama said the discussion included how best to coordinate skimmers and other boats already on the gulf to prevent the slick from coming ashore.

"We also talked about claims so that people in Mississippi and throughout the region are adequately compensated for the damages done," Obama said.

The White House on Monday announced Obama's choices for the bipartisan commission tasked with issuing a report within six months about the spill and how to prevent and mitigate future oil spills.

The appointees would be National Resources Defense Council President Frances Beinecke; Donald Boesch, president of the University of Maryland Center for Environmental Science; Terry D. Garcia, executive vice president for the National Geographic Society overseeing programs in scientific field research, conservation and exploration; Cherry A. Murray, dean of the Harvard School of Engineering and Applied Sciences; and Fran Ulmer, chancellor of the University of Alaska at Anchorage.

The five will work with the co-chairmen, former senator Bob Graham (D-Fla.) and former Environmental Protection Agency administrator William K. Reilly.


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