IHS Global Insight Perspective | |
Significance | Initial findings of an internal BP investigation into the Macondo accident in the U.S. Gulf of Mexico point to an interplay of failures caused by human, engineering design, mechanical, operational, and team co-operation shortcomings. |
Implications | BP's investigation is a proactive step to tell its story first and allocate responsibility across the board of involved corporations, while a number of U.S. regulatory investigations are still pending and expected to shed further light on the causes of the incident. |
Outlook | BP's report represents a starting point for the clarification of responsibilities in the Macondo incident that caused an oil spill of national significance, final conclusions on which will determine the extent of any criminal and civil charges against BP, its partners and contractors. |
Findings of BP Report
BP yesterday released the findings of an internal investigation into the causes and chain of events that caused an explosion and fire on the BP-operated Macondo well in the U.S. Gulf of Mexico (GOM), which resulted in an oil spill of national significance (see World: 4 August 2010: In Deep Water: The Macondo Oil Spill and Its Aftermath). The findings indicate that "a complex and interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces came together to allow the initiation and escalation of the accident". (To see BP's Deepwater Horizon Accident Investigation Report click here.)
While BP acknowledges that well integrity testing conducted by its own team of engineers did throw up warnings that were not interpreted correctly and led to the escalation of events, the Macondo investigation report also holds contractors Halliburton and Transocean accountable for parts of the accident. Investigators said that the quality of the cement mix used by Halliburton to seal the well might have been sub-par, resulting in hydrocarbons escaping through the cement layer into the shoe track. Moreover, BP's report found that Transocean's rig crew did not notice a hydrocarbon influx for 40 minutes and failed to act to control the well before rising fluids reached the blow-out preventer (BOP). The failure to divert hydrocarbons overboard resulted in gases reaching the engine room, where they ignited. In turn, the emergency disconnect sequence, consisting of three different safety mechanisms, was not set off. Notably, the rig's fire and gas system failed to prevent ignition and the rig crew could no longer operate controls, while the Macondo BOP failed to seal the well automatically, supposedly because critical components were not working properly. Challenging criticism of BP's choice of well design, which has been raised as a potential contributing factor in Congressional inquiries into the incident, BP's outgoing CEO Tony Hayward said that "based on the report, it would appear unlikely that the well design contributed to the incident, as the investigation found that the hydrocarbons flowed up the production casing through the bottom of the well".
The investigation, which was launched a day after the incident on 21 April, was led by Mark Bly, BP's head of safety and operations, and involved 50 internal and external experts. BP considered several sources of data, including real-time data from the rig, engineering documents, and testimony from witness interviews and Congressional hearings, as well as information from Transocean and Halliburton—where available. Transocean and Halliburton meanwhile firmly dismissed the report as incorrect, incomplete, and an attempt to divert attention away from BP's alleged flawed well design. BP's contractors rather see the domino effect of failures in several cost-cutting decisions BP allegedly made and which compromised the safety of the well.
As investigators identified a pattern of shortcomings in testing and maintenance management for critical procedures and equipment aboard the Deepwater Horizon, the team led by Bly has made 25 recommendations to avoid similar events in the future. These include technical aspects for cement and well integrity testing, emergency systems, and maintenance procedures, as well as auditing and contractor oversight processes to ensure effective communication between different teams involved in offshore drilling activities. BP said it accepted the suggestions in an effort to prevent any recurrence of similar problems and that the guidelines developed by the investigation team would be relevant for the wider oil and gas industry.
Other Investigations Under Way
Information available to BP's investigative team was limited: Halliburton has not yet released samples of the cement used to seal the well for further testing; and the Deepwater Horizon rig's BOP has been taken to a National Aeronautics and Space Administration (NASA) site in Louisiana for examination, after recovery of the failed device from the sea-bed earlier this week. BP expects further information to be forthcoming as several ongoing government investigations proceed, but the first report on the Macondo accident still sets the stage for further revelations. If not an independent judicial inquiry, the internal document will take some of the wind out of the sails of potential findings from several ongoing investigations led by U.S. government agencies.
Those investigations include studies of the causes of the Macondo explosion by the U.S. Coast Guard (USCG) and Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE, 22 April), the bipartisan National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling that President Barack Obama launched on 22 May, and an investigation into the incident launched by Attorney General Eric Holder, who is currently conducting hearings in the context of criminal and civil proceedings. The U.S. House Committee on Energy and Commerce is also conducting hearings (notably interrogating BP's CEO Tony Hayward in June), but these have not yet culminated in a report.
Individual agencies are examining the incident from different perspectives. While the USCG, BOEMRE, and the National Commission set up by the president are investigating the root causes of the Macondo incident in order to draft adequate regulation that will prevent future incidents, Holder and the Department of Justice are more interested in determining what, if any, charges are brought against BP and/or others, under relevant legislation that includes the U.S. Oil Pollution Act of 1990 (OPA), Outer Continental Shelf Lands Act of 1953 (OCSLA), and the Clean Water Act of 1972 (CWA). Under the respective legislation, potential proof of "gross negligence" could make a significant difference to the fines and penalties resulting from the Macondo incident and its eventual cost. BP has already reported clean-up and other costs of US$8 billion to date, with US$470 million paid to individual claimants. Legal proceedings are expected to add a significant amount to the overall costs from the incident, although BP is trying to settle many individual and corporate claims outside of the U.S. courts.
The U.S. Environmental Protection Agency (EPA) is not currently conducting a separate investigation, but is awaiting results from the involved government agencies to determine potential sanctions against BP. Nevertheless, far-reaching penalties have to be weighed carefully as, among other things, they would considerably affect the U.S. military's main supply source of jet fuel last year, according to the Department of Defense. With ongoing missions in Iraq and Afghanistan, finding another supplier of BP's calibre readily available to sign major long-term contracts would not be easy. In addition, constraining BP's ability to earn revenues would be counter-productive if its liabilities rise. Full BP debarment from the GOM or other U.S. offshore areas is therefore unlikely.
Outlook and Implications
Although arguably partisan, BP's initial investigation does have some value for legislators and other players in offshore oil and gas exploration and production, who are aiming to prevent future incidents by being the first to complete a fairly comprehensive investigation into the accident. Legislators and regulators will certainly turn to BP's explanation to determine which areas of offshore drilling regulation to focus on and improve as they work to put new rules in place for offshore drilling ahead of the lifting of the drilling moratorium, which is due to run until the end of November 2010. At the same time, the report provides other oil and gas exploration companies with a reality check on their own operations and a checklist for maintenance and testing updates and improvements as well as general health and safety standards.
While BP's internal report sheds light on the chain of events causing the explosion of the company's Macondo well, it is just the tip of the iceberg as the internal investigation was expressly not conducted against legal standards. With a wide range of governmental investigations under way and more detailed technical information related to the cementing of the well and the BOP not yet available, BP's findings are preliminary only in nature with regard to determining the company's liabilities under applicable U.S. law. While BP's investigation attempts to allocate accountability evenly among the involved companies, it remains unclear to what extent BP's drilling-service partners in the Macondo venture, Transocean and Halliburton, will be found responsible for the failure of the well's safety and emergency regimes. In its report BP acknowledges that full understanding of the incident will only emerge with time as more information becomes available. Other investigations may well differ substantially in their assessments. The proliferation of findings will not only take significant time to work through and evaluate, but also potentially give rise to major legal deadlocks if details diverge significantly, potentially protracting the legal follow-on from this incident.