The BBC: Inventing new oil companies since 2014.

I knew that this BBC article would be bollocks as soon as I saw the headline: Halliburton reports $622m profits. The first thing you see is this picture:

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With the caption: Halliburton was one of the contractors involved in the BP Gulf of Mexico oil spill in 2010″

And you know immediately that the point of this article is to say “evil, polluting American company makes enormous profits” and allow all the assorted lefties who think the BBC is a national treasure to nod smugly at this further proof that capitalists are raping the planet.

Naturally there is no mention in the article that the US Department of Justice closed its investigation into Halliburton’s role in the Macondo blowout over 18 months ago, imposing a fine of $200k for no more than the unauthorised deletion of a computer record.  Now personally I think this was a complete whitewash on the part of the US government protecting one of its own and dumping as much blame as possible on BP, but the BBC doesn’t say that either.  It just doesn’t mention anything, possibly in the hope that its readers will assume Halliburton continues to shoulder responsibility of some sort.

But the article doesn’t even get the basic facts straight:

US oil exploration firm Halliburton has reported better-than-expected first quarter profits, helped by robust drilling activity in Russia, Saudi Arabia and Angola.

Oil exploration firm?  Halliburton is an oilfield services provider, it does not carry out any exploration of its own, as a brief glance at its corporate website would tell you.  Secondly:

The world’s second-largest oil company said net income for the three months to the end of March was $622m (£370m).

God only knows where they got this from.  Aside from Halliburton not being an oil company, even if it were, with a market capitalisation of about $53bn it is an order of magnitude smaller than ExxonMobil ($436bn) or Chevron ($237bn). I’m not even sure it’s the world’s second largest anything, being as far as I know the world’s largest oilfield services provider.  But then this is the BBC, so who knows what they’re waffling on about?  Still, the narrative fits: polluting American oil company makes giant profits.

People are threatened with jail to pay for this shite.

Macondo Compensation Funds Defrauded

Of course, nobody could have seen this coming:

BP has sued a plaintiff’s lawyer active in the compensation process for the 2010 Macondo disaster, alleging that a $2.3 billion agreement aimed at helping seafood hands affected by the oil spill contained thousands of phony claims.

The UK supermajor has accused attorney Mikal Watts of inflating estimates of damages and inventing up to half of his 40,000 clients using fake social security numbers. BP made the claims in a civil lawsuit filed on Tuesday in district court.

Watts, who is also a major political donor to Democratic candidates, stepped down from the plaintiff’s steering committee and federal agents raided his San Antonio office earlier this year as part of a federal investigation, the San Antonio Express-News reported.

Watts has filed 648 claims for individual crew members, of which 40% listed Social Security numbers belonging to another living person, while 5% belonged to a dead person. About 13% were “dummy” numbers or incomplete.

Of the claims, only eight were deemed eligible and 17 still pending, according to BP.

I seem to remember remarking at the time of the spill that the Macondo compensation funds would be beset with fraud and unlikely to end up in the hands of those who need it.

And this amused, especially the last line:

BP has long claimed it is losing its shirt over some erroneous Deepwater Horizon spill claims, but now the UK supermajor says the lawyer handling pay-outs has been caught with his pants down.

A $173,000 claim for an “adult escort service” was not only submitted, but actually approved for payment by court-appointed lawyer Patrick Juneau, it was reported recently.

The embattled oil giant said the claim was made alongside unsigned and undated documents.

Juneau hit back, however, saying: “This claim satisfied those requirements agreed upon by BP and class counsel and was paid pursuant to the settlement agreement.”

One can only wonder what other requirements were satisfied once such a large wad of cash was handed over.

Did anyone honestly think this wouldn’t happen?

If only I’d been in charge!

We’ve all been in these meetings.  As a serious technical problem rears its head, somebody who has been involved all along pipes up with “I told you we should have done it like this!”.  And then when a solution has been found, another person – or possibly the same one – gaily announces “See, that’s what I’ve been saying all along!”

From reading the news coverage of the Macondo trial, I’m beginning to suspect Transocean are doing much the same thing:

THE Macondo oil well blowout in April 2010 could have been capped sooner if an initial plan that considered building a three-ram capping stack was followed, according to testimony this week in the BP civil liability trial in federal court in New Orleans.

Robert Turlak, an engineer with Transocean, testified that he worked with the well capping team assembled for the job shortly after Macondo blew.

Turlak said he is an engineer that assembles and tests blowout preventer stacks.

He said he consulted with the well capping team that was embedded in BP’s makeshift crisis office in the WestLake building complex in west Houston.

According to Turlak, a two-ram, then later a three-ram capping stack was discussed as one of the options for halting the well flow from Macondo.

Also among the early options was a BOP-on-BOP, which would run the BOP from either the ­vessel Development Driller II or Discoverer Enterprise on top of the lower marine riser package over the well.

I followed the Macondo incident closely as it was going on, and the possibility of putting a second BOP on top of the first was one of the most obvious solutions.  However, there was a slight problem as shown in the graphic below:

topkill_05-16-10_1750xvar_bp

You see that bent piece of riser tube sticking out the top of the BOP?  Well, that’s what was preventing another BOP being placed on the top of the first.  This was mind-bogglingly obvious to everyone right from the outset, and indeed BP did (unsuccessfully) attempt to cut through the top of the BOP using a wire saw in order to get rid of the damaged section.  I know this because I watched the attempt live on the BP feed, along with an awful lot of other interested people.  All of this was done in a very public, transparent manner with everyone chiming in with their two-cents’ worth on various forums and websites.

BP, which led the well capping team, decided instead on a top kill, junk shot and containment dome, all of which failed.

Indeed, but I don’t recall anybody with any knowledge claiming that these were the wrong things to do.  I don’t know much about drilling, but I understood from the commentary at the time that a top kill is the first thing you’d attempt in such circumstances.  There was some controversy over the junk shot IIRC, mainly because some thought it would not work in this instance (and it didn’t).

Turlak indicated that a spool piece would need to be fabricated to connect the capping stack to the well, but he suggested that if he had overseen the job it could have been “forged and flanged in two weeks”.

Hmmm.  Okay, but where would it have gone?  That bent riser tube is still sticking up out the top of the BOP.  The claim that “if I’d been in charge, everything would have gone brilliantly” is a common one in the oil and gas industry, but you generally don’t hear it made in a forum as public as the Macondo trial.  Unless I’m missing something here, this one doesn’t sound very convincing.

BP Men Facing Manslaughter Charges

A quick note before we begin: my comments here relate to the oil and gas industry in general, and are based on my personal experience and conversations with other people.  They do not reflect any particular country or company, least of all my own employer.  These opinions are not a specific critique of any individual person, project, or practice, and inevitably exceptions will number in the thousands.  Nor am I writing them out of frustration or anger.  They are merely frank observations of an imperfect industry which needs to improve, and I don’t think the industry will be well served if its participants deny its shortcomings, or are not able to engage in self-criticism.

This story is worth paying attention to:

The US Justice Department has unsealed federal grand jury indictments against three BP employees who will face criminal charges including manslaughter, violating the Clean Water Act and lying to Congress in connection with the 2010 Macondo disaster.

BP’s top two company men on the Deepwater Horizon rig, Robert M. Kaluza, 62, of Henderson, Nevada and Donald Vidrine, 65, of Lafayette, Louisiana, have been indicted on 23 counts, including involuntary manslaughter and violating the Clean Water Act, officials said at a press conference with Attorney General Eric Holder in New Orleans Thursday

….

Attorneys for the accused said their clients were innocent of the charges, saying it was misguided to dole out blame for a complex disaster on a few individuals.

“It is almost inconceivable that any fair-minded person would blame this hard working and diligent man for one of the most catastrophic events in the history of the oil business.” Vidrine’s lawyer, Bob Habans, said in a statement.

The indictment alleges the company men were “grossly negligent” by mishandling pressure test information and failing to call in help to prevent the blowout that killed 11 workers.

They face maximum possible sentences that could send them to prison for the rest of their lives: 10 years for each seaman’s manslaughter count, eight years on each involuntary manslaughter count and up to a year in the Clean Water Act count.

Among other things, the workers failed to call engineers onshore when tests indicated the well could be insecure, did not account for abnormal readings during the testing and accepted a “nonsensical… bladder effect” explanation for the test results. This all paved the way for the withdrawal of the drilling fluid and cement casing breakdown that led to the blowout, the indictment said.

My first reaction is to feel somewhat sorry for two men who are now facing charges which could see them ending their days in jail for only doing their job.  I went into considerable detail in this post about the decisions which were made on board the Deepwater Horizon, and the pressures which oilfield workers face when making what are essentially judgement calls.

But one thing surprises me more than anything: the age of Robert Kaluza.  In my earlier post, I quoted another article:

[A] BP manager overseeing final well tests apparently had scant experience in deep-water drilling. He told investigators he was on the rig to “learn about deep water,” according to notes of an interview with him seen by the Journal.

A little after 5 p.m., to check the well’s integrity and whether gas was seeping in, rig workers did what is called a “negative pressure test.” It was supervised by a BP well-site leader, Robert Kaluza. His experience was largely in land drilling, and he told investigators he was on the rig to “learn about deep water,” according to Coast Guard notes of an interview with him. BP declined to comment on his experience.

At the time I assumed he was some high-flying careerist with another 20 years to go.  But it turns out he was around 60 at the time of the accident.  So what the hell was he doing being sent to the Deepwater Horizon to “learn about deep water”?  You send guys of 25 and 30 to gain experience in new areas, preferably under the watchful eye of somebody much older who knows the ropes.  But you don’t send blokes in their 60s into unfamiliar situations for the learning experience.  This sounds like nonsense to me.  I can only speculate as to why he was given this assignment, and that is exactly what I will do now: I expect BP had nobody else around to do the job, so just threw in anyone they could find.  And if you don’t believe this is common practice in the global oil industry, then you’ve not worked in it.  I’ll be keeping a close eye on the court proceedings to see if the reason for his assignment to the Deepwater Horizon is addressed, because there is a good chance his inexperience – and any difficulty BP had in filling the position or reluctance to take the job on his part – will be key to his defence.

And as I predicted in my earlier post, the senior BP company man on the rig is getting clobbered.  As I said at the time:

So, my point is that many of the decisions made in oil and gas are judgement calls, and those who have to make them are expected to shoulder a degree of risk and responsibility.  For this reason they are handsomely rewarded, which is why it is so frustrating when you encounter somebody who won’t make a decision but is happy enough to draw the salary for doing so.  Mr Vidrine would have been perfectly aware of the personal responsibility he was taking on himself in making the decision, and he will have to explain to the investigators the process by which he made his judgement.  If he can convince the investigators that his judgement process was sound and each competing factor was adequately assessed he stands to come out of this all right.  Not exactly smelling of roses, but all right.

Which under the circumstances based on the evidence presented in the article, is going to be a pretty tall order.

This is pure speculation on my part, but we might find that several similar warning flags had been raised in times previously and safely ignored.  One of the many dangers in the oil and gas business is doing something wrong several times without consequence, and eventually so many times you get used to doing it that way.  And then one day it catches you out.  Maybe we’ll learn that Mr Vidrine had made similar judgement calls previously that paid off, saved the project a few million each time, and earned him a hearty slap on the back and a Leatherman from his bosses?  If so, it’s going to be hard to put the entire blame on him personally.

What will be key to Mr Vidrine’s defence is the degree to which his actions were his alone, and the degree to which they can be credibly argued as representing the explicit and implicit wishes of BP’s management.  I find it highly unlikely that Mr Vidrine was a rogue operator who willingly and knowingly acted against the wishes of BP’s management.  I think it far more likely that he acted in a manner which he thought was in accordance with the wishes of BP’s management, but now finds himself in the dock trying to prove it whilst – probably – that same management furiously denies ever having expressed such wishes.

Which brings us to an interesting conundrum which many oil industry workers face.  As a manager, engineer, or even a lowly worker in the oil and gas business, you have not only a right but a duty to ensure the work you are involved in is safe.  In most western companies, all employees are empowered to intervene in any situation they feel is unsafe and stop the proceedings.  Every employee is expected to only partake in work which has been properly assessed and judged by competent persons to be safe, and to refuse to do so otherwise.

At least, that’s the theory.  Unfortunately, the practice often looks quite different.  Enormous pressure is put on employees to complete “urgent” works on time, with the heavy implication that achieving this goal is more important than safety or quality.  Of course, this is never explicitly said nor written down, but the implication and the pressure is very real.  Cultural aspects come into play a lot, especially with workers from hierarchical societies in Asia and Africa where the “boss is always right”.  Despite the soothing words from management in the weekly safety bulletins, there exists a genuine fear of reprimand, poor performance ratings, or dismissal if a worker defies management instructions on safety or quality grounds.  Nobody wants to be the guy who holds up the job and costs the operation a million quid because he wanted to double check that something wasn’t going to go horribly wrong.

The main reason for this is that by virtue of the incredible value of what is produced, even a small delay results in millions of dollars of lost revenue.  A deep water drilling rig costs over $500k per day, and even that isn’t huge compared to lost production from delays in a well coming onstream.  Even a modestly producing well at 10k barrels per day represents $1.2m at recent prices.  You delay something by only a few hours and the lost production and the rig costs are already well over $1m.  When you’re talking about large integrated projects producing 100k+ barrels per day, any slippage in your “first oil” date is going to be hitting you in the pocket to the tune of $12m+ per day.  Little wonder those offshore are put under pressure by the management on the beach, who have partners and investors to satisfy.

So going back to Mr Vidrine’s predicament, if he can demonstrate that safety at BP was often subordinate to production as practiced and endorsed – even if not officially – by management, then we might find he is not the last BP boss to be hauled into court.  However, even if this is the case, it is unlikely to save him – as the company man on the rig, he is expected to make the right decisions, in defiance of his superiors if need be.  Now if he made a judgement call to the best of his knowledge which turned out to be wrong, then he really is an unfortunate soul.  But chances are, he knew he was running a risk and is now wishing to hell that he had the balls to go along with the advice of his contractors even if it meant incurring the wrath of the management over cost and schedule overruns.  Unfortunately, with careers made or broken on such decisions, and it being awfully difficult to point to people who would otherwise be corpses in defence of your actions, such courage is rare among oil company employees.

So what should be done?  In my opinion, there needs to be a corporate culture instilled across the industry whereby safety and quality really is placed above production – in practice, not just in words.  Anybody who has worked in the oil industry will tell you umpteen examples of a corporate or managerial directive telling you safety is the top priority, and before the day is out another set of (usually verbal) decisions are made which demonstrate that actually, safety is not the first priority after all (and sometimes not even the second or third).  Management directives need to be consistent with subsequent managerial decisions, and top management need to demonstrate that safety really is top priority by – if necessary to reduce the risk of an accident – losing production.  Executives of oil companies need to remind their investors that unforgiving, hell-for-leather financial performance expectations can lead to catastrophic incidents like Macondo which came close to eliminating the entire company, and remind them again that such behaviour is not what they bought into when choosing to invest in a responsible oil company.

Management should also drive a culture whereby employees have the courage to speak up and challenge their superiors on matters of safety and quality without being dismissed out of hand or belittled.  Employees should be made to understand that they are not obliged to endorse, approve, sign, or authorise anything unless they are fully satisfied that it represents a minimised residual risk and sound industry practices, and management should put in place procedures and systems to ensure they are never asked to do so in the first place.

But mainly, the major step which needs to take place is an industry-wide reconciliation of “safety” and “production”.  By repeating over and over the “safety first” mantra, the subject has become to a large extent divorced from the actual purpose of the company, i.e. hydrocarbon production.  The prevailing culture therefore is often one by which “safety” is addressed first with posters, meetings, and statistics and once that’s out of the way and the box ticked, everyone can get down to the more serious business of “production”.  In my opinion, this is the wrong approach as it reduces safety to a series of exercises which are too often removed from the context of production.  Safety should consider production activities as much as production should consider safety.  One cannot be considered independently of the other.  I would much rather see oil companies move their priority to one of “safe production”, which would go a long way to clarifying what the company stands for and minimise the instances in which safety and production conflict with one another.

“Safe production”.  You heard it here first.

(And for my part, I pinched it from a colleague.)

Macondo: In Praise of BP’s Response

This should come as no surprise to anyone who has been paying attention:

Mississippi Governor Haley Barbour disagreed with a report by US House Republicans that said letting BP lead recovery efforts for the Macondo spill was “outright offensive” to Gulf Coast residents.

Barbour, a Republican, told the House Oversight and Government Reform Committee today that BP was sometimes more responsive than the federal government to requests from state officials after the April 2010 spill, Bloomberg reported.

“In fairness, to BP, to us, everything we asked them to do, they considered, and almost every time they did it,” Barbour said.

The report also cited “wide-spread concerns” about mismanagement of a $20 billion compensation fund set up by BP that create “unnecessary confusion among potential claimants in the Gulf States”.

The claims facility, overseen by Washington lawyer Kenneth Feinberg, has paid more than $4.3 billion in emergency and final payments to spill victims.

Barbour said he’s received few complaints.

“I think they are trying to do a good job,” Barbour said. Applying for compensation through the fund is “sure better than to litigate this”, he said.

There are few who would argue that BP didn’t f*ck up badly on the Macondo well, but that part of their performance was pretty much limited to the period before the Deepwater Horizon sunk.  After that, BP swung into action with money, people, and resources on a scale never seen before.  By any standards, let alone those of the industry, the response was impressive and the delay in capping the well was down to the technological complexity of the task, not BP’s response.  True, they didn’t manage the PR campaign too well, but they were never going to win that battle despite throwing compensation money around right from the outset.  My opinion is that it is better to tackle the actual problem and lose the PR campaign than the other way around, and there are few (and I mean very few) other companies who could have responded to the spill in such a manner.  Had the government been given the task, we’d probably still be bogged down in pay negotiations with unions and the EPA would be holding seminars on how high to build sand berms.  In many ways, the US is lucky that the spill happened on a BP well (with the added bonus of the company being British); had this happened to almost anyone else, they’d have filed for bankrupcy or fled the US minutes after the Deepwater Horizon touched bottom.  Expect the BP response to be used as a case study in the years to come, possibly even becoming an industry benchmark.

More Neck than a Giraffe

Little wonder oil companies can appear aloof to the concerns of citizens when presented with rubbish like this:

An investigation by a US civil rights group into the effects of the Macondo oil spill has found increased levels of mental health problems among Gulf Coast residents.

The National Association for the Advancement of Colored People (NAACP) probe also found that reports of domestic violence in communities near the Gulf have more than doubled since the spill.

The oil spill has caused men in Louisiana to kick the shit out of their wives twice as often?  Seriously?  This from people who want to advance the cause of coloured people.  I’m not sure why they think this can be achieved by painting them as violent lunatics who respond to an oil spill by thrashing their wives and children with increased ferocity, but their solution is clear enough: 

In its report, the NAACP urges BP to provide financial support for physical and mental health services in the region and for community-based organisations that help families affected by the oil spill.

Of course.  Give us a load of money or the Gulf coast’s women will get a right-hander for burning the gumbo.

This would embarrass a Nigerian traffic cop.

Dudley Should Go

BP have their AGM today. As Upstream Online reports:

One BP shareholder questioned whether [CEO Robert] Dudley was the right man to lead the company through its current travails in Russia, claiming he was “tarnished by the TNK-BP involvement” and was effectively “a refugee from Russia”.

His question is valid, although I disagree with the reasons for his asking it.  As Dudley said, and the article covers, this isn’t personal.  However, BP are blundering about in a place where doing business requires having your wits about you, and Dudley seems to have been taken completely surprise by this turn of events and without a clue as to where to go from here.

There appear to be three possibilities for what’s happened:

1.  Dudley was not aware that BP should have discussed the Rosneft deal with their TNK-BP partners, the consortia AAR, in which case he is hopelessly ill-informed bordering on incompetent.

2:  BP deliberately bypassed AAR assuming they would not object to the deal with Rosneft, which would make Dudley hopelessly ill-informed bordering on incompetent.

3.  BP deliberately bypassed AAR assuming Rosneft or Kremlin heavies would lean on AAR to drop any objections.  This would make Dudley complicit in unethical behaviour which not only undermines the standing of his own company (kind of hard to complain about rough treatment in future, eh?), but also compromises the whole industry.  Western companies are supposed to come to Russia to set and example and show everyone how it’s done, not engage in thuggery.

I suspect that No. 3 is the more likely, BP having in my opinion approached the deal from a position of desperation.  But if any of the above are true, then Dudley is not fit for the job and needs to go.

Let’s remind ourselves that his predecessor, the hapless Tony Hayward, was sacked for not being media savvy enough during the Macondo well blowout, even though he probably had the qualities and skills to run the company under normal circumstances.  If Hayward was not merely a scapegoat and the BP board genuinely thought he was not fit for the job and was doing the company harm, what on earth must they make of Dudley?

The Macondo well blowout cost BP somewhere in the region of $30bn.  I wonder how much this latest episode is going to cost them in the long run?

Pull The Other One

This is also amusing:

BP chief executive Robert Dudley has reportedly suggested safety lessons learned from the Macondo spill in the Gulf of Mexico may strengthen the company’s hand in securing further oil deals around the world.

“In an unexpected way… what we have learned has attracted governments around the world who say we have learned more about this (oil spills) than we intended,” the BP boss was quoted as saying.

Aye.  And I’m sure ING purchased Barings Bank because it wanted to capture its corporate experience in presiding over one of the most spectacular financial collapses in history.

Now I can appreciate Mr Dudley is trying to put a positive spin on anything he can, but I thought they sacked Tony Hayward for speaking as if his audience was made up of complete idiots?

UPDATE

Actually, now I think about it, I’d imagine that one of the most attractive aspects of BP is that they were willing and able to transfer $30bn of hard cash into a government account when they had no legal obligation to do so.  There must be governments around the world licking their chops at the thought of having BP close to hand.