Backlash begins as BP attempts to spread blame for rig explosion

Contractors lash out at 'self-serving' and 'inaccurate' report on causes of oil spill

By Stephen Foley
Sunday 23 October 2011 06:38

BP set the scene for a vicious multibillion-dollar legal showdown with its contractors in the doomed Deepwater Horizon oil rig, pinning them with much of the blame for the explosion which led to the largest oil spill in living memory.

In its internal report on the disaster, BP said employees of the rig operator, Transocean, missed warning signs a full 40 minutes before the explosion on 20 April, and it identified flaws in the technology deployed by another contractor, Halliburton. The design of the well, for which BP was itself responsible, was not a major factor, the report concluded.

Immediately after the publication of the report yesterday, BP was pitched into a war of words with Transocean, which accused the British oil giant of producing a "self-serving" report designed to conceal BP's own failings.

Billions of dollars rest on whether BP is found to have been grossly negligent, because if so, it will have to take sole responsibility for the costs of compensation to the families of 11 workers who died, federal fines, and the massive clean-up along the Gulf of Mexico coast. If the version of events set out in the report is endorsed by regulators and the courts, BP could claw back some of the costs from its contractors.

BP has so far spent $8bn (£5.2bn) to staunch the gushing well, from which oil flowed freely into the Gulf for three months, and to clean up the Gulf coast. It has promised to put $20bn into a compensation fund to cover economic damage done across the region.

"We have said from the beginning that the explosion on the Deepwater Horizon was a shared responsibility among many entities," said Bob Dudley, BP's incoming chief executive. "This report makes that conclusion even clearer, presenting a detailed analysis of the facts and recommendations for improvement both for BP and the other parties involved."

The 193-page report was commissioned by Tony Hayward, the outgoing BP chief executive, in the days after the Deepwater Horizon rig sank. It was written by the company's safety chief Mark Bly, with a team of 50 engineers.

It found no single cause of the disaster, but eight contributing factors. Cement provided by Halliburton failed to contain hydrocarbons at the bottom of the well; BP and Transocean employees on the rig misinterpreted the results of pressure tests that could have given them earlier warning that something was wrong; escaping gas was not directed overboard, as it could have been; and the blow-out preventer, which was supposed to automatically activate to shut the well after an accident, failed.

BP's insistence on designing the well with only six "centralisers" – devices used to keep cement even when it is being poured into the well – instead of the 21 suggested by Halliburton was an "incorrect decision", said Mr Bly, but it did not contribute to the disaster, because oil and gas escaped in another way.

"This report is not BP's mea culpa," said Edward Markey, a member of a congressional panel investigating the spill. "Of their own eight key findings, they only explicitly take responsibility for half of one. BP is happy to slice up blame, as long as they get the smallest piece." Robert Gordon, an attorney representing more than 1,000 businesses affected by the spill, said: "BP blaming others for the Gulf oil disaster is like Bernie Madoff blaming his accountant."

BP admitted that the Bly report is far from being the final word on the disaster. It received only limited cooperation from its contractors, and the blow-out preventer was only raised from the sea last week and is yet to be properly examined for clues as to why it failed.

And contractors were quick to reject BP's conclusions. Transocean said: "This is a self-serving report that attempts to conceal the critical factor that set the stage for the incident: BP's fatally flawed well design. In both its design and construction, BP made a series of cost-saving decisions that increased risk – in some cases, severely." Halliburton said the report contained "substantial omissions and inaccuracies"; that it remains confident work on the well was done to BP's specifications and that it is fully indemnified for any allegations in the report. Transocean also says it has indemnification from BP, but the credit rating agency Standard & Poor's, advising investors that Transocean's debt looks increasingly risky, said it now expected BP to challenge that.

The blame game...

BP says:

* The investigation report provides critical new information on the causes of this terrible accident. It is evident that a series of complex events, rather than a single mistake or failure, led to the tragedy. Multiple parties, including BP, Halliburton and Transocean, were involved.

* Transocean's shut-in protocols did not fully address how to respond in high flow emergency situations after well control has been lost. Well control actions taken prior to the explosion suggest the rig crew was not sufficiently prepared to manage an escalating well control situation.

* [Halliburton] did not conduct comprehensive lab tests that could have identified potential problems with the cement... We believe that BP and Halliburton working together should have better identified and addressed the issues underlying the cement job.

The contractors say:

Transocean This is a self-serving report that attempts to conceal the critical factor that set the stage for the Macondo incident: BP's fatally flawed well design. In both its design and construction, BP made a series of cost-saving decisions that increased risk.

Halliburton As we continue to review BP's internal report published earlier today, we have noticed a number of substantial omissions and inaccuracies in the document. Halliburton remains confident that all the work it performed with respect to the Macondo well was completed in accordance with BP's specifications.

The critics say:

Representative Edward Markey This report is not BP's mea culpa. Of their own eight key findings, they only explicitly take responsibility for half of one. BP is happy to slice up blame, as long as they get the smallest piece.

Greenpeace This report is a sorry catalogue of the gaffes and failures behind the Deepwater Horizon disaster. And it's highly likely that a truly independent report would be even more damning for BP.

Q&A: So what does BP claim caused the Gulf oil spill?

What are the most important claims in the BP report?

In its simplest terms, the 192-page document, which was researched and compiled by at least 50 engineers, concludes that there was no single cause of the oil spill, but that a string of failures that were individually insignificant added up to disaster. As well as providing recommendations for avoiding a repeat disaster, it gives eight key explanations for the spill, ranging from the use of the wrong type of cement and unreliable pressure tests to the failure of the blowout preventer, and suggests that slow reactions and poor decision making also contributed. Crucially, while the report admits that some of the responsibility should be shouldered by BP, it also insists that contractors Halliburton and Transocean take some of the blame.

What are Halliburton and Transocean accused of?

Transocean, which owned the rig, is blamed for some of its workers' decisions after the initial blowout. Halliburton, the cementing contractor, is accused of designing a faulty cement seal that may have allowed natural gas to enter the well; this was one of the causes of the explosion.

What does the report leave out?

By focusing on errors that spread the blame to other companies, the report plays down the impact of decisions made by BP that some critics say were negligent. In particular, it says little about problems with well design that were highlighted earlier in the year by the US Congress. For instance, the authors say that the blowout was not the result of problems with the type of well casing; internal documents suggest that the casing used was chosen because it was cheaper than alternatives, despite being riskier. The report also rejects the idea that another contributing factor was BP's decision to use fewer of the "centraliser" devices that were supposed to keep the casing in the right place.

Why has BP produced the report?

The company's leadership will hope that the evidence it includes will help to defend it against the mounting lawsuits that it faces in relation to the spill. Specifically, the version of events it outlines implies that BP should not be deemed "grossly negligent" – a charge that could lead to vastly higher fines and compensation payments if it stuck.

Will it have the desired effect?

Government investigators are likely to take the BP report's conclusions with a pinch of salt, given the company's interest in its outcome. But executives may still believe that, as a public relations exercise, the document could be useful, shifting the blame away from BP and towards the other companies involved.

How have the markets reacted?

So far, none of the companies' share prices have suffered; all three sets of prices were up in early trading in New York yesterday.

Archie Bland

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