Black Gold is worse than Black Mold

[Pheidippides]

I heard an intreview on NPR this morning with Tony Hayward, the current BP CEO. The guy sounded like he hasn't slept in days, which is probably the case. I really have no sympathy for him since I'm sure he's well compensated for his troubles, but the interview sounded like BP was taking every measure they could to get this leak stopped.

The one thing I'm not fully understanding is why BP is being dragged through the mud and no one is talking about Transocean or Halliburton or even about the manufacturer of the blowout preventer. Transocean owned the rig that is now on the bottom of the sea floor. I think Halliburton was the one operating the rig and the drilling and I'm sure Transocean had people on the rig watching and helping with the drilling. BP is really just the company providing the financing for the operations yet they seem to be the ones the media is holding solely responsible for the spill. Granted they should be the leading figure responsible as they are the ones paying the bills, but the operators should be sharing in the blame as well.

Also, why is there no talk about the blowout preventer manufacturer? This is really the piece of equipment that failed, thus causing the massive blowout explosion and with it failing the well never fully closed, thus allowing oil to continue to leak.

I think there are a number of points here. I'm actually researching this for work as the spill impacts a number of things I'm doing.

First, the media has been confused as to who was doing what. There's a difference between who owns the oil and gas lease, who operates the lease, and who operates the platform. Each one of those roles carries with it different sorts of liability. I agree that Transocean is the one who should be getting most of the heat.

Failure of a blowout valve to trigger is unheard of. Everybody I know in the industry is in crazy shock about it. I don't know much about the design or manufacturer but it's not like blowouts have never happened before. Those valves are in place precisely for this kind of thing. The fact that there is an almost unthinkable (which really means inevitable, via Murphy's law) failure is compounded by the fact that this is a deepwater drilling rig. Deepwater drilling is a different beast than regular offshore drilling and I have heard several people say that BP was in over their head with this sort of drilling - although I'm not sure I buy that, since BP is a major player.

It is sort of wild that the Chernobyl of platform drilling happens weeks after Obama initiates an expansion of offshore drilling.

A nit: what Obama did was simply lift the moratorium on drilling in certain waters, which only allowed seismic exploration (drilling, etc. has to still run through gov't channels to be approved). Still, it's an ugly coincidence for him to be sure. And Chernobyl is right - if what I'm hearing from my contacts in the industry and the coast guard, this is going to be very, very ugly before things are said and done. We may be looking at 3 months or longer before the leak stops, and contamination of the eastern seaboard is a very real possibility.

[Pheidippides]

Follow-up: here's a better explanation of who was doing what (I did some looking up).

Transocean: owned the drilling rig and leased it to BP. As part of the lease of the rig, they also apparently provided personnel to operate it (which makes sense).

BP: owns the properties and is operator of record, it appears (and hence they are the liable party).

Halliburton: doing their typical oilfield services.

It's not clear who installed the defective valve, although I would guess it would have been Halliburton. Still not sure.

[Indy Coug]

Follow-up: here's a better explanation of who was doing what (I did some looking up).

Transocean: owned the drilling rig and leased it to BP. As part of the lease of the rig, they also apparently provided personnel to operate it (which makes sense).

BP: owns the properties and is operator of record, it appears (and hence they are the liable party).

Halliburton: doing their typical oilfield services.

It's not clear who installed the defective valve, although I would guess it would have been Halliburton. Still not sure.

That saved me asking the question. Thanks for the info.

[Pheidippides]

That saved me asking the question. Thanks for the info.

This stuff can get confusing to even to those of us who do it for a living. I'm afraid I'm of only limited help when it comes to the nuts-and-bolts of the drilling process. I know generally what goes on but it's outside of the scope of what I usually do, as I'm no engineer.

Another tidbit: it looks like this rig had been operated in other locations prior to this event. It is also one of a matched pair, and it was manufactured by Hyundai. None of that really means much, as this is all about the blowout (again, a common occurrence) and the fact that the valve did not trigger to stop the damage from the blowout (a not common occurrence). The fact that BP is blaming Transocean and not Halliburton tells me that Transocean probably was the party responsible for that valve - especially because Hailliburton is an easy target, what with the Dick Cheney link and all.

[Pheidippides]

And here's a wikipedia article on blowouts. This is good background reading for understanding the generals of what happened:

http://en.wikipedia.org/wiki/Blowout_(well_drilling)

[Moliere]

Follow-up: here's a better explanation of who was doing what (I did some looking up).

Transocean: owned the drilling rig and leased it to BP. As part of the lease of the rig, they also apparently provided personnel to operate it (which makes sense).

BP: owns the properties and is operator of record, it appears (and hence they are the liable party).

Halliburton: doing their typical oilfield services.

It's not clear who installed the defective valve, although I would guess it would have been Halliburton. Still not sure.

This seems to be how most of these things are structured. I'm somewhat shocked though that other companies didn't have a stake in this thing. It is very uncommon for a company to take on exploration and drilling in deepwater without sharing the cost/risk/reward with someone else. If BP was in this thing 100% then that sucks for them.

From what I know there are two safety mechanisms that failed. The blowout preventer obviously failed. Blowouts are common, but the preventer is in place to make sure it's not catastrophic and obviously this one was very bad. Also, the valve did not shut and still is not shutting. This valve is suppose to shut regardless of power or other issues. My guess (and it's just a guess) is that it's simply blocked by a rock or pipe or something else.

On another note, they are starting drilling for the relief well today. How incredible is it that they think they can drill a new well that will hit exactly where the old well was drilled? To do this on a land-based pad would be pretty cool, but add in 5,000 feet of water, rough ocean seas and the fact they have to hit a 7-inch wide hole and that is just incredible that we might have the technology to accomplish this feat.

[Pheidippides]

This seems to be how most of these things are structured. I'm somewhat shocked though that other companies didn't have a stake in this thing. It is very uncommon for a company to take on exploration and drilling in deepwater without sharing the cost/risk/reward with someone else. If BP was in this thing 100% then that sucks for them.

From what I know there are two safety mechanisms that failed. The blowout preventer obviously failed. Blowouts are common, but the preventer is in place to make sure it's not catastrophic and obviously this one was very bad. Also, the valve did not shut and still is not shutting. This valve is suppose to shut regardless of power or other issues. My guess (and it's just a guess) is that it's simply blocked by a rock or pipe or something else.

On another note, they are starting drilling for the relief well today. How incredible is it that they think they can drill a new well that will hit exactly where the old well was drilled? To do this on a land-based pad would be pretty cool, but add in 5,000 feet of water, rough ocean seas and the fact they have to hit a 7-inch wide hole and that is just incredible that we might have the technology to accomplish this feat.

I suspect that BP does not own the entire working interest in the property (probably a significant majority), but they are the operator of record (and that's where the liability comes from). Bonding requirements/liability are much greater for an operator than a WI owner from the gov't perspective.

Still, I do know of deals where people own the entire 100%. It happens, to be sure, but it's not always common.

[Pheidippides]

I suspect that BP does not own the entire working interest in the property (probably a significant majority), but they are the operator of record (and that's where the liability comes from). Bonding requirements/liability are much greater for an operator than a WI owner from the gov't perspective.

Still, I do know of deals where people own the entire 100%. It happens, to be sure, but it's not always common.

EDIT:

Looks like BP owns 65%, Anadarko owns 25%, and some company named Moex owns 10%. Cameron was the group that designed the blowout preventer.

[Moliere]

EDIT:

Looks like BP owns 65%, Anadarko owns 25%, and some company named Moex owns 10%. Cameron was the group that designed the blowout preventer.

Hopefully no one else is involved in this since I only have 10 fingers....well if you include thumbs. But BP, Anadarko, Cameron, Halliburton, Transocean....this is a list of the whos who in Houston.

So BP will do the clean up/repair and whatever else and turn and try and bill Anadarko and Moex. They will contest it since they will say BP was negligent in operating the platform. BP will also get sued by the shrimpers, the fisherman, environmental groups, the city of New Orleans and all other cities along the coast. They will be fined by the EPA and the MSS and any other governmental agency that can fine them. All this on top of the cost to do the clean up. This thing will keep lawyers tied up for decades

[Moliere]

Deepwater drilling is a different beast than regular offshore drilling and I have heard several people say that BP was in over their head with this sort of drilling - although I'm not sure I buy that, since BP is a major player.

BP should not have been in over their heads. They recently launched Thunderhorse, which was a huge production vessel in deep water. Granted Thunderhorse almost sank at one point but still they have deep water operations. I think they also do drilling in the north sea but maybe that isn't considered deep water.

BP is one of the three Megaplayers in oil along with Shell and Exxon. Those three are the big dogs and it also would surprise me if they were in over their heads.

[The_Tick]

On another note, they are starting drilling for the relief well today. How incredible is it that they think they can drill a new well that will hit exactly where the old well was drilled? To do this on a land-based pad would be pretty cool, but add in 5,000 feet of water, rough ocean seas and the fact they have to hit a 7-inch wide hole and that is just incredible that we might have the technology to accomplish this feat.

I work in the wrench turning side of the field...

You would be suprised what they can do with drilling.

When I first learned that you can drill sideways and tap a resevoir underneaths someones house from miles away...shocked.

[beefytee]

BP should not have been in over their heads. They recently launched Thunderhorse, which was a huge production vessel in deep water. Granted Thunderhorse almost sank at one point but still they have deep water operations. I think they also do drilling in the north sea but maybe that isn't considered deep water.

BP is one of the three Megaplayers in oil along with Shell and Exxon. Those three are the big dogs and it also would surprise me if they were in over their heads.

How are they over their heads?

Are the projects unmanageable? Are they too risky?

It seems these companies have the resources for either of those issues.

[Moliere]

How are they over their heads?

Are the projects unmanageable? Are they too risky?

It seems these companies have the resources for either of those issues.

That first sentence came out wrong. I meant to say that they were not getting into something that was over their heads. They have done this drilling before.

[Tim]

Hopefully no one else is involved in this since I only have 10 fingers....well if you include thumbs. But BP, Anadarko, Cameron, Halliburton, Transocean....this is a list of the whos who in Houston.

So BP will do the clean up/repair and whatever else and turn and try and bill Anadarko and Moex. They will contest it since they will say BP was negligent in operating the platform. BP will also get sued by the shrimpers, the fisherman, environmental groups, the city of New Orleans and all other cities along the coast. They will be fined by the EPA and the MSS and any other governmental agency that can fine them. All this on top of the cost to do the clean up. This thing will keep lawyers tied up for decades

I don't deal with the oil business, but I do deal with contracted vendors and service agreements. I can't imagine that BP wouldn't hold the valve manufacturer or contracting operator responsible for any loss it takes as a result of the failure of the valve. In the IT industry we contract out functions and use SLAs to govern those contracted functions. In this case BP, while responsible from a public perspective, will likely have an SLA (or whatever they call it in the oil biz) in place with whoever installs and maintains the valve, and they'll be able to divert all these costs to that contractor. That's part of why you use contractors in the first place: to allow specialists to focus on critical areas, and to mitigate financial losses as a result of service failure.

I would never sign a multi-million-dollar contract with a data center or third party vendor if they didn't offer an SLA that allowed me to hold them financially responsible for any losses I take a result of their service failure. Is it not the same way in the oil business? Sure, BP will pay the price, but they should be able to then turn around and bill the companies providing their operational services.

[Uncle Ted]

BP: owns the properties and is operator of record, it appears (and hence they are the liable party).

According to Rush Limbaugh, the 'environmentalist wackos' may be responsible as well. Why does anyone listen to this guy?