BP, the Deepwater Horizon spill and Executive Arrogance
The geyser of oil and less than cheery news on the Gulf oil spill continues unabated. The news updates of the day include:
Reports from a Congressional briefing that suggest, as many have speculated, that the mud was removed despite heavy gas output, a warning sign, with BP admitting its workers may have made a "fundamental mistake"
More discussion of BP's next line of attack, the "top kill" (Economic Populist has a good compilation of charts and related videos). Stories that suggest that BP could be liable for as much as $60 billion in fines (Reuters comes in at a mere $10 billion, hat tip Clusterstock)
But the one that got my attention was the exclusive interview of BP Chairman Carl-Henric Svanberg in the Financial Times, in which he remarked:
The US is a big and important market for BP, and BP is also a big and important company for the US, with its contribution to drilling and oil and gas production. So the position goes both ways.
This is not the first time something has gone wrong in this industry, but the industry has moved on.
Yves here. This is simply stunning. First, the BP chairman essentially puts his company on an equal footing as the United States, implying their relation is not merely reciprocal, but equal. BP doesn't even approach the importance of Microsoft in its heyday, a-not-very-tamed provider of a near monopoly service. And his posture "this is just one problem like others, no biggie" is an offense to common sense and decency.
Many readers have pointed to signs that BP's order of battle in combatting the leak is seeking to maximize recovery rather than minimize damage, again a sign of backwards priorities. The widely cited gold standard for crisis management, Johnson & Johnson's 1982 Tylenol tamperings, had the company immediately doing whatever it took, no matter how uneconomical it seemed, to protect the public. BP instead has been engaging in old school conduct: keep a wrap on information as long as possible, minimize outside input, and (presumably) contain costs.
What is worse is the complete lack of any apology or sign of remorse. Even if BP engaged in more or less the same conduct, it would be far more canny for its top officials to make great shows of empathy for all the people who are suffering as a result of the disaster, remind the public that they lost their own men too, and make great speeches about not resting until the leak is plugged, and then add the caveat" "but we have to proceed in a deliberate manner, rushing could make matters worse. We know this is frustrating, and we wish we could hurry the pace."
The inability to perceive the need to fake remorse shows how wildly out of touch many corporate leaders are with reality. Let's face it, they are surrounded by sycophants and image-burnishers, they get paid beyond the dreams of mere avarice whether they perform well or abjectly screw up. Unless one happens to be an exception that proves the rule like Jeff Skilling, the worst that might happen to them is a little ritual hazing by Congress for an hour or two and being the subject of the occasional unflattering news story. Real aristocrats, by contrast, at least recognized the importance of noblesse oblige, even if they didn't always live up to it.
And BP's outsized institutional ego is making mincemeat of Obama. It is clear that the Administration has NO Plan B if BP continues to get nowhere. And it has tolerated less than comprehensive disaster responses. Why hasn't BP been asked to do more to contain the oil spill? Given the magnitude of the outflow, even limited success would make a difference. Why hasn't the Navy been brought in? Trust me, if Al Qaeda had somehow gotten a missile cruise ship with a nuke or two into the Deepwater Horizon location, I'm sure all sorts of military hardware would be dispatched. If the leak turns out to be as bad an many fear, this disaster will be far worse than any readily imaginable terrorist incident, yet our response is sorely wanting.
Why is Team Obama treating BP as its only recourse? It should have contacted every major oil company to see if they had experts and equipment they could deploy. Or if that was dismissed as operationally too complex, why didn't the US consider the option reportedly used by the Russians, of sealing the leak with a nuclear weapon (presumably a missile)? The Administration's response seems extraordinarily passive, as if it is cowed. As Bloomberg reports:
"It's inexplicable," Louisiana native James Carville, a Democratic consultant who moved to New Orleans after Hurricane Katrina in 2005, said today in an interview. "Why do we still not know how much oil has been pumped out? Why did it take us over 30 days to get the pictures? Who's running this show?"…
The administration says it's taking a tough line toward BP and won't rest until the well is capped and the mess cleaned up.
Yves here. This is a hard line? It looks like rolling over and playing dead, with some grandstanding to try to hide that sorry fact. Back to the story:
Administration officials have emphasized both that they are pressing BP to perform and that they are depending on the company because only it has the equipment, expertise and legal responsibility to stop the leak and repair the damage.
Yves here. Last I checked, BP was far from the only major oil company that does deep water drilling. It does in theory have a situational advantage via this being their site but it is not unique. I wonder whether the "legal responsibility" part is being weighed far too heavily in this calculus. The US is already mounting a massive response effort (and is BP gonna be sent the bill for that?). While it may indeed be correct that ultimately there is not much in the way of better alternatives, Team Obama does not appear to have gone into high alert and made an exhaustive examination of its options. Moreover, it appears to have believed the initial BP BS, which that the leak was only 5000 barrels a days, which meant that even if the leak persisted a few months, the damage would be meaningful but not horrific. Now that it is clear that matters are much worse, the Administration appears unwilling or unable to switch gears, even as this leak increasingly looks like an environmental disaster:
The dependence on BP has raised the ire of Democrats such as Donna Brazile, a political consultant and commentator.
"The Obama administration is following BP's lead and not pressing them harder on contingency plans that should have already been in place," she said in an interview. "It's past time the Obama administration put all hands on deck in helping BP cut off the massive oil spill, contain what is gushing to our shoreline, clean up the mess and compensate those impacted immediately."…
Louisiana's Republican Governor Bobby Jindal, standing alongside Salazar and Napolitano yesterday in Louisiana, described the federal government's response as a "disjointed effort" providing "too little, too late to stop the oil from hitting our coast."
Andy Borowitz offers an appealing solution: "Experts Propose Plugging Oil Leak With BP Executives."
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29 comments
I thought this was a different oil spill I was reading about...so far away from the truth, utter rubbish yves, and Mr simmons should be cryogenically frozen ... he is a complete buffoon.
...oil floating 5000 feet below the surface of water ????? which school did this clown go to !
A very 'American' problem?
Although blame is presently being laid at the door of 'British' Petroleum by some, in the final reckoning 'human error' is often found to be a significant contributor to the cause of failures. It really shouldn't matter but I couldn't help but wonder how many of the 'key' people were American rather than British.
Flyingbull here. "Executive Arrogance"??? I wonder if Yves has written a similar piece on her former employer, Goldman Sach. fb
The internet has the unfortunate effect of allowing everyone to pop-up with the oddest views and find a ready audience. Stockopedia, it's all very well stimulating debate, but apparently actively promoting disinformation and wild guesswork does you no good at all.
While I'm not a huge fan of unfettered big business it's really inconceivable to me how BP would benefit in any way except to stop this leak asap. If they want to keep exploring and producing in the USA they'll have to pay their way and be seen to do so. Personally I think most big businesses have started to recognise that they have serious social and environmental responsibilities - very different to the disgraceful response by Exxon all those years ago.
Most of those people shouting about BP including Yves, no doubt drive cars, heat their houses with oil and gas, and fly in aeroplanes. Exactly what do these people want when the easy oil is running out - it smacks of a strange hysterical hypocrisy.
B.
Maybe we should have a new category, "Crackpot Corner" to which threads with a negative thumb count of say 10 are confined ??
Anyway, looks like the flow has stopped now "only" the small matter of the cement plug!
And perhaps a further "Crackpotissimo corner" for those who pass a count of 20?
Everyone is entitled to an opinion but this calls the writer's credentials and credibility into account or is heavily tainted with self-interest. Or both...
Unfortunately only one thumbs down is allowed, although I feel it deserves more.
Unfortunately it is still prominent on the Home page. Can't you "unapprove" it as an article?
Being seen to publish this sort of ill-informed ranting is NOT a good idea. Stockopedia needs to be more discerning as to the bloggers it wants to give publicity to.
And Yves never seems to reply to people who comment on her own blog, so I doubt that she would ever bother to say anything here.
db
Fangorn
I did say 'extreme' republican twaddle. i am thinking mostly of the comments re nuking the leak, which sounds more like the extreme right. Plus the general anti-obama stance based on his alleged weakness re BP, when IMO he has been spouting off all kinds of aggressive crap about BP. Hence my comment about extreme republicanism. I am well aware that most moderate Republicans and moderate Democrats are close enough to prevent a sheet of paper being slipped between them. I have no preference for either and have no ideas about whether Goldmans is or was predominantly democrat.
The word extreme is the key in my post and maybe you missed it.
I agree with these points in principle and I think that what makes the difference in this piece is that:
That's important. And if you want to have Stockopedia as a open platform for debate about companies, economics and investing then I think it would be reasonable for your contributors to expect to engage with the people who write 'lead' articles.
SW10
Ok, fair points. We have demoted it from the spotlight position on the Companies page. In terms of engagement, yes, that's something we are working on right now - a way for all contributors (if they want) to receive direct feedback on their posts / threads by email and ideally be able to reply / engage by email. This is unfortunately still some time away as there are complications, but it's tied in with some other plans we have on the email front which will be unveiled soon, so that should hopefully help things. Best, M
Crikey s'pedia - I just read this. I realise you probably get paid to publish this stuff but really c'mon. I think if you want any credibility to become the sort of site you aspire to you really have to watch what you allow to be posted especially when it has the sort of pseudo-authority that Yves.
I'm not going to point out what is clearly wrong with the original thread as there seems little point but anyone with some basic knowledge of what is going on in the GOM should be able to find qutie a few psedo-facts in there.
I think you have really let us down.
Hi loglorry, thanks for the feedback on this point. We'll certainly review our editorial decision in this case.
In principle, though, the fact that one strongly disagrees with a given perspective on an issue doesn't mean that this perspective shouldn't be aired and debated, does it? We see Stockopedia as a open platform for debate about companies, economics and investing. We'd frankly be very happy for someone from the Trotskyite Workers' Revolutionary Party to post on here, provided that they comply with the Forum Guidelines and takes the time to structure a coherent argument.
Still, we recognise the concerns expressed above on this particular piece, as we always want to maintain a high quality intellectual environment, and will review the decision to publish. I apologise if you feel let down.
Best, M
I agree with Murakami quite strongly. Everyone is entitled to post their views. Pointing out the mistakes and errors and the number of thumbs down is enough - no need to remove the post.
I have no idea what your politics is, Ms Smith, but this has all the hallmarks of typical extreme Republican twaddle in my opinion.
Why does it have to be Republican twaddle? Surely it could equally be Democratic twaddle, and given she was employed previously at Goldman Sachs it is highly likely she is a democrat in inclination - most of them from personal experience seem to be so! Which makes it all the more ironic that they're deep in the mire on the moral front!
I've reported the original post.
It contains serious and damaging misinformation, not least the utterly ludicrous claim that a nuclear weapon can be used to contain a subsea oil-well.
SW10
It seems that Matthew Simmons of "Twilight in the Desert" reknown has now weighed in to back up the nuclear explosion option. As reported by Bloomberg http://youtube.com/watch?v=4whiKQgnp4w
I'm sorry, whilst I'll happily admit Simmons is not my favourite oil indistry commentator, this has to be just about the daftest thing he has ever said. I'm not aware that he has ever had to get his hands dirty at a wellsite and what's more, the practicality of this hare-brained idea is next to zero.
Pravda and Gas-well fires
Drawing upon the Pravda-reported exploits of the Soviets in the sixties is hardly a way of justifying this action off the coast of the US in the 21st century. Moreover, the Soviets were using nukes to deal with gas well fires and not to stop blowouts.
Subsea explosions
Let's press ahead anyway, assuming anyone anywhere near authority was prepared to take the chance. Where is this weapon going to go? On the seabed? I don't think so - that's just going to make things worse in terms of ecosystem damage - not to mention the effects at surface. There's some YouTube footage here of such an explosion - though you may want to turn down the volume on your PC before playing it in a work environment!
OK, so perhaps the plan is to put it underground. It sure as hell isn't going in to the well that is currently spewing oil and gas, so another will have to be drilled nearby. That's easy enough to do, but a little thought shows that things are going to get complicated pretty quickly.
Where would you like this nuke set?
What depth will the nuke have to be set at? Presumably deep enough such that the explosion will have a limited or no effect on the seabed or water above. I mean, the last thing you'd want is direct communication between the reservoir and the seabed - otherwise we'd be into a whole new disaster and it really would Game Over.
So what diameter is the hole going to be to reach that depth? 7 inch perhaps. Whilst I may only know as much about nukes as the next layman, I do know quite a bit about putting stuff in wells. And here's the question: what diameter does a nuclear weapon have? It can be a pain in the neck getting a tool of 5 1/2" dimeter into a 7" well - and no-one would want to get a nuclear warhead irretrievably stuck in the wrong place.
Oh wait. That's not my job
And who's going to run this thing? BP, who know nothing about nukes? Or the military, who know nothing about reservoir engineering, geophysics and formation characteristics? It wouldn't be very good if your explosion created a whole maze of fissures, would it?
The whole idea is far-fetched and implausible. There are two releif wells being drilled right now, and it's only right that the focus of BP and the US authorities should be on the sensible and realistic solutions rather than attention-grabbing hysteria.
SW10
I know as much about this idea as Matt Simmons. After all, we bankers are experts on this sort of thing ;-)
A nanosecond of logical thought indicates that there would be serious risk - even if it was practical to put some form of adequate charge down the hole!
What they have at present is an uncontrolled situation that it extremely difficult to resolve. The idea of blowing up the area around the well would probably transform this into an uncontrolled situation that is completely impossible to resolve......and if the formation was allowed to leak through even more fissures then that would probably permanently pollute the Gulf.....well...for decades anyway!
It is a sign of the desperation and lack of public knowledge about the limited technical options that guff like this is getting any airtime at all!
ee
Heh heh. Next we'll be agreeing that your industry has done as much damage as mine ;-)
Thanks for highlighting my horrendous typos though - I've made the necessary corrections, sir...
SW10
The piece that opens this thread is utter twaddle. Its author deserves to be give the Yves Ho!
Now we start to get to the facts, rather than the nonsense of the article (just published):
If you cut through the political spin ("COULD be higher", "not entirely candid"), the truth appears to be that BP HAS been entirely candid in its best estimates of the flow rate, which is around 5,000bopd. BP has always said that the precise rate was difficut to estimate accurately, but the internal document shows the range BP's engineers put on it is from 1,063 to a MAXIMUM of 14,266bopd. BP is currently collecting around 2,000bopd of this using the RITT - which means we can now rule out the lower end of the range.
The figure of 50,000bopd which Canaccord based their median $20bn penalty figure on (let alone the 100,000bopd+ figure) is entirely fanciful.
Oh, and while I'm at it, this libel repeated in the article is ludicrous:
@ 2,000bopd = $160,000/day the value of the oil collected is utterly irrelevant next to the many millions of costs being incurred daily by BP in combatting the spill. Why on earth would the company wish to slow down the clear-up in order to maxiimise a cost recovery on that scale? It makes no sense whatsoever.
One of the extraordinary features of the coverage of this BP spill is the proliferation of absolute garbage that has resulted from the ignorance of journalists and politicians. Some reports have referred to "210,000 bopd", having overlooked the fact that a) the 210,000 figure is the gallons equivalent of 5,000 barrels and b) a good chunk of the flow has been gas.
More culpably, the figures referred to in the piece above (published by commentators who really ought to know better!) are simply beyond reasonable belief! Even the most prolific producing wells in the world (Super-K wells in Ghawar) only produce 40,000 bopd, according to Simmons (in TITD)......and we know that the well bore in the BP well is partially blocked, as well as the reservoir being much inferior.
Self-aggrandising tabloid trash!
I'd much rather S'pedia didn't give this person's blog any publicity. The last thing that anyone needs is yet more uninformed garbage!!
Can you provide any evidence for this outrageous claim, which appears libellous to me? Many of the "independent" figures that have been touted have been drawn up by rent-a-mouth "scientists" with no expertise in the field. Their figures do not stand up to scrunity - because a) they exceed the flow rates of pretty much any similar well, with a completely unobstructed bore - hardly likely from this incomplete & partially capped well; and b) cursory examination of the back-of-a-fag packet technique they used shows it to be deeply flawed. The $60bn figure you quote is similarly based on unrealistic estimates of the flow.
Suggest you read some of the more thoughtful insight from industry professionals that you'll find here on Stockopedia and, if you don't think that BP is busting a gut to get this problem solved - including using expertise from other oil industry majors, have a look at what they're actually doing and the many and varied contigency plans they have in place should their current tactics fail: http://bp.concerts.com/gom/kentwells_update24052010.htm
why didn't the US consider the option reportedly used by the Russians, of sealing the leak with a nuclear weapon (presumably a missile)? The Administration's response seems extraordinarily passive, as if it is cowed.
Way to go! Hey, I'm an ignorant blogger full of self importance but completely lacking in understanding so lets nuke the bastard! Thank god BP are in charge of dealing with this and not Yves.
Poor BP. It reminds me of La Fontaine's fox:
'Cet animal est tres mechant: quand on l'attaque, il se defend.'