BP Vs The US Criminal Justice System

14th Jun '10 by Andrew Butter

5 comments 3231 reads

The legal battle that will determine whether BP (LON:BP.) survives has only just begun. The result will hinge on whether someone or more than someone, employed directly or indirectly by BP in the drilling operation prior to the blow-out did something that was “negligent”, or “reckless”, or not done strictly in accordance with the approved safety procedures and the myriad of regulations mandated by this or that agency.That sounds like a replay of the credit crunch. Then there were laws, lots of laws and yet there was an unmitigated disaster.

In any case if Exxon's (NYSE:XON) Valdez experience is any guide, it could take a while…like twenty years. But that’s better than India, over there they only just handed down verdicts on the 1984 Bophal disaster, here’s a report from last week:

Seven former senior employees of Union Carbide’s Indian subsidiary were convicted today of “death by negligence” for their roles in the Bhopal gas tragedy which killed an estimated 15,000 people.

The way the maximum sentence was seven years in prison, and hardly any of the families of the victims ever received compensation. That was thanks to the local laws which mandated the nasty foreign company was forced to buy insurance from a local Indian company which was not obliged to re-insure, and which had a clever clause that meant they didn’t have to pay anyone until it could be proven that there had been no “crime”.

If no “criminal” negligence can be proven, then under the 1990 Oil Pollution Act the maximum that BP will be liable to pay for “economic damage” will be $75 million.

Of course that’s on top of the cost of the clean-up which BP is liable for under all circumstances; although it’s not abundantly clear what “clean” means, nor is there a precise guideline on when “clean” has to be achieved.

You can disperse oil using chemicals but that causes environmental damage and in any case all that does is create clouds of “dispersed” oil droplets under the surface, even though the surface of the water is sparkling “clean”. That’s what all those clouds of oil droplets below the surface that are drifting into the Gulf Stream are all about, BP was very smart they started spraying dispersants at the source, so the oild never reached the surface. That doesn’t mean it’s not…

Unlock with Email

Unlock with Google

Already have an account?
Login here

SW10Chap

14th Jun '10

Andrew,

There are some important elements about the industry to take into account here, not least the fact that pretty much all the operations on a rig are subcontracted out to specialist companies ad their employees.

When you say:

it’s pretty obvious that one solution if the BOP fails is to cut off the riser and place a cap. Why wasn’t that device, engineered properly (BP say they are coming up with a better model), on standby and in place?

It's really not obvious at all - assuming we don't have today's hindsight. Yes, wells blow. And it's scary. And they're controlled, whether in minutes, hours or days. BOPs fail very rarely which means that all of the rams have failed. And if they do then there should be plans for dealing with that eventuality.

Equally importantly, the failure of the cement job, the BOPs or anything else is not the real issue here. The real issue is that the rig was lost, and wthout that, a platform from which to deal with the problem was lost as well.

As I've written elsewhere, once gas is detected then things should begin shutting all over the place. Electrical systems and engines shut down, intrinsically-safe (which is to say explosion-proof) systems are all that are left running. Now, it is not beyond young, smart and misguided engineers to bypass these systems from time-to-time and so it is possible that the escaping gas encountered a spark as it entered a zone which should have shut down. If so, then the odds are thosands-to-one that the fault lies with Transocean or another subcontractor.

But evidence we've seen so far suggests that there was a problem arising from the engines. Again, these should have shut down and if this was the source of the spark then Transocean will have their backs very firmly back against the wall.

By talking about having caps on standby you are falling into the same 'safety trap' you appear to be criticizing. There were so many things that could - and should - have prevented the rig from being lost in the first place that the idea of having a cap to deal with a flowing BOP when no rig is present was simply inconceivable.

In short, in my view the whole thing turns on the explosion and its cause. It's inconceivable in my view that the explosion can be attributed to BP.

I'd like to write more, but much of this I've covered under another thread and my time is short. A couple of picky points though: 'Alpha Bravo' was of course 'Piper Alpha' and the 'Jacobs Law' is the 'Jones Law.'

SW10, who has worked on a floater during a blowout and is still here to bore people about it.

Andrew Butter

Thank you - and thanks for the editorial.

Apologies, my "fact checker" was unavailable...can't get good help these days.

According to the story pieced together by Alan Von Altendorf ( http://seekingalpha.com/author/alan-von-altendorf?source=search_general&s=alan-von-altendorf), indeed someone had shut down the safety mechanisms because gas got sucked into the generators, then they over-revved and blew up the electrical systems.

Apparently also all of the HSE team were having a big party celebrating how many boxes they had ticked, just at the time the rig blew.

Is it inconceivable that you a get a well out of control on the sea floor?

Err...no it is not - it happened before.

Is it inconceivable that you lose your rig?

Err...no it happened before.

Since you worked in the oilfields I guess you have come across the species of flat-worm called the HSE specialist, who busy themselves making sure that you reverse-park your car and hold onto the banisters when you go down the stairs, and then wander around getting in the way carrying clip-boards and ticking boxes with a "stern" look on their faces.

Evidently they missed a box - clearly imagining the worst-case and planning for that is not part of their core competence.

By the way, since you are so knowledgable, perhaps you can explain to me why a 36" air-lift wouldn't work.

The diving and marine services company I am involved with at the moment could deploy one of them within 36 hours of getting (a) permission to operate in US waters (b) a commitment to pay us the $4,000 a barrel that BP is going to be fined for releasing.

We offered to do it at risk.

We reckon we could suck up 30,000 barrels of oil a day directly from the source, and we wouldn't need a semi, just three to four DP2.

We wrote to BP three weeks ago (never received a reply - didn't expect one), perhaps they were worried about our fee structure?

Or perhaps it's because they blacklisted us for losing a diver a year ago after reading the IMCA report that we published - (nowhere near one of their operations).

Can''t have "unsafe" practices Old Chap!!!

Hi Andrew,

Thank you - and thanks for the editorial.

That may be tongue-in-cheek, and if so then it's justified. I apologize for the terseness of my reply which was written when I really should have been doing something else.

By the way, since you are so knowledgable, perhaps you can explain to me why a 36" air-lift wouldn't work.

I'm sorry - I don't know what a 36" air-lift is. Any expertise I claim to have is in E&P - but then, as I am an anonymous bulletin-board poster people are right to reserve some healthy scepticism.

could deploy one of them within 36 hours of getting (a) permission to operate in US waters

Is due to the Jones law thing? It really seems extraordinary to me that this kind of barrier is allowed to persist. I would have thought that BP could neatly bring this to a head by hiring all of this stuff and then have it turned back as it reaches US territorial waters. The PR win would be immense, if nothing else, but more importantly it would force the Administration's hand.

b) a commitment to pay us the $4,000 a barrel that BP is going to be fined for releasing.

We offered to do it at risk.

Why don't you offer a sliding scale whereby they pay less-per-barrel for the first xx thousand barrels and then increase it as you reach various milestones? That would demonstrate your confidence and reduce their risk up front whilst you're getting your act together.

We reckon we could suck up 30,000 barrels of oil a day directly from the source, and we wouldn't need a semi, just three to four DP2.

I don't thi nk they're using a semi for recovery, just for the relief wells. I'm not sure what you mean by DP2, are you referring to diving support vessels?! I'm intrigued; how would that work?

Can''t have "unsafe" practices Old Chap

Yeah, I've kinda regretted my handle since I first started using it, which why I always drop the 'Chap' element! However, the baggage remains and I manfully try to 'own' rather disown the thing...

:-)

Respectfully,

SW10

No worries - any frustration I have is dealing with HSE and red tape.

Actually I just submitted a proposal to the Coast Guard, after getting a silly form letter from BP (called their response desk too - got someone in Madras I think), so I wrote am e-mail to the Admiral.

Amazing the difference - actually got REAL people e-mailing me back - three times in the last hour.

davjo

Andrew

Perhaps if the Obama administration thought outside the box of gunboat diplomacy, they'd actually get an amicable result?

Just thinking aloud!!

BP vs the US Criminal Justice System

Unlock the rest of this article with a 14 day trial

About the Author

Andrew Butter

5 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...