The Impact Of BPs Spill on the Industry

abarrelfull wrote on 14 Sep 2010 10:37
Tags: bp contracts spill

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Last week BP released its long awaited report on the spill. I have been wondering what the long term impact of this accident will have on the sector, and this report strengthens my opinion that it may bring some very fundamental changes.

An Excerp:

The report – based on a four-month investigation led by Mark Bly, BP’s Head of Safety and Operations and conducted independently by a team of over 50 technical and other specialists drawn from inside BP and externally – found that:

The cement and shoe track barriers – and in particular the cement slurry that was used – at the bottom of the Macondo well failed to contain hydrocarbons within the reservoir, as they were designed to do, and allowed gas and liquids to flow up the production casing;
> The results of the negative pressure test were incorrectly accepted by BP and Transocean, although well integrity had not been established;
> Over a 40-minute period, the Transocean rig crew failed to recognise and act on the influx of hydrocarbons into the well until the hydrocarbons were in the riser and rapidly flowing to the surface;
> After the well-flow reached the rig it was routed to a mud-gas separator, causing gas to be vented directly on to the rig rather than being diverted overboard;
> The flow of gas into the engine rooms through the ventilation system created a potential for ignition which the rig’s fire and gas system did not prevent;
> Even after explosion and fire had disabled its crew-operated controls, the rig’s blow-out preventer on the sea-bed should have activated automatically to seal the well. But it failed to operate, probably because critical components were not working.

Note the implications of this:

Halliburton may have done substandard work
Transocean may have been negligent

Why is this important?

Service companies play a very major role in the sector, having specific areas of expertise and physical and human assets, that enable them to perform many tasks more efficiently than the oil companies themselves. However, they do not have the deep pockets of the likes of BP. A company such as Transocean could easily be bankrupted if they were found to be grossly negligent, leaving the ambulance chasers to target their customer, even if completely innocent (I am not making any claims or allegations here, just discussing a scenario).

So do BP, Exxon and their peers continue with the current market practise, but change the style of contracts, or does insourcing start to make more sense?

Add to this the fact that BP's partners in the field, are (understandably) not too keen on joining in the payments free for all. If only the operator is to bear responsibility, will they have to get a bigger share of the profits?

I am not sure how far this will all go, but its not just the vampire bats among the lawyers that are looking at an extra work load, the contract writers will be burning the midnight oil too.