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BP Relied on Cheaper Wells --- Analysis Shows Oil Giant Used 'Risky' Design More Often Than Most

Peers

By Russell Gold and Tom McGinty


1,310 words
19 June 2010
The Wall Street Journal
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(Copyright (c) 2010, Dow Jones & Company, Inc.)

In recent years, oil giant BP PLC used a well design that has been called "risky" by Congressional
investigators in more than one out of three of its deepwater wells in the Gulf of Mexico, significantly more
often than most peers, a Wall Street Journal analysis of federal data shows.

The design was used on the well that exploded in the Gulf of Mexico on April 20, killing 11 workers and
causing America's worst offshore oil spill. The only other major well design, which is more expensive,
includes more safeguards against a natural-gas blowout of the kind that destroyed the Deepwater Horizon.

A Journal analysis of records provided by the U.S. Minerals Management Service shows that BP used the
less costly design -- called "long string" -- on 35% of its deepwater wells since July 2003, the earliest date the
well-design data were available. Anadarko Petroleum Corp., a minority partner of BP's in the destroyed well,
used it on 42% of its deepwater Gulf wells, though it says it doesn't do so in wells of the type drilled by BP.

Both companies used the design much more often, on average, than other major Gulf drillers. Out of 218
deepwater wells in the Gulf drilled since July 2003, 26% used long-string design. It derives its name from its
use of a single, long "string" of pipe from the sea floor to the bottom of the well.

Other big drillers use long-string design less frequently than BP, according to the Journal's data analysis.
Royal Dutch Shell PLC used long string designs on 8% of its wells and Chevron Corp. on 15%. Australian
firm BHP Billiton PLC used long string on 4% of its wells.

The insight into BP's record comes amid fierce pressure on the oil giant and its partners, who share billions
in liability in the accident. Anadarko blasted BP Friday in a statement by Chief Executive Jim Hackett, who
said: "The mounting evidence clearly demonstrates that this tragedy was preventable and the direct result of
BP's reckless decisions and actions."

A long-string design is cheaper because a single pipe runs the length of the well and can be installed in one
step. But it also can create a dangerous pathway for natural gas to rise unchecked outside the pipe.

The alternative, known as liners, is seen as safer because it has more built-in places to prevent oil or gas
from flowing up the well uncontrolled. "There are more barriers, and the barriers are easier to test," says
Gene Beck, an engineer and professor at Texas A&M University.

A BP spokesman said long string is widely used and is a perfectly acceptable design, particularly in areas
where other wells have been drilled and the geology is well understood. "There is nothing inherently unsafe
about long strings," says BP spokesman Andrew Gowers. BP's chief executive, Tony Hayward, told a
congressional panel Thursday that "the long string is not an unusual design in the Gulf of Mexico, as I
understand it."

Long-string wells are made of a continuous length of steel, which makes the well sturdier over time -- a point
Mr. Hayward alluded to in his testimony, noting that the design decision had "to do with the long-term
integrity of the well." The Minerals Management Service signed off on BP's long-string plan for the Horizon
well, he added. "It was approved by the MMS," Mr. Hayward said.

Anadarko says it doesn't use long-string design for drilling exploration wells in unfamiliar areas. The
company also says it only uses long strings in lower-pressure wells. The well BP was drilling with the
Deepwater Horizon was an exploration well, and was well above normal pressure. As minority partner,
Anadarko says it didn't have a role in deciding the BP well's design.

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"It's not that long strings are unsafe, but they have to be under the right conditions," says Darrell Hollek,
Anadarko's vice president of gulf operations.

The other method, known as "liner tieback," is more complex and costlier. First, a section of pipe called a
liner is placed at the bottom of the well and cemented into place, creating an extra barrier to prevent natural
gas from rising to the surface. Typically, another pipe is connected to the liner to create a pipe to the surface.

Chevron's head of North American exploration and production, Gary Luquette, said Chevron typically avoids
long-string design because it offers fewer layers of protection. "You can make choices early on to cut costs,
slim down your project to make it economic today and have dire consequences down the road, or you can
build in that reliability and philosophy of dependability up front and save yourself a lot of headaches in the
future," Mr. Luquette said.

In an internal BP email released by a Congressional committee, a BP drilling engineer in Houston told


colleagues that the long-string design "saves a good deal of time and money."

A letter to BP's CEO, Mr. Hayward, by two Democratic Congressmen ahead of his testimony to their
committee on Thursday, said the choice of the long-string design for the Horizon well was one of five
decisions BP made that posed a trade-off between cost and well safety.

Drilling experts say the long-string design can be riskier than liner-tieback, particularly for high-pressure
wells. "It was a safe and accepted method, but it is not the most conservative method. The most
conservative would be to make sure there is not a straight shot [for gas] up to the surface, that you cement
everything in place," says Greg McCormack, director of the University of Texas at Austin Petroleum
Extension Service.

According to an internal BP well-planning document seen by the Journal, the company expected the well
being drilled by the Deepwater Horizon to be high-pressure at least as far back as January.

Well-control experts and congressional investigators agree that the well design, by itself, didn't doom the
Deepwater Horizon. The design created a pathway for gas to flow up the well, potentially pressuring
equipment near the floor of the Gulf. But the well would have been secure if the cement plug at the bottom of
the hole had held.

Congressional investigators Monday criticized BP for using a long string on that well. "The decision," says a
letter from Congressmen Henry Waxman (D., Calif.) and Bart Stupak (D., Mich.), "appears to have been
made to save time and reduce costs." Using a liner design would have cost an additional $7 million to $10
million, according to an internal BP estimate released by the congressmen.

The congressmen's letter noted that a long string creates only two barriers to prevent gas from flowing up
the well: cement at the bottom of the well, and a large seal where the well reaches the sea floor. The liner-
tieback design adds two more barriers: the cement around the liner and a mechanical seal that attaches the
liner to the pipes.

Marvin Odum, president of Shell's U.S. operations, said Shell doesn't use a long string for high-risk wells.
Shell said many of the times it used long strings in deepwater wells, either it hadn't encountered high
pressures in the well, or the well was in an area where Shell had drilled and was comfortable with the
conditions. "When it is a high-pressure, deepwater well, we only have one way of doing that way, and that is
with a liner tieback. Period," he says.

---

Ben Casselman contributed to this report.

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Unusual Decisions Set Stage for BP Disaster

By Ben Casselman and Russell Gold


2,902 words
27 May 2010
The Wall Street Journal
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English
(Copyright (c) 2010, Dow Jones & Company, Inc.)

It was a difficult drill from the start.

API Well No. 60-817-44169 threw up many challenges to its principal owner, BP PLC, swallowing expensive
drilling fluid and burping out dangerous gas. Those woes put the Gulf of Mexico project over budget and
behind schedule by April 20, the day the well erupted, destroying the Deepwater Horizon rig and killing 11
men.

Government investigators have yet to announce conclusions about what went wrong that day. The final step
in the causation chain, industry engineers have said in interviews, was most likely the failure of a crucial seal
at the top of the well or a cement plug at the bottom.

But neither scenario explains the whole story. A Wall Street Journal investigation provides the most
complete account so far of the fateful decisions that preceded the blast. BP made choices over the course of
the project that rendered this well more vulnerable to the blowout, which unleashed a spew of crude oil that
engineers are struggling to stanch.

BP, for instance, cut short a procedure involving drilling fluid that is designed to detect gas in the well and
remove it before it becomes a problem, according to documents belonging to BP and to the drilling rig's
owner and operator, Transocean Ltd.

BP also skipped a quality test of the cement around the pipe -- another buffer against gas -- despite what BP
now says were signs of problems with the cement job and despite a warning from cement contractor
Halliburton Co.

Once gas was rising, the design and procedures BP had chosen for the well likely gave this perilous gas an
easier path up and out, say well-control experts. There was little keeping the gas from rushing up to the
surface after workers, pushing to finish the job, removed a critical safeguard, the heavy drilling fluid known
as "mud." BP has admitted a possible "fundamental mistake" in concluding that it was safe to proceed with
mud removal, according to a memo from two Congressmen released Tuesday night.

Finally, a BP manager overseeing final well tests apparently had scant experience in deep-water drilling. He
told investigators he was on the rig to "learn about deep water," according to notes of an interview with him
seen by the Journal.

Some of these decisions were approved by the U.S. Interior Department's Minerals Management Service,
which has come under fire for what President Obama has called its "cozy relationship" with the oil industry.
But in at least one case, the decision made apparently diverged from a plan MMS approved. MMS declined
to comment.

Some of BP's choices allowed it to minimize costly delays. "We were behind schedule already," said Tyrone
Benton, a technician who operated underwater robots and worked for a subcontractor. He said that on the
day before the accident, a Monday, managers "hoped we'd be finished by that Friday . . . . But it seemed like
they were pushing to finish it before Friday."

He added: "They were doing too many jobs at one time." Mr. Benton is suing BP and Transocean claiming
physical injury and mental anguish.

BP acknowledges the well was running over budget but says it didn't cut corners. "Safe and reliable
operations remain a priority regardless of how much a well is behind schedule or over budget," spokesman
Andrew Gowers wrote in an email.

Some workers agree safety was paramount for both BP and Transocean. "Safety was their No. 1 concern.
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Protecting the environment was their No. 1 concern," said Darin Rupinski, a Transocean employee whose
job was to help keep the rig in place.

BP was drilling to tap an oil reservoir it had identified called Macondo, the same name as the cursed town in
Gabriel Garcia Marquez's novel "One Hundred Years of Solitude." As on many past projects, BP hired a
drilling rig from Transocean, the largest deep-water driller. Workers from Transocean and other contractors
did most of the work, under the supervision of BP employees on the rig and in Houston.

BP started working on the well in October, using a different rig. After three weeks natural gas got into the
well, called a "kick." That's not uncommon. But two weeks later a hurricane damaged the rig and it had to be
towed to port for repairs.

BP started again in January, this time with Transocean's Deepwater Horizon, a warhorse rig that had worked
for BP for years. BP filed a new drilling permit with federal regulators.

According to a company document seen by the Journal, BP approved spending $96.2 million and about 78
days on the well. The target time was much less -- about 51 days. By April 20, the well was in its 80th day,
owing to delays such as one that had begun on March 8.

That day, workers discovered that gas was seeping into the well, according to drilling reports from the rig
reviewed by the Journal. Workers lowered a measuring device to determine what was happening, but when
they tried to pull it back up, it wouldn't budge. Engineers eventually told them to plug the last 2,000 feet of
the then-13,000-foot hole with cement and continue the well by drilling off in a different direction.

The episode took days to resolve, according to drilling reports, not counting backtracking and re-drilling.
Each extra l day cost BP about $1 million in rig lease and contractor fees.

Other problems arose. The rock was so brittle drilling mud cracked it open and escaped. One person familiar
with the matter estimates BP lost at least $15 million worth of the fluid.

Still, by mid-April, the well seemed a qualified success. BP was convinced it had found a lot of oil. Until
engineers in Houston could make plans to start pumping it out, the workers on the nearly complete well, in a
standard practice, would plug it and temporarily abandon it.

One of the final tasks was to cement in place the steel pipe that ran into the oil reservoir. The cement would
fill the space between the outside of the pipe and the rock, preventing any gas from flowing up the sides.

Halliburton, the cementing contractor, advised BP to install numerous devices to make sure the pipe was
centered in the well before pumping cement, according to Halliburton documents, provided to congressional
investigators and seen by the Journal. Otherwise, the cement might develop small channels that gas could
squeeze through.

In an April 18 report to BP, Halliburton warned that if BP didn't use more centering devices, the well would
likely have "a SEVERE gas flow problem." Still, BP decided to install fewer of the devices than Halliburton
recommended -- six instead of 21.

BP said it's still investigating how cementing was done. Halliburton said that it followed BP's instructions, and
that while some "were not consistent with industry best practices," they were "within acceptable industry
standards."

The cement job was especially important on this well because of a BP design choice that some petroleum
engineers call unusual. BP ran a single long pipe, made up of sections screwed together, all the way from
the sea floor to the oil reservoir.

Companies often use two pipes, one inside another, sealed together, with the smaller one sticking into the oil
reservoir. With this system, if gas tries to get up the outside of the pipe, it has to break through not just
cement but also the seal connecting the pipes. So the more typical design provides an extra level of
protection, but also requires another long, expensive piece of pipe.

"I couldn't understand why they would run a long string," meaning a single pipe, said David Pursell, a
petroleum engineer and managing director of Tudor, Pickering, Holt & Co., an energy-focused investment
bank. Oil major Royal Dutch Shell PLC, in a letter to the MMS, said it "generally does not" use a single pipe.

BP's Mr. Gowers said the well design wasn't unusual. BP engineers "evaluate various factors" to determine
what design to use for each well, he said.

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Despite the well design and the importance of the cement, daily drilling reports show that BP didn't run a
critical, but time-consuming, procedure that might have allowed the company to detect and remove gas
building up in the well.

Before doing a cement job on a well, common industry practice is to circulate the drilling mud through the
well, bringing the mud at the bottom all the way up to the drilling rig.

This procedure, known as "bottoms up," lets workers check the mud to see if it is absorbing gas leaking in. If
so, they can clean the gas out of the mud before putting it back down into the well to maintain the pressure.
The American Petroleum Institute says it is "common cementing best practice" to circulate the mud at least
once.

Circulating all the mud in a well of 18,360 feet, as this one was, takes six to 12 hours, say people who've run
the procedure. But mud circulation on this well was done for just 30 minutes on April 19, drilling logs say, not
nearly long enough to bring mud to the surface.

This decision could have left gas at the bottom of the well. When workers poured in cement to seal the sides,
that gas would have been pushed up the outside of the well. Expanding as it rose, it would have reached the
top, where it either would have pushed against a massive seal on the ocean floor or might have gone even
higher and reached the bottom of the pipe connecting the well to the drilling rig.

BP's Mr. Gowers said the amount of time spent circulating mud is "one of many parameters considered
when designing a successful cement job." He said BP's investigation is ongoing.

Three offshore engineers the Journal asked to review the drilling reports all pointed to the failure to circulate
the mud completely as a serious mistake. Robert MacKenzie, a former oil-industry cementing engineer now
at FBR Capital Markets, said, "If you have any worries about gas, if you have any worries about getting a
good cement job, you should definitely do it."

BP also didn't run tests to check on the last of the cement after it was pumped into the well, despite the
importance of cement to this well design and despite Halliburton's warning that the cement might not seal
properly. Workers from Schlumberger Ltd. were aboard and available to do such tests, but on the morning of
April 20, about 12 hours before the blowout, BP told Schlumberger workers their work was done, according
to Schlumberger. They caught a helicopter back to shore at 11 a.m.

BP told the Journal Tuesday that the tests weren't run because they were needed only if there were signs of
trouble in the cement job, and the work seemed to go smoothly. But the same day, BP officials told
congressional investigators there were signs before the disaster that the cement might have been
contaminated and that some cementing equipment didn't work properly, according to a memo from two
Congressmen.

The mood aboard the rig on April 20 was upbeat. The work was nearly done, and workers were eager to put
the troublesome well behind them.

Some saw indications that managers wanted to wrap up quickly. Kevin Senegal, a subcontractor employee
who cleaned tanks, said he was told to be ready to clean two tanks on a coming shift instead of the usual
one. "To me it looked like they were trying to rush everything," he said.

A disagreement broke out on the rig on April 20 over the procedures to be followed. At 11 a.m., workers for
the half-dozen contractors working on the rig gathered for a meeting. Douglas Brown, Transocean's chief
mechanic on the rig, testified Wednesday at a hearing in Louisiana that a top BP official had a "skirmish"
with top Transocean officials.

The Transocean workers, including offshore installation manager Jimmy Wayne Harrell, disagreed with a
decision by BP's top manager about how to remove drilling mud and replace it with lighter seawater. Mr.
Brown said he heard Mr. Harrell say, "I guess that is what we have those pinchers for," referring to a part of
the blowout preventer that would shut off the well in case of an emergency.

BP won the argument, said Mr. Brown, who is a plaintiff in a suit against BP and Transocean. Mr. Harrell
declined Journal requests for comment.

A little after 5 p.m., to check the well's integrity and whether gas was seeping in, rig workers did what is
called a "negative pressure test." It was supervised by a BP well-site leader, Robert Kaluza. His experience
was largely in land drilling, and he told investigators he was on the rig to "learn about deep water," according
to Coast Guard notes of an interview with him. BP declined to comment on his experience.

A lawyer for Mr. Kaluza said he "did no wrong on the Deepwater Horizon."
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The test initially strayed from the procedure spelled out in BP's permit, approved by the MMS, according to
the Coast Guard interview with Mr. Kaluza. When the first test results indicated something might be leaking,
workers repeated the test, this time following the permitted procedure. The second time, pressure rose
sharply, with witnesses saying that the well "continued to flow and spurted," according to notes gathered by
BP's investigators that were reviewed by the Journal. BP denies violating its MMS permit.

Well-control experts say it's clear gas was leaking into the well, most likely through the seal at the top but
possibly through the bottom or even through a collapsed pipe.

Earlier this month, BP lawyers told Congress the test results were "inconclusive" or "not satisfactory." On
Tuesday, according to the Congressmen's memo, BP said it saw signs of "a very large abnormality."

Just two things then stood between the rig and an explosive mixture of gas and oil. One was the heavy
drilling mud. The other was the blowout preventer near the sea floor. But the BOP had various problems,
among them some leaking hydraulics.

By 8 p.m., BP was satisfied with the test and had enough confidence to proceed. It was this that may have
been "a fundamental mistake," a BP official told congressional staffers Tuesday, according to the memo
from two members of Congress.

Following BP's instruction, Transocean workers turned to replacing the mud with seawater, according to
Coast Guard interviews with Mr. Kaluza and Donald Vidrine, the top BP official on the rig. Removing the mud
keeps it from polluting the sea but also means there's less weight to hold down any gas.

BP's plans for the well, approved by the MMS on April 16, called for workers to remove the mud before
performing two procedures designed to make sure gas couldn't get into the well.

The first called for installing a giant spring to lock the seal at the top of the well in place after removal of the
mud. There's no evidence in rig-activity logs the spring was ever installed. If gas was coming up the sides of
the well, pushing against the seal, this spring would have helped prevent leakage.

Second, BP opted to remove the mud before placing a final cement plug inside the well.

In documents presented to Congress, BP has hypothesized that gas could have gotten into the inside of the
pipe through a failure of the cement at the bottom of the well. BP was planning to set a second, backup
cement plug in the well before declaring its work done.

But workers began removing mud before setting this plug, leaving little to prevent any gas inside the pipe
from rising to the rig. That plan was approved by the MMS on April 16, according to the permit reviewed by
the Journal.

A spokeswoman for the Interior Department, of which the MMS is a part, said it was "looking at everything,
from what happened on the rig that night and the equipment that was being used to the safety, testing and
backup procedures."

About 9:45, the seawater and remaining mud began to head back up the pipe. Witnesses say they saw mud
shooting out of the derrick like water from a firehose. A worker on the rig floor made a frantic call to BP's Mr.
Vidrine, who had gone to his office, according to his interview with the Coast Guard.

Transocean workers raced to tame the well. Nothing worked. This was no ordinary gas kick. It was far more
ferocious.

Workers rushed to hit the emergency button to activate the blowout preventer's clamps and detach the rig
from the well, according to witness accounts. They were too late. Gas flowing out found an ignition source,
and an explosion rocked the rig.

Well No. 60-817-44169 was beyond control and on its way to becoming infamous.

---

Vanessa O'Connell, Jeffrey Ball, Douglas A. Blackmon, Ana Campoy, Miguel Bustillo and Jennifer Levitz
contributed to this article.

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Oil Regulator Ceded Oversight to Drillers

By Russell Gold and Stephen Power


2,205 words
7 May 2010
The Wall Street Journal
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English
(Copyright (c) 2010, Dow Jones & Company, Inc.)

Corrections &Amplifications

The United Kingdom moved to have different agencies oversee offshore safety and leasing in 1991. A May 7
front-page article about the U.S. Minerals Management Service and a Wednesday article about a plan to
divide the MMS incorrectly said that the U.K. made the change in 1998.

(WSJ May 14, 2010)

(END)

The small U.S. agency that oversees offshore drilling doesn't write or implement most safety regulations,
having gradually shifted such responsibilities to the oil industry itself for more than a decade.

Instead, the Minerals Management Service -- now caught up in the crisis of the Deepwater Horizon rig that
for weeks has sent crude oil gushing into the Gulf of Mexico -- sets broad performance goals for the industry.
Oil producers and drilling companies are then free to decide for themselves how to meet those goals,
industry executives and former regulators say.

A Wall Street Journal examination of the MMS's track record found several instances of the agency
identifying potential safety problems and then either not requiring follow-up or relying on the industry to craft
a solution. In some cases, the industry didn't do its part.

The Journal also found that the safety record of U.S. offshore drilling compares unfavorably, in terms of
deaths and serious accidents, to other major oil-producing countries. Over the past five years, an offshore oil
worker in the U.S. was more than four times as likely to be killed than a worker in European waters, and 23%
more likely to sustain an injury, according to International Association of Drilling Contractors data, which is
adjusted for man-hours worked.

Asked about The Journal's findings on its safety record and practices, MMS officials said in an interview
Wednesday that the agency plans to toughen its oversight. Any new regulations emerging from the current
crisis "will be a prescriptive regulation," said Lars Herbst, head of the MMS' Gulf of Mexico region. He said
the agency is unlikely to give the industry much latitude to decide how to make changes. "After this accident
investigation is done, I would bet there won't be any performance-based regulation that comes out to
address any problem that we may uncover," he said.

Mr. Herbst questioned the data on deaths, saying the number of working hours could be underreported in
the U.S. That would make the U.S. fatality rate look higher.

The agency points out it does conduct numerous inspections. It leases 14 helicopters to ferry inspectors,
often unannounced, out to the 3,800 drilling rigs and platforms in the Gulf of Mexico that it oversees. But the
number of rigs inspected has fallen significantly in recent years, according to agency data, from 1,292 in
2005 to 760 by 2009.

Defenders of the agency say enforcement isn't its primary responsibility. Stephen Allred, who as Assistant
Secretary of the Interior oversaw MMS from 2006 to 2009, said the agency does conduct spot inspections of
oil rigs, and checks operators' compliance with safety procedures. However, "Their role is not to baby-sit" the
operators, he said. The agency's primary task during inspections is to verify how much oil is being pumped,
which is key to another MMS duty, maximizing payments the government receives for oil and gas rights from
energy producers.

In one instance late last year, an oil company complained about the inadequacy of the agency's safety
investigations. In November, ATP Oil &Gas Corp. sued MMS alleging it was incomplete in investigating a
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fatal accident at an ATP rig. The lawsuit, filed in federal court in Washington, D.C., alleged an MMS
investigator misstated the accident's location, didn't interview the two eyewitnesses to the event, and told
ATP to take corrective action within 14 days without identifying problems that needed to be fixed. The suit
was settled in March, with ATP paying a $20,000 civil penalty, according to a company lawyer.

An MMS spokesman declined to comment. An MMS court filing gave denials of some ATP claims, including
the matter of the accident's location.

Some former employees say that MMS, which was founded in 1982 and is part of the Interior Department,
has a built-in conflict of interest: It is supposed to be a watchdog that halts drilling when it spots unsafe
behavior. But it is also supposed to promote energy independence and to generate government revenue
from drilling on government lands, including the outer continental shelf.

Of MMS's fiscal 2010 budget of $342 million, nearly half comes from the oil industry in the form of fees and
rental receipts, known as "offsetting collections." That's one reason why collecting oil and gas royalties is
emphasized at the agency, former and current officials say.

The U.K. -- home to one of the largest offshore-drilling industries in the world -- has taken a different
regulatory approach. In 1998, after a fire aboard a North Sea platform killed 167 people, the U.K. separated
its offshore safety-oversight agency from the revenue-gathering side.

After that change, the U.K.'s safety record improved. The improvements also came at a time of increased
mechanization of rigs, which improved the safety of offshore drilling world-wide.

Told of The Journal's findings on MMS's track record, Sen. Bill Nelson (D., Fla.), a longtime opponent of
drilling off his state's coast, castigated the agency. "If MMS wasn't asleep at the wheel, it sure was letting Big
Oil do most of the driving," he said.

In the U.S., the MMS has been criticized for giving oil companies too much sway in the royalty area, not just
regulatory oversight. A 2008 Interior Department Inspector General report faulted MMS for modifying royalty
payment contracts in ways that "appeared to inappropriately benefit the oil companies."

U.S. oil-industry executives and current and former regulators say the U.S.'s self-regulatory approach has
worked for many years. "There has been a very good record in deep water, up until the point of this
accident," said Mr. Herbst of the MMS.

They also argue that offshore operations have become so complicated that regulators ultimately must rely on
the oil companies and drilling contractors to proceed safely. "The regulator sets the frameworks, sets the
guidance, monitors and inspects," said Elmer P. Danenberger III, the longtime head of the MMS's offshore
regulatory programs, who retired in December. "But the regulator isn't conducting the operation."

Many questions remain about last month's sinking of the Deepwater Horizon, including why the rig caught
fire, why fail-safe devices didn't work and why the industry wasn't better prepared for a spill of this
magnitude.

In recent years, oil wells in the U.S. were more likely to go out of control -- as was the case with the
Deepwater Horizon's blowout last month -- than in other countries. According to data from the International
Regulators' Forum, a group of offshore regulatory bodies, the U.S. reported five major "loss of well control"
incidents in 2007 and 2008, the most recent years for which data are available.

The five other countries in the forum that reported the data (U.K., Norway, Australia, Canada and the
Netherlands) reported no such incidents. Last year, those five nations had roughly half as much drilling
activity as the U.S.

Over the past decade, the number of MMS enforcement cases that resulted in penalties ranged from a high
of 66 in 2000 to a low of 20 last year. A report by the agency's inspector general in 2000 found that it seldom
referred safety or environmental violations to the Justice Department for criminal prosecution, even when it
should have done so.

To explain its shift toward industry self-regulation, the MMS in a 2005 rule change pointed to a 1996 law that
encouraged federal agencies to "benefit from the expertise of the private sector" by adopting industry
standards. Mr. Herbst also pointed out that the MMS often has a seat on panels setting industry standards.

The Journal has identified instances in which MMS didn't follow through on potential safety problems that the
agency had asked the industry to examine. In 2000, the agency asked the industry for advice on how to deal
with problems with cement used to keep oil and natural gas from bubbling to the surface and exploding. A
decade later, the industry is still working on its recommendations, according to the American Petroleum
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Institute. No regulations have been issued by the agency.

Another instance involves "blowout preventers," which are critical devices meant to shut down out-of-control
wells. In 1998, the MMS solicited suggestions to improve the effectiveness of the devices but didn't heed
them. It commissioned Per Holand, a Norwegian researcher, to study the reliability of the devices. In 2002,
Mr. Holand recommended that blowout preventers should have two pipe-cutting devices designed to shut off
a well, instead of just one, in case one didn't work.

His reasoning: The pipe cutters are designed to shear off and plug an out-of-control well pipe. But they don't
always work if they strike one of the thicker joints, where two pieces of pipe fit together. Joints like these
make up about 10% of the length of the drill pipe, meaning the cutters could fail as much as 10% of the time.
A second cutter, however, could ensure that at least one of the two would be able to cut the pipe.

The MMS didn't act on Mr. Holand's recommendation. Mr. Holand said he wasn't surprised: Adding a second
cutter costs money, and might make the device too heavy for some older rigs to carry.

In 2000, the MMS issued a safety alert saying it expects oil companies to have a backup system to activate
blowout preventers if the main activation system fails. A spokesman for MMS says it relied on industry
assurances that backup systems were in place, but did no formal survey. Last June, nine years after the
safety alert, the MMS issued an almost identical safety notice, but to date has issued no rule requiring the
back-up switches.

"I don't recall where that rule-making process ceased," Mr. Herbst said. "It is something that we're going to
go back and look at. I don't know yet whether that played into this incident, but I can guarantee we will be
looking at that again."

Industry consultants say there are drilling rigs now in the gulf that don't have an automatic "dead man
switch," or a separate, remote-control on-off switch to activate the blowout preventer, because the MMS
hadn't issued the rule requiring their use.

The Deepwater Horizon did have a "dead man switch," but it failed to activate the blowout preventer. The
Deepwater Horizon lacked the separate, remote-control switch that's commonly used in Norway and Brazil.

In a decision that gave the industry greater control over regulatory oversight, MMS got out of the business of
telling companies what training was necessary for workers involved in keeping wells from gushing out of
control. About a decade ago, the agency turned this over to a trade group, the International Association of
Drilling Contractors, according to Lee Hunt, president of the Houston-based organization. It represents
offshore drillers such as Transocean Ltd., which owned and operated the Deepwater Horizon.

"There was a recognition that everyone has a vested interest in being as safe as possible," Mr. Hunt said.

The trade group now accredits training schools to teach rig workers how to avoid blowouts, he says. When
MMS inspectors visit rigs, Mr. Hunt said, they give "oral examinations" to workers on oil-well control.

The MMS has received unwelcome attention for the behavior of employees assigned to a royalty-collection
office in Denver, Colo. The Interior Department's inspector general concluded in 2008 that MMS employees
there broke government rules and created a "culture of ethical failure" by accepting gifts from, and having
sex with, industry representatives. Following the inspector general's report, the Interior Department took
disciplinary action against more than a half dozen MMS workers, with punishments that ranged from a
warning letter to termination.

Ethical problems also hit the offshore oil program. In 2009, Donald C. Howard, the former regional
supervisor of the Gulf of Mexico region for MMS, pled guilty and was sentenced to a year's probation in
federal court in New Orleans for lying about receiving gifts from an offshore drilling contractor. Mr. Howard
declined to comment.

The industry has fought against attempts to return to more rigid rules. In a 2009 letter, the Offshore
Operators Committee and the American Petroleum Institute, two trade groups, argued against proposed
new, stricter rules governing safety and environmental compliance.

Mandated programs, it said, "quickly become paperwork exercises," not genuine improvements. The rules
haven't been implemented. Mr. Herbst said the rules would supplement, not replace, existing rules.

---

Ben Casselman, John R. Emshwiller and Guy Chazan contributed to this article.
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Oil Well Lacked Safeguard Device --- Officials Say Leak Grows Fivefold

By Russell Gold, Ben Casselman and Guy Chazan


1,278 words
29 April 2010
The Wall Street Journal
J
A1
English
(Copyright (c) 2010, Dow Jones & Company, Inc.)

Federal officials said Wednesday the oil spill spewing crude into the Gulf of Mexico is five times the size of
previous estimates, as a significant new leak was discovered.

The Deepwater Horizon oil rig, which exploded and sank last week, didn't have a remote-control shut-off
switch used in two other major oil-producing nations as last-resort protection against underwater spills.

The lack of the device, called an acoustic switch, could amplify concerns over the environmental impact of
offshore drilling after the accident, which led to the loss of 11 lives and has created one of the largest-ever oil
spills in U.S. water.

On Wednesday, Rear Adm. Mary Landry said that 5,000 barrels a day were now estimated to be leaking, up
from the previous estimate of 1,000 barrels.

U.S. regulators don't mandate use of the remote-control device on offshore rigs, and the Deepwater Horizon,
hired by oil giant BP PLC, didn't have one. With the remote control, a crew can attempt to trigger an
underwater valve that shuts down the well even if the oil rig itself is damaged or evacuated.

The efficacy of the devices is unclear. Major offshore oil-well blowouts are rare, and it remained unclear
Wednesday evening whether acoustic switches have ever been put to the test in a real-world accident.
When wells do surge out of control, the primary shut-off systems almost always work. Remote control
systems such as the acoustic switch, which have been tested in simulations, are intended as a last resort.
Nevertheless, regulators in two major oil-producing countries, Norway and Brazil, in effect require them.
Norway has had acoustic triggers on almost every offshore rig since 1993.

The U.S. considered requiring a remote-controlled shut-off mechanism several years ago, but drilling
companies questioned its cost and effectiveness, according to the agency overseeing offshore drilling. The
agency, the Interior Department's Minerals Management Service, says it decided the remote device wasn't
needed because rigs had other back-up plans to cut off a well.

The U.K., where BP is headquartered, doesn't require the use of acoustic triggers.

On all offshore oil rigs, there is one main switch for cutting off the flow of oil by closing a valve located on the
ocean floor. Many rigs also have automatic systems, such as a "dead man" switch as a backup that is
supposed to close the valve if it senses a catastrophic failure aboard the rig.

As a third line of defense, some rigs have the acoustic trigger: It's a football-sized remote control that uses
sound waves to communicate with the valve on the seabed floor and close it.

An acoustic trigger costs about $500,000, industry officials said. The Deepwater Horizon had a replacement
cost of about $560 million, and BP says it is spending $6 million a day to battle the oil spill. On Wednesday,
crews set fire to part of the oil spill in an attempt to limit environmental damage.

Some major oil companies, including Royal Dutch Shell PLC and France's Total SA, sometimes use the
device even where regulators don't call for it.

Transocean Ltd., which owned and operated the Deepwater Horizon and the shut-off valve, declined to
comment on why a remote-control device wasn't installed on the rig or to speculate on whether such a
device might have stopped the spill. A BP spokesman said the company wouldn't speculate on whether a
remote control would have made a difference.

Much still isn't known about what caused the problems in Deepwater Horizon's well, nearly a mile beneath
Page 13 of 15 2010 Factiva, Inc. All rights reserved.
the surface of the Gulf of Mexico. It went out of control, sending oil surging through pipes to the surface and
causing a fire that ultimately sank the rig.

Unmanned submarines that arrived hours after the explosion have been unable to activate the shut-off valve
on the seabed, called a blowout preventer.

BP says the Deepwater Horizon did have a "dead man" switch, which should have automatically closed the
valve on the seabed in the event of a loss of power or communication from the rig. BP said it can't explain
why it didn't shut off the well.

Transocean drillers aboard the rig at the time of the explosion, who should have been in a position to hit the
main cutoff switch, are among the dead. It isn't known if they were able to reach the button, which would
have been located in the area where the fire is likely to have started. Another possibility is that one of them
did push the button, but it didn't work.

Tony Hayward, BP's CEO, said finding out why the blowout preventer didn't shut down the well is the key
question in the investigation. "This is the failsafe mechanism that clearly has failed," Mr. Hayward said in an
interview.

Lars Herbst, regional director of the Minerals Management Service in the Gulf of Mexico, said investigators
are focusing on why the shut-off valve failed.

Industry consultants and petroleum engineers said that an acoustic remote-control may have been able to
stop the well, but too much is still unknown about the accident to say that with certainty.

Rigs in Norway and Brazil are equipped with the remote-control devices, which can trigger the blowout
preventers from a boat if the electric cables connecting the valves to the drilling rig are damaged. While U.S.
regulators have called the acoustic switches unreliable and prone, in the past, to cause unnecessary shut-
downs, Inger Anda, a spokeswoman for Norway's Petroleum Safety Authority, said the switches have a good
track record in the North Sea. "It's been seen as the most successful and effective option," she said.

The manufacturers of the equipment, including Kongsberg Maritime AS, Sonardyne Ltd. and Nautronix PLC,
say their equipment has improved significantly over the past decade.

The Brazilian government began urging the use of the remote-control equipment in 2007, after an extensive
overhaul of its safety rules following a fire aboard an oil platform killed 11 people, said Raphael Moura, head
of safety division at Brazil's National Petroleum Agency. "Our concern is both safety and the environment,"
he said.

Industry critics cite the lack of the remote control as a sign U.S. drilling policy has been too lax. "What we
see, going back two decades, is an oil industry that has had way too much sway with federal regulations,"
said Dan McLaughlin, a spokesman for Democratic Florida Sen. Bill Nelson. "We are seeing our worst
nightmare coming true."

U.S. regulators have considered mandating the use of remote-control acoustic switches or other back-up
equipment at least since 2000. After a drilling ship accidentally released oil, the Minerals Management
Service issued a safety notice that said a back-up system is "an essential component of a deepwater drilling
system."

The industry argued against the acoustic systems. A 2001 report from the International Association of
Drilling Contractors said "significant doubts remain in regard to the ability of this type of system to provide a
reliable emergency back-up control system during an actual well flowing incident."

By 2003, U.S. regulators decided remote-controlled safeguards needed more study. A report commissioned
by the Minerals Management Service said "acoustic systems are not recommended because they tend to be
very costly."

---

Jeff Fick contributed to this article.

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