Contractors slam 'self-serving' BP spill report; Dudley takes charge
Halliburton and Transocean, the two contractors involved in BP's calamitous Macondo well – which was finally sealed on 19 September – reacted hard and fast after the major cited them for operational breaches contributing to the Gulf of Mexico (GOM) disaster
Transocean, from which BP was leasing the Deepwater Horizon rig, labelled BP's internal investigation, published on 8 September, "self-serving". It added that BP had concealed the "critical" error that caused the disaster: "BP's fatally flawed well design". Although BP has admitted errors of its own, the company has rejected claims that the well was poorly designed. A legal battle that will take years to resolve could hinge on that point. So will BP's eventual liabilities.
Halliburton, which carried out the cement casing of the well, also suggests BP's design was faulty. Its work met BP's specifications, the company said in its response to BP's report. BP's investigators found eight errors, including Transocean's tardy response to the blowout and Halliburton's poor cementing of the well. Halliburton rejected this: "Contractors do not specify well design or make decisions regarding testing procedures as that responsibility lies with the well owner."
BP's eight-step breakdown of what triggered the accident cites Halliburton and Transocean repeatedly. But Halliburton has not yet contested BP's claim that its cement allowed hydrocarbons into the wellbore, while Transocean seems to have accepted that the blow-out preventer failed to activate its emergency-response triggers and stop the flow.
BP's defence has also drawn fire from politicians. Edward Markey, a member of the congressional group investigating the incident, said BP had taken responsibility for only "half of one" of the eight failures its investigations team found. "BP is happy to slice up blame as long as they get the smallest piece." Such a response suggests that, however, robust – or true – BP's defence, it will still need friends in Washington, where the company has already been repeatedly blamed for the accident, which killed 11 men and sent almost 5m barrels of oil gushing into the GOM. In the aftermath of the disaster, the White House pledged to "keep its boot on BP's neck".
Now, however, the company must also prepare for a lengthy legal war to be fought on several fronts. These will likely include counter-suits from its contractors as well as its partners in the Macondo well; and a litany of class-action claims from GOM citizens affected by the spill.
The legal judgement could severely dent BP's finances. Under the Clean Water Act, BP faces liabilities of up to $4,300 per barrel spilled if it is found guilty of gross negligence – equivalent to a fine of around $17.2bn. It would also face likely punitive damages, while its contractors could pay nothing. If it is not guilty of gross negligence, the fine would be $1,100 per barrel, or around $4.4bn. (The fine applies to the 4m barrels of oil spilled, but not collected. The total spill amounted to 4.9m barrels.)
A verdict may not arrive for years, say analysts. "Even if you tried, you would not be able to recreate this situation," says Fadel Gheit, of Oppenheimer, an investment house. "Transocean and Halliburton will be worn down in this process," he adds. "In any legal battle, survival is achieved by the biggest player. These two companies need to settle out of court."
But BP's appetite for an extended fight may also be weak. ExxonMobil's legal battles to reduce its liabilities for the Exxon Valdez disaster of 1989 lasted two decades. In the end, the company paid a fraction of the original charge. By comparison, Gheit says, BP has been like a "wet noodle" in giving way to political pressure.
Much could depend on Robert Dudley, who replaced Tony Hayward as BP's boss on 1 October. "He went to boot camp in Russia," says Gheit, referring to Dudley's tenure as TNK-BP chief during a protracted war between BP and its Russian partners for control of the joint venture. "Now he is ready for the fight."
BP estimates its overall liabilities from the spill to be around $30bn. A firesale designed to raise cash has brought it around $10bn, after the disposal of businesses in the US, Canada, Egypt, Colombia, Venezuela and Asia. Its Prudhoe Bay assets in Alaska, once the firm's crown jewel, could also be sold. The company says it has also already spent $9.5bn on clean-up operations. After pressure from the White House, BP suspended its dividend payments in June.
The Macondo spill has been a public-relations nightmare for BP and the company is now looking for a new chief of communications. This is not expected to involve the removal of media relations head Andrew Gowers, who is likely to serve under the new chief. Dudley, whose immediate task is to lead the embattled company through an inevitably tough period of US-government investigations and other legal battles to the solid ground of public and investor confidence, is involved in the recruitment process.
The BP report's key findings
- Failure of annulus cement barrier
- Failure of shoe track barrier
- Wrong assessment of negative-pressure test
- Failure to note hydrocarbon influx until it was in the riser
- Insufficient well-control response actions
- Failure to divert leaking gas overboard
- Inappropriate fire-and-gas system
- Failure of BOP emergency mode to seal the well