A Drop of Rain

Update on Anadarko liability in the BP Gulf Oil Spill (read part I of the Anadarko liability thread here). Things are speeding up significantly now that the full scope of the spill is being exposed. As the size increases, so too does the potential for liabilities so high that they could break most smaller companies.

Already hitting the media now Bloomberg, Anadarko Says BP Should Pay After Being Reckless :

June 19 (Bloomberg) — Anadarko Petroleum Corp., the Texas oil company that owns 25 percent of the damaged well pouring crude into the Gulf of Mexico, said BP Plc, the project’s operator, should pay the costs from the spill because it acted recklessly and unsafely at the drilling site.

BP didn’t monitor or react to warning signs as the Macondo well was drilled, Chief Executive Officer Jim Hackett said yesterday in a statement. BP is responsible for damages under such conditions, Anadarko said.

“BP’s behavior and actions likely represent gross negligence or willful misconduct and thus affect the obligations of the parties under the operating agreement,” Hackett said in the statement.

This discussion re Anadarko just occurred on theOilDrum.com’s daily discussion thread, and it’s well worth reading if you want to get further understanding of the legal games that are about to get started in earnest. The comments also explain the significance of Anaradko’s public statement if you’re not clear on what’s actually going on. (Read only subthread).

ROCKMAN on June 19, 2010 – 1:15pm Permalink | Subthread | Comments top

FOR ALL

Given the recent headlines re: Anadarko a quick primer on offshore drilling partnerships. Anadarko owns 25% of the well with a Japanese company owning 10%. BP owns the balance. BP’s partners may have been in the deal from the original lease sale or bought in later. Between the lease bonus and seismic/overhead costs the partnership could have been $50 -$100 million in the red before the first well was spudded.

THE JOA
Such drilling partnerships are governed by a very sophisticated and court tested contract: the joint operating agreement. These can be well over 100 pages long with enough detailed legalize to choke a football stadium full of attorneys. Covers virtually all possible scenarios of what might happen while drilling a well. Obligations, authorities, mandates, restrictions, etc. More later on one of THE critical aspects as to who pays for the accident.

THE AFE
When the operator (in this case BP) proposes to drill a well they prepare a rather detailed cost estimate for the project. This Authorization For Expenditure is another legal document like the JOA. The partners can sign the AFE or not. Don’t sign it and the JOA covers very specific penalties for not doing so. The AFE process follows hundreds of hours of joint meetings between the partners to work out the details. And there are always tech disagreement. And with very few exceptions the operator wins these debates. At most all the partners can do is not participate and be penalized as per the JOA.

ANADARKO: BP’S WORSE NIGHTMARE
Since I don’t have access to the history I can only speculate on the details. But to some degree these generalities are correct. BP has been criticized for making various tech decisions on the well design. Anadarko may have a long and well documented paper trail showing they had disagreed with every choice BP has made. Or to some lesser number of choices. But to whatever degree the documentation wasn’t casual. It’s done by every partners in every joint venture as a negotiation tool. By signing the AFE the partners agree to pay their share of the ultimate actual cost. But it often doesn’t go just like that. The operator (Company A)plans to do the X Procedure. Partner B strongly disagrees and says doing X is risky and could waste money/lose the well/cause a blow out. But the operator almost always wins these debates and drills the well and does X. And surprise…it was a mistake to do X and it runs the well costs up $16 million. When the well is finished the operator mails out the bill to the partners. Company’s B share (25%) is $4 million. But B sends a note back to A and says we need to chat. They get together and B hands them the documentation of how they strong disagreed with doing X so let’s just deduct our $4 million (or some lesser amount)share of that “mistake” from the final bill. This is a very common situation in all joint ventures. That’s why I’m certain Anadarko had a well documented list of potential “ammo” long before the blow out occurred. They might have had their own personnel onboard for short periods of time to document such potential screw ups. As a consultant I’ve been sent out tasked with that exact job. It is exactly as it sounds: a very serious “gotcha” game.
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You know, history is becoming tragic. Jon Stewart really nails this one. Especially depressing is the last bit where he shows Nixon as the one who did more of what is now called ‘the liberal agenda’ than we would like to think. When modernity makes Nixon look good, you know things are getting bad in this country.

From the show:

“America is an unstoppable oil-dependency breaking machine – unfortunately, the machine runs on oil”
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I came across this conjecture by bigmoose at gcaptain.com forums BP Deepwater Horizon Spill thread.

There’s something so realworld about this time-line, and so nitty gritty, that I think it’s probably very close to what was really going on. Plus it fits with information coming from the congressional hearings: “the internal e-mail messages now show that BP actually rejected a safer plan that required installing more components because, as well team leader John Guide wrote on April 16, “it will take 10 hours to install them.”"

Ignore all the technical analysis you’ll see going in front of the US Congress now in the hearings, this is the story before it hits the spin machines and lawyers, the story that probably happens every day in drilling operations across the planet.

I’m very grateful for the honesty and intelligent commentary I’m finding from most oil guys who are sharing their thoughts/views on this disaster, so without further ado, here’s the story in his own words. I ignored the other posters in these threads because there’s a lot of babble and weird speculation that really distracts from the simplicity and clarity of the initial explanation offered as a likely sequence of events.

bigmoose June 15th, 2010 11:23 AM
Default Re: Deepwater Horizon – Transocean Oil Rig Fire

My daughter came home from college this week, and asked me what was going on with the well, and how such a thing could have happened. I told her the following condensed story today. Said I have seen it many times in my life in my non oil industry…

The well gets started and runs into problems. Drilling slow, getting behind. Mr. Big gets briefed weekly. For a while he “keeps an eye on it”. Then he says, time is money, speed it up. So it filters down the chain. People on the drilling floor are pushed. Bit gets stuck, and BHA has to be abandoned. Then a hurricane comes up and swamps the first drill ship. Now when this well is briefed at the weekly meeting, the “stoplight chart” is showing red in cost; red in schedule; and still green in potential reservoir yield.

He gets a new team to “fix things.” The Deepwater Horizon has the job of redrilling the well. All the stoplight charts are rebaselined to green cost; green schedule; and green performance. The reports start coming in. Mud lost to circulation up high. Hard drilling. Casing problem. Stoplight charts change to yellow/yellow/green. More lost circulation. Designed for 6 strings of casing, now have 8 in the hole. Speed it up. Way behind. Now we are paying penalties on keeping DWH on station. How do we cut days out of the process to completion. Small tiger teams are drawn up as the stoplight charts change to red/red/green AGAIN. Mr. Big is pounding the table on Monday morning hammering at the “well manager” can’t you do your job, get that *$K@# well in, and I don’t want to hear about any more delays or problems.

Now it’s pedal to the metal, full cut every corner we can. Mr. Big is blowing his top. Get this thing in and get DWH off station and on to it’s next commitment. Men and machines will be sacrificed per Mr. Big’s directions. A cultural thing, one might say.

… and so the pins were pulled on the gernades. One, two, three….8, 9 and 10. They are basically described in the Waxman Congressional Subpoena to Tony Hayward that was described a few pages back. A culture that did not identify and take appropriate action with respect to industry standards and risk. All described in previous pages…
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There was a really interesting set of comments/observations by a retired oil lawyer, retiredL, on theOilDrum.com in the comment threads of today’s main topic, Deepwater Oil Spill – the BP CEO and Congress – and Open Thread:.

This is one of those things that would just get lost in the shuffle if I don’t post it here, so I want you guys to see this. I think he’s giving a more or less clear view of the realities of how the legal parts of this situation will proceed, as well as of what is going on internally, more or less, inside of BP now.

Although retiredL made a few technical errors in terms of spill rate and volume, his overall understanding of how oil companies work internally is well worth a very close look, as well as his conclusions about how things will turn out.

Because this is a very long posting, here’s the summary, found at the bottom of the full posting:

BP’s only concerns are protecting its property and limiting liability. Those concerns will be defined by laws and actuarial tables, not by common sense; so, they will pay attention to technical solutions only as far as those solutions accomplish those goals. Our society is far too dependent on Big Oil to risk damaging or driving an oil corporation out of existence. As with the Exxon Valdez, any punishment for BP’s behavior will gradually be reduced over to time to a point where BP still feels welcome in American waters.

I’m skipping most of the comments in this discussion because what is interesting is what retiredL says, not what people comment on via their opinions about law or lawyers. I’ve highlighted a few of the more relevant passages.

retiredL on June 18, 2010 – 10:20am Permalink | Subthread | Comments top

First time poster; I’ve been reading Oil Drum for years. Some of this I posted to the other thread right before it closed, so please excuse the repeat.

I hate to tell you, but the people calling the shots on this are lawyers and accountants. BP took off its “engineering hat” and put on its “managing hat” a long time ago; that’s why the spill happened in the first place.

Anything proposed by technicians, engineers, etc. is going to be vetted by lawyers and accountants first… including the scripted “Oops!” moment of the BP spokesperson talking about “the little people” (a classic provocative statement by a flakcatcher.) They will use a twofold criteria: Does this increase liability? Does this protect the company’s assets?

I am a retired lawyer from La., whose family has been involved with oil cases since Standard Oil was actually called Standard Oil. It seems to me that a great deal of both the effort to seal the well and to protect the coastline has been dictated by laws, not by physics or chemistry.

For instance, every petrochemical state has a long line of cases about ownership of oil and gas which is “spilled” or “lost” by the driller. At least some of BP’s cleanup behavior seems to be an effort to maintain a claim of ownership on the spilled crude. After all, there’s billions of dollars of it floating around, available to the first person on the site with good cleanup equipment.

Similarly, it’s my impression that a great deal of the undersea efforts have been directed, not at capping the well, but at proving that BP is not abandoning the well.

To me, the tragedy of BP’s continued oversight of the whole thing lies in their basic aims; retain ownership of the well, retain ownership of the spilled oil, limit legal liability. They honestly could care less about anything else at this point.
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This one popped out today in theOildrum.com Deepwater Oil Spill – the BP CEO and Congress – and Open Thread:, interesting stuff in light of the ongoing congressional investigations of the BP blowout.

I like how these oil company insiders hear this stuff, as they’ve noted, the drilling community is very small, and relatively closely connected, so if you’re in it, in the Gulf of Mexico (GOM), it’s likely things will start leaking out, pardon the pun.

ROCKMAN on June 18, 2010 – 1:13pm Permalink | Subthread | Parent | Parent subthread | Comments top

Merril — I agree Tony would have a tech team evaluate the incident. Opinions will vary but I would bet my last container of Blue Bell ice cream he had a rather thorough analysis within 2 or 3 weeks of the explosion. The BOP failure would, of course, be a different matter. The bulk of those details still lay in 5,000′ of water. But IMHO the details leading up to the blow out have been documented and those depositions are sitting in the BP lawyer’s safe right now. And will stay there until the trial.
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[-] TerrytheTurtle on June 18, 2010 – 3:15pm Permalink | Subthread | Parent | Parent subthread | Comments top

Rockman,

The BP investigation took place at a hotel near the Houston HQ from May 7th to 21st and averaged 18 hours/day of work by a team from all over the world. That investigation did inlcude the depositions of the rig crew.

The draft report was ready on May 27th to be presented to BP executives, the final version was ready on Wednesday night, before the Congressional meeting.

Tony’s answers were probably ‘legal quality answers’, meaning any he said which was implied otherwise in the report which will surely be made available to Congress and/or OSHA mmight be unwise yesterday.

He could have taken the 5th I suppose, but that wouldn’t look good on Wall Street.
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There’s been a few interesting financial stories in case you’ve forgotten that the world is teetering on the edge of some major changes / failures in the currency mechanisms we have come to take for granted as being both stable and real. While the mechanics of the BP spill and attempts to fix it prove riveting reading, it’s worth a look stepping back from the live ROV footage to check out what the rest of the world is doing in the meantime.

So without further fuss, here’s a few tidbits to chew on while you contemplate where to put your retirement or kid’s college fund money…

Money, Capital, Credit, and Bubbles… and what really does happen to Capitalism when growth fails?

I don’t want to get too far into this matter here, but this first article I think really demonstrates a point I’ve come to believe explains our use of money much better than anything else can. In other words, it shows the largely illusory nature of what we believe to be a fixed thing, money, cash, banking, flow of funds, etc.

Bloomberg, Currency Collapse May Stimulate Economic Expansion, BIS Says – June 14

Currency collapses tend to spur a resumption of economic growth rather than fueling a decline in gross domestic product, according to the Bank for International Settlements.
…
The positive effects of a weaker currency on GDP, including making local products cheaper than imported goods, may outweigh the negative ones, such as rising inflation. Currency collapses occur when the annual exchange rate drops by about 22 percent, according to the BIS, which identified 79 such episodes, “more commonly in Africa than in Asia or Latin America,” since 1960, Tovar said.

I don’t know about you, but to me this is just weird. It’s like, we’ve created a house built on air, and when we don’t like how high or low our house is, we lower or raise it by huffing and puffing a bit (ie, deflation/inflation of money supply). Again, this is weird. I get the strong feeling I am looking at the Emperor’s New Clothes, ie, there’s actually nothing there at all in that entire global flow of funds, balance of payments, etc.

But I’ve had a sneaking suspicion for a while now that since all this finance stuff is actually just an abstraction, at some point, if the game looks like it’s about to blowup, they might just change the rules of the game. That can look a lot of ways, but it will probably have to happen more or less in relative harmony with the other major players in the first world. In other words, if everyone owes everyone so much money they can’t possibly pay it off, maybe it’s just time to start over. They won’t say this of course. And China will certainly continue on its global buying spree before those dollars lose their value.

My guess is the above story is a trial balloon for some re-evaluation of values. That certainly won’t help you any, but it might stretch this global financial collapse story out a bit longer than it should have run.

And while that story unfolds, hovering around the most elevated parts of the economic stratosphere, there’s a few guys who more or less thought they had a handle on the entire financial game, and thought they could surf any wave that came. Not a bad assumption, by the way, given past performance. I know most of these guys understand that money, capital, is primarily a tool to achieve one’s goals, but especially with Soros lately, it looks like he’s actually getting a bit worried, or confused.

Bloomberg, Soros Says ‘We Have Just Entered Act II’ of Crisis (Update2) – June 10

Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession.
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This is fast approaching the worst case scenarios outlined by the industry insiders who I consider competent and rational, and who have been sharing their insights on various online forums, especially theOilDrum.com.

Washington – Based on updated information and scientific assessments, Secretary of Energy Steven Chu, Secretary of the Interior Ken Salazar, and Chair of the National Incident Command’s Flow Rate Technical Group (FRTG) Dr. Marcia McNutt (Director of the U.S. Geological Survey) today announced an improved estimate of how much oil is flowing from the leaking BP well.

Secretary Chu, Secretary Salazar, and Dr. McNutt convened a group of federal and independent scientists on Monday to discuss new analyses and data points obtained over the weekend to produce updated flow rate estimates. Working together, U.S. government and independent scientists estimate that the most likely flow rate of oil today is between 35,000 and 60,000 barrels per day. The improved estimate is based on more and better data that is now available and that helps increase the scientific confidence in the accuracy of the estimate.

At the direction of the federal government, BP is implementing multiple strategies to significantly expand the leak containment capabilities at the sea floor even beyond the upper level of today’s improved estimate. The Lower Marine Riser Package (LMRP) cap that is currently in place can capture up to 18,000 barrels of oil per day. At the direction of the federal government, BP is deploying today a second containment option, called the Q4000, which could expand total leak containment capacity to 20,000-28,000 barrels per day. Overall, the leak containment strategy that BP was required to develop projects containment capacity expanding to 40,000-53,000 barrels per day by the end of June and 60,000-80,000 barrels per day by mid-July.
U.S. Scientific Team Draws on New Data, Multiple Scientific Methodologies to Reach Updated Estimate of Oil Flows from BP’s Well

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I don’t know, there’s something surreal going on here. Matt Simmons has been insisting that the casing is blown out of the ground, which would mean the BOP unit was blown off its moorings, but it isn’t.

Oil, in case you haven’t noticed, is pouring out of the BOP at what has just been revised upwards to 30,000 to 60,000 barrels per day.

So what’s going on here with Matt Simmons?

Watch today’s video, Simmons Says Nuclear Device Only Option to Stop Oil Leak: Video (embedding not permitted).

Here’s a few older ones, from right before the top kill was attempted, and failed:
Dylan Ratigan Gulf Oil Spill Matt Simmons “another leak much bigger 5 to 6 miles away”

This is just strange, and very hard to understand what he’s saying. He’s saying that the leak we see is not the main leak, but that there is a second outlet. I don’t know, there is no evidence that I can see for these statements. Something is very strange. But this makes no sense at all, the BOP is standing ontop of the main pipe, into which the casing is inserted, so logically this scenario Simmons is discussing just makes no sense at all.

A surprisingly good speech from Obama, covering some areas which really needed to be discussed. The corruption of the MMS was covered, along with pointing out that the insane policy of deregulation where industry regulates itself, more or less, leads to disaster (one has to ask, however, why this same point and speech was not made about the grotesque abuses of the financial services sector.

Obama also points out that we consume 20% of the global oil production but have only about 2% of the oil reserves means we need to start dropping oil consumption. Discussion of clean energy and the mythical ‘energy independence’ we like to fantasize about.

You can get the speech transcript here. There’s also a useful page of links to more speeches available.

We’ll see how this goes. Obama brings up history, World War II, landing men on the moon, and so on. I guess it helps to try, even though unfortunately, dealing with resource constraints isn’t in the same category as burning/using massive amounts of resources to achieve some goal, like building tanks in WWII, making rockets to fly to the moon, and so on.

And this of course is where the speech making falls flat, trying to sell the model of consumption/resource plenitude as a method of dealing with resource constraints/scarcity. That’s just not going to work, and I’m not sure how long that type of rhetoric is really going to fly. Maybe we’ll just keep doing it, I don’t know.

As we wind down, each step of the way we’ll just grow into believing this is the new normal, which is the same as the old normal (a nice column by Dmitri Orlov which has an amusing story about our tendency to think in this way no matter what reality actually shows us)….

Now you can track various parts of the Deepwater Horizon spill using the new ERMA Interactive Spill Map. (ERMA stands for Environmental Response Management Application). Or just visit the www.geoplatform.gov/gulfresponse/ home page, where you can also access the map.

Read more about the ERMA application here, deepwaterhorizonresponse.com – Federal Agencies Introduce Online Mapping Tool to Track Gulf Response.

Today, NOAA launches a new federal website meant to answer those questions with clarity and transparency– a one-stop shop for detailed near-real-time information about the response to the Deepwater Horizon BP oil spill. The website incorporates data from the various agencies that are working together to tackle the spill.

Originally designed for responders who make operational decisions to the oil spill disaster, www.GeoPlatform.gov/gulfresponse integrates the latest data on the oil spill’s trajectory, fishery closed areas, wildlife and place-based Gulf Coast resources — such as pinpointed locations of oiled shoreline and daily position of research ships — into one customizable interactive map.

The launch of the public site is designed to facilitate communication and coordination among a variety of users — from federal, state and local responders to local community leaders and the public — the site is designed to be fast, user-friendly and constantly updated.

Beyond NOAA data, the site includes data from Homeland Security, the Coast Guard, the Fish and Wildlife Service, EPA, NASA, U.S. Geological Survey and the Gulf states . Agencies contribute data through the response data sharing mechanism within the command posts. This includes posting geospatial data on a common server, allowing access and use for multiple spatial platforms.