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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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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