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Wall Street Journal: Two Oil Firms Link Rig Blast to “Plug” & Interior to Split MMS

Wall Street Journal
May 11, 2010
By RUSSELL GOLD, STEPHEN POWER And VANESSA O’CONNELL

Executives from BP PLC, Transocean Ltd. and Halliburton Co. began pointing fingers on Monday over who bears ultimate responsibility for the April 20 oil-rig explosion that took 11 lives and is spilling oil into the Gulf of Mexico. The question will loom large at a Senate hearing Tuesday that will hear from executives of the three companies.

BP, Transocean and Halliburton are set to blame each other in Congressional hearings for last month’s big oil-rig explosion and spill. Neil King, Bob O’Brien and Neal Lipschutz discuss. Also, Kara Scannell weighs in on Congressional hearings intended to find out what caused Thursday’s sudden market plunge.
BP, the well owner, blames the failure of a big set of valves on the sea floor, known as the blowout preventer, to halt the blowout once it started.

A different account comes from Halliburton, a contractor in the drilling. This account is corroborated to some extent by Transocean, as well as by two workers on the drilling rig, The Wall Street Journal has determined.

This account describes a failure to place a cement plug within the well. The plug is designed to prevent gas from escaping up the pipe to the surface.

Before such a plug is placed, the job of keeping underground gas from coming up the pipe is done by heavy drilling fluid inside the well, commonly known as “mud.” The plug is normally put in before the mud is removed, but according to the account of Halliburton, Transocean and the two workers, in this case, that wasn’t donedrilling mud was removed before a final cement plug was placed in the well.

It is not clear why such a decision would have been made. Rig owner Transocean says that BP, as owner of the well that was just being completed, made key decisions on how to proceed. BP declined to comment on this account of the drilling procedures.

Tim Probert, Halliburton’s president of global business lines, plans to testify Tuesday that his company had finished an earlier step, cementing the casing, filling in the area between the pipe and the walls of the well; pressure tests showed the casing had been properly constructed, he will testify.

At this point it is common practice to pour wet cement down into the pipe. The wet cement, which is heavier than the drilling mud, sinks down through the drilling mud and then hardens into a plug thousands of feet down in the well.

The mud then is removed and displaced by seawater; the hardened cement plug holds back any underground gas.

In this case, a decision was made, shortly before the explosion, to perform the remaining tasks in reverse order, according to the expected Senate testimony of Mr. Probert, the Halliburton executive.

“We understand that the drilling contractor then proceeded to displace the riser with seawater prior to the planned placement of the final cement plugŠ,” Mr. Probert says in the prepared testimony, which was reviewed by The Wall Street Journal. The “riser” is part of the pipe running from the sea floor up to the drilling rig at the surface.

Lloyd Heinze, chairman of the petroleum engineering department at Texas Tech University, agrees that this is an unusual approach. “Normally, you would not evacuate the riser until you were done with the last plug at the sea floor,” he said in an interview.

A worker who was on the drilling rig said in an interview that Halliburton was getting ready to set a final cement plug at 8,000 feet below the rig when workers received other instructions. “Usually we set the cement plug at that point and let it set for six hours, then displace the well,” said the worker, meaning take out the mud.

According to this worker, BP asked permission from the federal Minerals Management Service to displace the mud before the final plugging operation had begun. The mud in the well weighed 14.3 pounds per gallon; it was displaced by seawater that weighed nearly 50% less. Like BP, the MMS declined to comment on this account.

As the heavy mud was taken out and replaced with much lighter seawater, “that’s when the well came at us, basically,” said the worker, who was involved in the cementing process.

The worker’s account is corroborated by an email account sent by another person on the rig. He said that engineers wanted to flood the well with sea water before setting the final plug. As they were taking out the mud, the blowout began with a flood of drilling fluid being pushed out of the well, followed by a series of explosions.

Halliburton’s Mr. Probert’s prepared statement says: “Prior to the point in the well construction plan that the Halliburton personnel would have set the final cement plug, the catastrophic incident occurred. As a result, the final cement plug was never set.”

Halliburton says it was following Transocean’s orders and is “contractually bound to comply with the well owner’s instructions on all matters relating to the performance of all work ] related activities.”

Transocean Chief Executive Steven Newman is expected to tell the Senate the explosion occurred “after the well construction process was essentially finished.” His prepared testimony then blames the blowout on a failure of the well’s lining, saying the blowout had to be caused by “a sudden, catastrophic failure of the cement, the casing or both.”

When asked Monday night, Transocean agreed that the cement plug had not been placed in the well but that it had started the process of removing the mud, which it said was at BP’s behest.

Such plugs are placed only temporarily. The idea is that the well owner can later reopen the well and begin producing oil from it.

The chairman of BP unit BP America Inc., Lamar McKay, is expected to testify that “we are looking at why the blowout preventer did not work because that was to be the fail-safe in case of an accident.ŠTransocean’s blowout preventer failed to operate.” According to his prepared statement, reviewed by the Journal, he will say, “All of us urgently want to understand how this vital piece of equipment and its built-in redundancy systems failed and what measures are required to prevent this from ever happening again.”

Mr. Newman of Transocean says in his prepared testimony that it “simply makes no sense” to blame the blowout preventer. At the point that the blowout occurred, “the well barriersthe cementing and the casingwere responsible for controlling any pressure from the reservoir,” his testimony says.

Two Senate panels, on Energy and Natural Resources and on Environment and Public Works, are to hear the testimony. In addition, the U.S. Coast Guard and the MMS are holding hearings Tuesday and Wednesday in Kenner, La.

BP’s efforts to control the leaking oil haven’t worked so far. As a result, reverberations from the disaster could affect BP’s global ambitions to expand its already large footprint in deep-water drilling. No other company has invested as heavily as BP has in the high-risk, high-reward business of deep-water oil exploration.

BP Chief Executive Tony Hayward said Monday that the global oil industry “has drilled over 5,000 wells in greater than 1,000 feet of water and has not hitherto had an issue of this sort to contend with.”

Neil King Jr. and Rebecca Smith contributed to this article.
Write to Russell Gold at russell.gold@wsj.com , Stephen Power at stephen.power@wsj.com  and Vanessa O’Connell at vanessa.o’connell@wsj.com  

Interior Plans to Split Minerals Management Service
By SIOBHAN HUGHES And STEPHEN POWER

WASHINGTON.  The Interior Department plans to announce Tuesday its intent to split the Minerals Management Service into two divisions, one focusing on gathering royalties from oil and gas companies and another focused on safety inspections.

An Interior Department official confirmed the plan. Interior Secretary Ken Salazar will make an announcement at 1 p.m. EDT.

The Associated Press reported on the planned split earlier Tuesday.

The reorganization comes amid a vast Gulf Coast oil spill that has called into question the efficacy of the government’s regulation. The tiny agency currently plays dual roles, focusing on collecting money as well as on ensuring the safety of oil rigs. Some former employees have said that amounts to a conflict-of-interest, as employees must focus on keeping oil revenue flowing while also focusing on safety.

A Wall Street Journal examination of the MMS’s track record last week 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.

The U.K.home to one of the largest offshore-drilling industries in the worldhas already adopted a regulatory structure similar to the one that the Obama administration is moving toward. 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.

Write to Siobhan Hughes at siobhan.hughes@dowjones.com

Los Angeles Times/Greenspace: Gulf Oil Spill-Senators criticize oil companies

http://latimesblogs.latimes.com/greenspace/2010/05/gulf-oil-spill-senators-criticize-oil-companies.html
Los Angeles Times/Greenspace

May 11, 2010 |  9:42 am
The blood, er, oil flew this morning even before oil executives at the Senate hearings into the ongoing Gulf of Mexico spill began to testify. Democrats and Republicans alike on the Senate energy committee were criticizing industry officials and government regulators of failing to safeguard against the blowout leak, which has been gushing thousands of barrels a day into the Gulf of Mexico following the late April sinking of the Deepwater Horizon drilling rig.

The senators also blasted executives from BP, Transocean and Halliburton for pointing fingers at one another over the cause of the disaster. “I can see the liability chase that’s going to go on,” Sen. Robert Menendez (D-N.J.) said, adding that he was looking forward to the panel of company executives that is still to come “to see who’s going to fess up to what.”

Senators have spared little vitriol for the industry or their government regulators. A sampling: Sen. Jeff Bingaman (D-N.M), head of the Committee on Energy and Natural Resources, said: “I don’t believe it is enough to label this catastrophic failure as an unpredictable and unforeseeable occurrence. I don’t believe it is adequate to simply chalk what happened up to a view that accidents just happen. If this is like other catastrophic failures of technological systems in modern history — whether it was the sinking of the Titanic, Three Mile Island, or the loss of the Challenger — we will likely discover that there was a cascade of failures: technical, human and regulatory.”

Sen. Lisa Murkowski of Alaska, the committee’s top Republican: “Many times I have said that there are words and then there are actions — and actions necessarily have consequences. Hopefully, all actions associated with the Deepwater Horizon incident were in good faith and compliant with our laws. If that is not the case, there will be no excuse.”

Sen. Jeff Sessions (R-Ala.) wondered if years of successful drilling in the gulf had led to “laxity or complacency” among regulators and industry. Sen. James Risch (R-Idaho): “It seems to me that we have been totally unprepared to respond to this … that really doesn’t surprise me, that the government is not able to respond to this.”

And Sen. Ron Wyden (D-Ore.) asked why the government allowed industry to drill “with near-certainty that blowouts would occur, without adequate backup devices. Why?”

The oil company execs are up now.

Special thanks to Richard Charter

Miami Herald: Activists protest offshore drilling at Miami Beach rally

http://www.miamiherald.com/2010/05/11/1624127/activists-protest-offshore-drilling.html

BY JENNIFER LEBOVICH

JLEBOVICH@MIAMIHERALD.COM

Environmental activists rallied against offshore drilling Tuesday
morning in Miami Beach.

With large, black-plastic tarps — meant to replicate oil slicks —
blowing in the wind, several dozen people passed over sunbathers and
tourists in beach chairs in an attempt to show the impact oil would
have on the pristine beaches.

“The cost of offshore oil drilling is tremendous,” said Jonathan
Ullman of the Sierra Club and one of the organizers of Tuesday’s
event. “We’re seeing the environmental loss, the tourism loss. We’re
calling for no more offshore oil drilling.”

Representatives from groups that included the Sierra Club, Greenpeace
and Surfrider gathered with politicians on the beach off of Ninth
Avenue and Ocean Drive.

“Let me assure you of something, if the oil lobby has the opportunity
to put rigs within four miles of our coast, they’ll do it,” said Sen.
Dan Gelber, a Democratic candidate for Florida attorney general, who
last week joined other Democrats in calling for a special session to
put a drilling ban on the November ballot. “This is our time to stand
up . . . so Florida can say we do not want oil rigs near our shore.”

Gelber was joined by commissioners from Miami Beach, who also called
on emergency managers in Miami-Dade County to be prepared should the
oil slick come to South Florida.

Adding his voice to those opposing oil drilling was Joe Garcia, who is
vying for the House seat being vacated by Rep. Mario Diaz-Balart,
whose district spans western Miami-Dade, eastern Collier and Monroe
counties.

“I oppose drilling for oil anywhere near Florida’s beaches,” said
Garcia. “It’s simply a risky proposition that Florida cannot afford.
This issue goes beyond party lines.”

The ralliers held signs that read “Save our state” and “Clean
beaches are our birthright.”

One surfer was painted in head-to-toe black, holding a blackened surfboard.

Their message didn’t resonate with Krisann Robar, 40, visiting from Wisconsin.
“I personally think we need to drill more,” said Robar, who
identified herself as a Tea Party member.

The protesters tried to pass over the sunbathing Robar with the
makeshift oil slick, but she declined.

“We need to find out what happened and make it safer for next time,”
she said about the April 20 explosion of the Deepwater Horizon rig.

Special thanks to Richard Charter

E&E: Offshore Drilling–Crist to call special session to seek constitutional ban on Fla. drilling & more….

OFFSHORE DRILLING: Crist to call special session to seek constitutional ban on Fla. drilling (05/11/2010)

Alex Kaplun, E&E reporter

Florida Gov. Charlie Crist said today he intends to call for a special legislative session so state lawmakers will take up a bill that would ban drilling in Florida’s coastal waters.

The session would address fallout from a ruptured oil well spewing thousands of gallons of crude a day into the Gulf of Mexico from the site of the April 20 explosion of the Deepwater Horizon rig 50 miles off Louisiana. Crist told reporters today that the session was all but a done deal.

“I think it’s important that we go ahead and have a special session,” Crist told reporters, according to the St. Petersburg Times. “I’m encouraged that the Legislature is of a mind to do so as well.”

The session, whose start date has not been announced, will focus on two main items — a state constitutional ban on drilling in Florida waters and new tax incentives for companies to develop alternative energy technologies.

The drilling ban would affect waters between 3 and 10 miles off the Florida coast and have no direct impact on federal drilling policy. Florida law already limits offshore drilling in state waters, but in the wake of the spill, a number of state politicians have called for a more permanent ban.

U.S. Sen. Bill Nelson (D-Fla.), who has led the charge to halt new offshore drilling in federal waters, today also sent a letter to Crist urging him to hold the special session.

“Oil and gas drilling in these waters currently is not allowed under Florida law,” Nelson wrote. “But the scope of the still-unfolding crisis in the Gulf of Mexico should prompt all lawmakers to re-examine Big Oil’s public relations and safety claims, and to call for a more permanent halt on the industry’s push for drilling in state waters.”

A constitutional amendment would require the approval by both houses of the Florida Legislature as well as the approval of at least 60 percent of voters in November.

Crist said today that he believed the constitutional ban could clear both hurdles. “There’s no stronger place to put it. The Constitution is the bedrock of our democracy,” Crist told the St. Petersburg Times.

The special session is likely to have heavy political implications, as Crist is currently locked in three-way race for a U.S. Senate seat. The spill began on the heels of Crist’s announcement that he would leave the Republican Party to run for the Senate as an independent.

 —————————————————————–
OFFSHORE DRILLING: Salazar outlines MMS reorganization plan (05/11/2010)

Noelle Straub, E&E reporter

Saying the federal agency that oversees offshore drilling must avoid conflicts of interest especially in the wake of the massive Gulf of Mexico oil spill, Interior Secretary Ken Salazar today proposed a safety and environmental office separate from the leasing and royalty division.

The creation of a new safety and environmental enforcement entity will require the restructuring of the Minerals Management Service. The job of ensuring that oil companies follow the law should be independent from “revenue raising” activities, he said.

Currently, MMS collects billions of dollars in royalties each year. “It seems to me that separate and apart from that function, we ought to have the safety and environmental enforcement functions so there is no conflict, real or perceived, with respect to those functions,” Salazar said.

The new office will have about 300 employees and place inspectors that now work elsewhere into a centralized office, Salazar said. It may include creating an assistant secretary for environment and safety, he said. The details of the proposal remain to be fleshed out, he said, while many Interior officials are focused on the situation in the Gulf.

“What I don’t want to do in the reorganization is to take their eyes off the ball,” he said.
While Salazar will be able to carry out parts of the plan on his own through secretarial order, there are areas that may need congressional approval, he said. A legislative package is being worked on at the White House Office of Management and Budget and will be sent to Capitol Hill, he said. The “exact contours” of the legislation will be worked out by Congress, he said.

Senate Interior Appropriations Chairwoman Dianne Feinstein (D-Calif.) said her subcommittee will hold a hearing on the proposal, which she said must receive approval from congressional funders. There has been no hearing date set, she said.

“I’ve always looked at MMS as a relatively weak agency with not much by way of enforcement teeth,” Feinstein said. “I think if separation develops a set of enforcement teeth and independence — now we know what is out there, in terms of catastrophe, and we have to respond and see that it never, ever happens again.”

House Natural Resources Chairman Nick Rahall (D-W.Va.) said his panel will delve into the proposal when Salazar testifies before his committee at the end of this month. “Given this disaster in the Gulf, one has to ask whether leasing and safety policing are like oil and water and simply do not mix,” he said in a statement.

As for a timetable, Salazar said, “We will move forward with all deliberate haste to get this done quickly.”

The change means there will be additional and more robust inspections of rigs and drilling activities, he said. Promising the new agency will have independence, Salazar said it will take the industry’s input when developing new safety rules, “but that doesn’t mean the oil and gas companies essentially should be in the driver’s seats of any of these rules and regulations.”

Other regulatory reforms

Salazar also said he is submitting a proposal to Congress to increase to 90 days or more the amount of time MMS has to complete an environmental review of exploration plans. Under current law, the agency must review and make decisions about exploration plans within 30 days of when companies submit them.

“There is no way an agency can do an adequate environmental assessment within 30 days,” Salazar said.

The change will supplement the current environmental reviews that are already conducted at earlier stages in the leasing process, Salazar said, noting that there are environmental reviews at the planning and lease sale stages.

Salazar also announced he will be submitting a request to Congress for $29 million to strengthen and increase offshore inspections and enforcement and to study policy changes or actions that may be needed in the wake of the spill. Other changes are in the works, he added.

“These reforms will not be the last we will undertake,” Salazar said.

The reforms are meant to give Interior officials greater tools, independence and authority to enforce regulations, Salazar said. MMS was created administratively in the 1980s, but Salazar favors “organic legislation” that would establish the agency via an act of Congress and require that the head of MMS be confirmed by the Senate, which is not the case now.

Noting that he has spoken in favor of reforming the agency since early last year, Salazar said the fact Congress has not approved comprehensive climate and energy legislation is “probably what has impeded” the reforms from being enacted yet. But the ongoing Gulf disaster may spark a new effort on the issue, he said.

Salazar also announced that the National Academy of Engineering will conduct an independent technical investigation into the oil spill. That will be in addition to a joint investigation being carried out by MMS and the Coast Guard, a 30-day review by Interior of offshore safety, and a new safety oversight board to handle broader questions about management, oversight and safety.

Reactions

House Natural Resources Committee ranking member Doc Hastings (R-Wash.) said the proposal to split up MMS merits consideration. But Sen. Byron Dorgan (D-N.D.) said it is too early for decisions.

“I think we need a little time to figure it out,” Dorgan said. “We should think through what we want to do with the right regulatory framework, but I think it is too early to make judgments about it.”
Sen. Mark Udall (D-Colo.) said he needs to study the proposal, but added, “It certainly makes sense to me, though, at first blush, that you would separate out the regulatory responsibilities from the royalty collection responsibilities.”

Rep. Edward Markey (D-Mass.) praised the move, saying it “will provide the additional oversight of offshore oil and gas activities our country needs.” House Majority Leader Steny Hoyer (D-Md.) also expressed support, saying he thinks “it’s a good thing.” The Union of Concerned Scientists also favors the proposal, saying it is “long overdue.”

But Food & Water Watch Executive Director Wenonah Hauter said the proposed split “is insufficient to address the long-standing lack of regulatory oversight by the agency of the oil industry.”

“After the immediate danger of operating rigs is addressed comprehensively, it is time for a complete overhaul of the regulatory framework for overseeing the industry,” Hauter said in a statement. “Oil companies are going deeper into the depths of the ocean, and the risks to workers and the environment have dramatically increased. We need more than window dressing to make sure that another devastating spill doesn’t occur.”

Reporters Robin Bravender, Allison Winter, Kate Ling and Alex Kaplun contributed.

Politico: 55% support offshore drilling

http://www.politico.com/news/stories/0510/37074.html

By ANDY BARR | 5/11/10 4:35 PM EDT
Liberals are now significantly less likely to support offshore drilling, with 67 percent saying the spill skewed their opinions against future drilling.

In the wake of a massive oil spill off the Gulf Coast, 55 percent of Americans say they still support offshore drilling, according to a new survey from Public Policy Polling.

Thirty percent of the 707 registered voters polled nationwide opposed offshore drilling while 15 percent weren’t sure.

While a majority still back offshore drilling, the oil spill that has started to hit beaches along Louisiana has made 43 percent less likely to support further drilling off American coasts. Thirty-six percent said the spill has not changed their opinion while 21 percent are now more likely to support offshore drilling.

Liberals are now significantly less likely to support offshore drilling, with 67 percent saying the spill skewed their opinions against future drilling.

More conservatives actually said that the spill increased the likelihood that they would support offshore drilling, with 29 percent saying they are more likely to support future drilling since the spill compared to 23 percent who are less likely. Forty-eight percent of conservatives said the spill makes no difference on their opinions.

But while conservative views on offshore drilling have not been changed by the oil spill, very few said they are adopting a theory floated by Rush Limbaugh last week that environmental activists may be responsible for the incident that caused the spill.

Only 9 percent of conservatives said they believe environmentalists may have been responsible for the spill, compared with 22 percent who weren’t sure and 69 percent who didn’t think activists were responsible.

“It’s good to know that even if some Republicans think oil spills are a good thing, they at least don’t think environmentalists intentionally cause them,” PPP pollster Tom Jenson wrote on the firm’s blog.

special thanks to Richard Charter