How BP Slipped on the Gulf Oil Slick

BP (NYSE: BP) was behind schedule and $58 million over budget, leading it to take unnecessary risks on the troubled Macondo well in the Gulf of Mexico that led to the Deepwater Horizon explosion and environmental disaster, a new report concludes.

The report released by federal investigators yesterday paints a disturbing picture of a company that willingly jeopardized people, property, and the environment through poor risk management, failure to respond to warning signs, and a repeated pattern of missed steps at a BP-operated drilling site.

But there's plenty of blame to go around, according to the latest final federal report, this one by a joint task force of the Bureau of Ocean Energy Management, Regulation, and Enforcement and the Coast Guard. The report outlines a succession of errors by both BP and its chief contractors, including Transocean (NYSE: RIG), which owned the semisubmersible rig, and Halliburton (NYSE: HAL), which was responsible for cementing the well.

Like an earlier report issued in January by a commission named by President Obama to examine the disaster, this one concludes the primary cause of the explosion aboard the Deepwater Horizon was a failure of the cement at the base of the 18,000-foot-deep well that was supposed to contain oil and gas within the well bore.

That led to a succession of human and mechanical errors that allowed natural gas under tremendous pressure to shoot on to the drilling platform, causing the April 20 explosion and fire that killed 11 of the 126 crew members and caused an oil spill that took 87 days to get under control.

(Actually, many living along the Gulf Coast will argue that the spill may have been controlled, but it has never been corrected. They say tar balls and dispersants used by BP to thin the oil continue to wash ashore. But back to the latest report.)

Like the final report that came before it, this one concurs that the deaths from the explosion in the Gulf, and secondarily the loss of the Macondo well itself, were the senseless result of preventable errors -- small things that snowballed to disasters because no one bothered to say something when they saw something wrong.

Or, in the more measured parlance of the January report, "the well blowout can be traced to a series of identifiable mistakes made by BP, Halliburton, and Transocean that reveal such systematic failures in risk management that they place in doubt the safety culture of the entire industry."

But is that statement too broad-based -- and mild?

Clearly, BP, Halliburton, and Transocean screwed up. But is there evidence that their actions are representative of the energy industry? It doesn't seem so. The report finds more company-specific failures of safety policy in the Deepwater Horizon disaster.

It's interesting to note that less than a month before the catastrophic accident, former BP COO Doug Suttles boasted about the company's commitment to "drive the right behaviors" through the organization during the keynote address at the SPE Intelligent Energy Conference in Utrecht, the Netherlands.

If you read the report released yesterday -- all 217 pages -- you'll find little evidence of "the right behaviors" by BP or anyone else, for that matter. (However, you may understand more clearly how BP beat Bank of America (NYSE: BAC) for the dubious distinction of being named the Worst Company in America in Consumerist.com's sixth annual poll.)

What's the takeaway? You'll likely end up feeling uneasy about BP's lack of transparency in its dealings with contractors. And you'll wonder why the oil and gas professionals working on the Deepwater Horizon or even those working on the project behind the scenes failed to speak up when they saw, heard, or recognized potentially life-threatening flaws.

Were they lazy? I doubt it. You don't work on an oil rig if you're lazy.

Were they stupid? I don't think so. There is a lot of collective intelligence among oil and gas workers, even at the lower levels. People know what they're doing. Or rather, they know what they should be doing.

Consider this: Two months ago, in a closed-door deposition, Galina Skripnikova, a BP petrophysicist, told attorneys involved in the oil spill litigation about a previously unreported deposit of flammable gas that could have played a role in the oil spill, according to documents obtained by the Associated Press.

This information was not relayed to drilling engineers on the Deepwater Horizon to warn them, Skripnikova said, though she suggested in her deposition that she thought the information would be passed up the chain. BP apparently failed to divulge the finding to government investigators for at least a year, court documents claim.

There are a lot of court papers in the Deepwater Horizon case. All the companies involved in the accident are suing one another. Halliburton just sued BP, alleging that it provided wrong information about the actual location of oil- and gas-producing zones in the well before Halliburton performed its cementing services.

This year, BP filed suits in the New Orleans federal court against two of its contractors -- Transocean and Cameron International Corp. (NYSE: CAM) -- seeking billions of dollars in damages and other costs. BP is charging both with negligence.

Now criminal charges may come into play. The latest study cites seven violations of federal regulations, including laws that required BP and its contractors to operate in a safe manner, to take measures to contain oil and gas for the protection of health and the environment, to conduct reliable tests of well pressures, and to notify federal regulators of changes in drilling plans. The Justice Department is conducting a criminal investigation that could bring indictments and heavy fines. And those will likely affect the outcome of the civil suits.