June 15 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward is being pressed about cost-cutting that House Democrats said added to the danger of an explosion at the company’s Gulf of Mexico oil well.
“Time after time, it appears that BP made decisions that increased the risk of a blowout to save the company time or expense,” U.S. Representatives Henry Waxman of California and Bart Stupak of Michigan said in a letter yesterday to Hayward. “If this is what happened, BP’s carelessness and complacency have inflicted a heavy toll on the Gulf, its inhabitants, and the workers on the rig.”
Hayward’s appearance before a House Energy Committee panel on June 17 will be his first since the well exploded, setting off the worst U.S. oil spill. The letter from committee chairman Waxman and subcommittee head Stupak listed a series of “shortcuts to speed finishing” the work, quoted a BP engineer calling it a “nightmare well” and asked Hayward to respond in his testimony.
The 14-page letter lays out the mistakes BP made in a way that is both understandable and damning, said David Pursell, a managing director at Tudor Pickering Holt & Co. LLC, a Houston investment bank.
“There’s no question what BP did wasn’t best practices,” Pursell said. “This letter confirms what we have thought. This is on BP.”
The lawmakers described five “questionable decisions” by BP before the April 20 explosion, including the use of a less robust well design, failure to anchor the well’s casing using a process recommended under industry practices and cutting short procedures to ensure cementing was sound. The decision on testing the cement was called “horribly negligent” by an expert the committee consulted, according to the letter.
“Tony Hayward is appearing before the committee on Thursday,” BP spokesman David Nicholas said. “It would be inappropriate to comment on these matters in advance.”
BP is under growing scrutiny in Washington, with executives summoned to Congress and the White House. President Barack Obama plans to speak from the Oval Office on the spill tonight, after a two-day tour of the Gulf Coast, and BP Chairman Carl-Henric Svanberg has been called to the White House tomorrow.
The government is demanding that BP set up an escrow account for damage claims related to the spill. Senate Majority Leader Harry Reid, a Nevada Democrat, called yesterday for a $20 billion fund to be overseen by an independent trustee.
The company’s shares fell 9.3 percent yesterday to 355.45 pence in London, the lowest closing price in 13 years. The stock is down 46 percent since the explosion that killed 11 workers.
Guy Cantwell, a spokesman for Transocean Ltd., which leased the Deepwater Horizon rig to BP, declined to comment on the letter, as did Teresa Wong, a spokeswoman for Halliburton Co., which provided cementing services.
Lawyers for plaintiffs may be able to use the panel’s letter, along with congressional findings and hearings, to develop their cases against BP, said Jere Beasley, a Montgomery, Alabama, lawyer who has filed multiple lawsuits over the spill. The findings may be used to seek documents and question company executives, he said.
“Apparently they’ll tell more to Congress under oath than to a court reporter,” Beasley said of Hayward. “The same questions would be asked of him again” in a civil lawsuit.
Lamar McKay, president of BP America Inc., will join executives from Exxon Mobil Corp., Chevron Corp., ConocoPhillips and Royal Dutch Shell Plc at a separate hearing of a House Energy panel today.
43 Days Overdue
The letter from Waxman and Stupak included 11 pages reconstructing the events related to the drilling that focused on five decisions the lawmakers said violated industry guidelines or were made over objections from BP personnel. The committee’s account was based on company e-mails, government documents and committee interviews.
BP executives in the “days and hours” before the explosion were under pressure to finish drilling because the Deepwater Horizon rig leased from Transocean was 43 days late for its next job, a delay that had already cost the company as much as $21 million in leasing fees, the lawmakers said.
An e-mail message from BP drilling engineer Brian Morel to colleague Richard Miller six days before the explosion called the project a “nightmare well which has everyone all over the place,” according to the lawmakers’ letter.
The lawmakers faulted BP’s design of the well, the process used to prepare the hole to be capped, the decision to skip testing the integrity of the cement sealer, the use of mud to clear gas from the well and elimination of a final step to seal the well. The following are the five issues cited by Waxman and Stupak:
Five days before the blast, BP concluded the method to secure the final 1,200 feet of well, called a liner/tieback, was too time-consuming and expensive, the lawmakers said. Using an alternative called a long-string casing would save at least three days and about $7 million to $10 million.
A liner/tieback approach provided multiple barriers to block the flow of gas that could trigger an explosion. The single steel liner had two places to seal the well: at the cement on the bottom of the sea and at the wellhead.
“BP was aware of the risks of the single casing approach,” the lawmakers said.
Centering the Casing
Standard industry practice is to center the well casing to reduce the risk that channels will form in cement, letting gas flow up the well, according to the letter. BP told Halliburton on April 15 it would use six devices called centralizers on the well, while Halliburton’s modeling showed 21 were needed, the lawmakers said.
When an objection was raised, BP’s Morel wrote back that it was too late to get more equipment to the rig: “It’s a vertical hole, so hopefully the pipe stays centralized,” he said.
When 15 units were found in Houston, BP’s well team leader Gregory Walz objected. “It will take 10 hours to install them,” Walz said, according to the letter. “I do not like this.”
Halliburton account representative Jesse Gagliano ran a computer model using seven centralizers. His April 18 report on the cementing design said the “well is considered to have a severe gas-flow problem,” according to the letter.
The decision to skip the so-called cement bond log, a test to assess the integrity of the seal, “may have been driven by concerns about expense and time,” the lawmakers said. Conducting the test using a team from Schlumberger Ltd. would have cost $128,000, while canceling the work was about $10,000, the lawmakers said.
The committee contacted Gordon Aaker, a failure analysis consultant with Engineering Services LLP in Houston, who said it was “unheard of” not to conduct the test and called BP’s decision “horribly negligent.”
The American Petroleum Institute recommends use of weighted mud to fill a well during the drilling process before cementing, the lawmakers said. The process, which can take as long as 12 hours, lets workers test for gas influxes and eliminate debris.
“BP decided to forego this safety step,” Waxman and Stupak said.
BP opted against placing a final piece of equipment to hold the well’s casing in place, called a lockdown sleeve, the lawmakers said. The device prevents the casing from floating above the head of the well and letting gases build up.
Both Transocean and Halliburton officials have told committee staff this was a key procedural mistake, the lawmakers said.
–With assistance from Lorraine Woellert in Washington, Edward Klump in Houston and Margaret Cronin Fisk in Southfield, Michigan. Editors: Steve Geimann, Larry Liebert
To contact the reporters on this story: Jeff Plungis in Washington at email@example.com.
To contact the editor responsible for this story: Larry Liebert at LLiebert@bloomberg.net.