Bloomberg News

BP Cost-Cutting, Conflicts Preceded Gulf Disaster, U.S. Says

September 14, 2011

(Updates with comment from Halliburton spokeswoman in 15th paragraph.)

Sept. 14 (Bloomberg) -- BP Plc managers overseeing the Macondo well were distracted by cost overruns and personal conflicts in the weeks before the April 2010 disaster that fouled the Gulf of Mexico with almost 5 million barrels of oil, the U.S. said today.

A 212-page report issued today by a joint Interior Department-Coast Guard panel reflects a management team in disarray when it was supposed to be monitoring and directing the “critical” final stages of drilling the well 40 miles (62 kilometers) off the Louisiana coast.

While holding BP “ultimately responsible” for ensuring the safety of crew members and the environment, Transocean Ltd., owner of the rig that was drilling the well, and Halliburton Co. shared some blame for the catastrophe that killed 11 workers, injured 17 and led to the worst U.S. marine oil spill, the report said. All three companies violated federal offshore safety regulations, the panel concluded. Halliburton provided the cement used in the well and related technical services.

John Guide, the BP engineer who led the team that designed and oversaw the Macondo project, based key decisions involving equipment selection and safety tests on whether they would boost costs for a project that was already $58 million, or 61 percent, over budget, the report said.

Team in Conflict

Evidence collected by investigators showed “BP personnel were aware of the cost overruns and were concerned about incurring additional costs that they deemed unnecessary,” the panel said. Guide’s “effectiveness at reducing costs was part of the evaluation of his performance as wells team leader.”

Guide, described by a presidential commission that conducted a separate probe into the disaster as the Macondo project’s “de facto leader,” worried he was about to be fired, according to an e-mail he wrote to his boss five days before the catastrophe, which was cited in today’s report. David Sims, who as drilling and completions manager was Guide’s superior, expressed concerns about his leadership skills but failed to make any changes, the panel said.

Including details about Guide’s work relationships in the investigative report was “downright cowardly” and “unfair,” David J. Stetler, a Chicago attorney representing the BP engineer, said in an interview today. Guide, who remains a BP employee, was unavailable to comment because he’s out of the country, his lawyer said.

“Despite public skepticism, John Guide never once made any decision that sacrificed safety for financial or any other reasons, not once in his life,” Stetler said.

Personnel Conflicts

An engineer on Guide’s team was considering changing jobs or quitting due to the turmoil, and the senior BP manager aboard the rig, Donald Vidrine, was fed up with multiple last-minute changes in instructions from shore-based engineers, the report said.

The personnel conflicts and missteps absorbed the attention and time that Macondo team members should have been devoting to the drilling project in the weeks and days leading up to the catastrophe, the panel said.

BP’s American depositary receipts, each of which represents six regular shares, rose $1.84, or 5.1 percent, to $38.29 at 4:08 p.m. in New York Stock Exchange composite trading. The ADRs have lost 37 percent of their value since the April 20, 2010, incident. Transocean rose $2.39, or 4.2 percent, to $58.89. Halliburton fell 13 cents to $39.36.

The cement that Houston-based Halliburton poured to seal the wellbore from the oil- and gas-soaked rock formation failed, allowing explosive gas to surge up to the rig floor to devastating effect, the report said.

Series of Mistakes

“The precise reasons for the failure of the production casing cement job are not known,” the panel said. The most likely causes were contamination of the cement with other fluids used in well operations, or pumping the cement beyond the target zone, creating a gap through which gas and oil could flow, according to the report.

“BP made a series of decisions that complicated cementing operations, added incremental risk, and may have contributed to the ultimate failure of the cement job,” the report said.

Zelma Branch, a Halliburton spokeswoman, said BP was in charge of design and well-construction decisions that left it vulnerable to a blowout. “Every contributing cause where Halliburton is named, the operational responsibility lies solely with BP,” Branch said in an e-mailed statement.

Transocean Takes Exception

Federal investigators faulted BP for failing to apprise Transocean crew members of all the risks associated with numerous design decisions. Nonetheless, Transocean and Halliburton workers aboard the Deepwater Horizon rig that night should have noticed the tell-tale signs that a blowout was imminent, the panel said.

“We take strong exception to criticisms of the Horizon drill crew, nine of whom perished fighting to save their fellow crew members and the rig, for the actions they took in the face of such an unprecedented emergency,” Brian Kennedy, a spokesman for Vernier, Switzerland-based Transocean, said in an e-mailed statement.

In addition to the nine Transocean employees, two contractors from drilling-fluid provider M-I Swaco also died in the incident. Of the 126 people aboard the rig that night, 115 survived by getting into escape capsules or leaping from the deck into the ocean, a drop of more than 80 feet.

“From the outset, BP acknowledged its role in the accident and has taken concrete steps to further enhance safety and risk management throughout its global operations, including the implementation of new voluntary standards and practices in the Gulf of Mexico that exceed current regulatory requirements and strengthen the oversight of contractors,” London-based BP said in an e-mailed statement.

--With assistance from Edward Klump in Houston. Editors: Jasmina Kelemen, Charles Siler

To contact the reporters on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net; Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editors responsible for this story: Larry Liebert at lliebert@bloomberg.net; Susan Warren at susanwarren@bloomberg.net


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