Bloomberg News

BP Gulf Drilling Plan Criticized by Environmentalists, Lawmakers

September 26, 2011

Sept. 26 (Bloomberg) -- BP Plc’s plan to resume full drilling operations in the Gulf of Mexico after the worst U.S. oil spill was criticized by environmental groups and lawmakers.

“We don’t think there is any way they can drill safely,” Jackie Savitz, a senior campaign director at Washington-based Oceana, said in an interview. “If we see an opportunity to stop drilling through litigation, we will seriously consider it.”

BP last week filed its first permit application for new drilling since the Macondo well spilled almost 5 million barrels of oil into the Gulf over three months last year. Two of its rigs have started work near the Atlantis platform and the company has plans for its three other contracted rigs in the region, according to people with knowledge of the plans who declined to be identified because they hinge on gaining regulators’ approval.

BP was “ultimately responsible” for the accident on the Deepwater Horizon rig that killed 11 and started the leak, though rigowner Transocean Ltd. and Halliburton Co, which provided cement, share some of the blame, a U.S. report said Sept. 14. The 212-page document issued by the Interior Department and Coast Guard said BP managers were distracted by cost overruns and personal conflicts.

‘Being Premature’

“By filing its first drilling plan a mere week after being cited for multiple violations of federal regulations by the government’s investigation team for the Deepwater Horizon disaster, BP now stands for Being Premature,” said Representative Edward Markey, a Massachusetts Democrat who sits on the House Natural Resources Committee.

Markey said in statement on Sept. 23 that he will push for executives to testify on safety and other lessons learned from Macondo before Congress.

Chief Executive Officer Bob Dudley, who took the helm almost a year ago, is seeking to revive Gulf production at the company’s most profitable fields after a 17-month slump. BP has lagged behind rivals in resuming drilling in the region and Goldman Sachs Group Inc. downgraded its recommendation because of lack of progress.

BP on July 15 said it will implement a higher standard of safety in its drilling than regulations require. It will now only use blowout preventers on the Gulf floor with at least two so-called blind shear rams, which seal wellbores by cutting through the drill pipe. The blowout preventer for the Deepwater Horizon had one blind shear ram that failed to cut off oil and gas from the well. BP will also set up a real-time drilling operations center in Houston.

Still Washing Up

“BP has not yet cleaned up its mess from the April 20, 2010 BP Macondo blowout, and until it does it should not be allowed to drill more wells in the Gulf of Mexico,” said Davit Pettit, a senior attorney at the New York-based Natural Resources Defense Council. “There is still oil from the BP Macondo well washing up on Gulf beaches. BP needs to take responsibility for this and get that oil out of the Gulf ecosystem.”

Gulf of Mexico oil is more than twice as profitable as production from the rest of BP’s portfolio, yielding about $60 in profit to the company when oil prices are $100 a barrel. In 2010, the Gulf of Mexico accounted for 28 percent of the company’s cash flow and just 10 percent of production, according to research by Citigroup Inc. analyst Alastair Syme.

Production as Collateral

The company’s payments into the $20 billion fund for spill victims demanded by President Barack Obama uses Gulf production as collateral. BP’s output in the Gulf has dropped to about 250,000 barrels a day from about 390,000 barrels a day before the spill, according to the company.

BP received permission to plug a well in the Green Canyon basin on Sept. 8 with the Development Driller II rig, owned by Transocean Ltd., according to data on the website of the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement, or BOERME. The Development Driller III started an abandonment procedure in July in the same block near the Atlantis platform. The jobs are scheduled to last into October, the permits show.

The Discoverer Enterprise, also owned by Transocean, is set to work near the Thunder Horse platform. Ensco Plc’s DS-3 is slated to drill development wells in the Na Kika prospect, and Seadrill Ltd.’s West Sirius rig is scheduled for work on Kaskida, according to two people with knowledge of the plans. BP hopes all three rigs will be operating this year, another person said.

BP’s Dudley said July 26 that BP is eager to “get back to work” in the Gulf, working closely with regulators, and that the pace of BP’s return depends on getting approvals for new wells. He said the U.S. Bureau of Ocean Management says BP won’t be held to a higher standard than its peers in its applications.

“On the basis of activity since Macondo, there’s no evidence that BP will do a better job than in the past,” said Charlie Kronick, a climate adviser at Greenpeace U.K., in a telephone interview. “There’s absolutely no way they should be drilling again.”

--Editors: Will Kennedy, Alex Devine

To contact the reporters on this story: Katarzyna Klimasinska in Washington at kklimasinska@bloomberg.net; Brian Swint in London at bswint@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Larry Liebert at lliebert@bloomberg.net


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