BP Plc (BP/)’s internal investigation of the fatal explosion and oil spill at its Gulf of Mexico Macondo well didn’t focus on whether management-system failures contributed to the disaster, an executive testified.
Officials asked to review the 2010 explosion on the Deepwater Horizon rig and subsequent oil spill focused on operational issues rather than systemic safety flaws as part of their six-month probe of the incident, Mark Bly, a BP executive who led the investigation, told a judge in New Orleans today.
“We felt we had good results from what we’d gotten” from operational review of miscues on the rig, Bly testified in a trial over claims about the spill. BP executives “made the choice not to go” further with the probe, he added.
After hearing evidence in the three-month trial, U.S. District Judge Carl Barbier will decide who is liable for damages tied to the largest offshore spill in U.S. history and whether BP, Transocean Ltd. (RIG:US) or other companies that worked on the project were grossly negligent in their handling of the rig and well. His ruling in the nonjury trial will affect how much each company may have to pay.
The Deepwater Horizon explosion killed 11 rig workers and sent more than 4 million barrels of oil spilling into the Gulf. The accident sparked hundreds of lawsuits against London-based BP, Vernier, Switzerland-based Transocean, owner of the rig, and Houston-based Halliburton Co. (HAL:US), which handled cement work on the well.
If well owner BP is found grossly negligent, the company may be liable to the U.S. for as much as $17.6 billion in Clean Water Act fines, as well as unspecified punitive damages to claimants who weren’t part of a $8.5 billion settlement of lawsuits. For Transocean and Halliburton, a similar finding would mean they could face punitive damage awards.
Lawyers for the government and spill victims contend BP was over budget and behind schedule on the deep water Macondo well located off the Louisiana coast, prompting the company to cut corners and ignore safety tests showing the well was unstable.
They also allege Halliburton’s cement job was defective and Transocean employees made a series of missteps on the rig, including disabling safety systems, failing to properly maintain the installation and not adequately training its crew to handle crisis situations.
BP sued its contractors, claiming Transocean employees’ miscues were the main cause of the explosion and that Halliburton concealed flaws with cement work done on the drilling project. Transocean and Halliburton countersued, pointing the finger back at BP on liability issues.
During testimony in the case today, Bly acknowledged his investigators didn’t interview the company’s top managers after the blast as BP’s internal-review policies mandated. The policy urges officials to consider “underlying system causes” for such disaster.
Instead, the Bly investigation focused its inquiry solely on the offshore oil rig, including actions by BP, Transocean and Halliburton personnel on the vessel and support personnel onshore.
Bly said upper management’s requirement that the probe be finished as quickly as possible didn’t leave time for a thorough review of the company’s systems and so he was granted an “exception” to the company’s investigative policy.
The BP executive also said he wasn’t familiar with an October 2009 memo from Kevin Lacy, one of the company’s drilling supervisors, who warned his superiors that corporate budget cutting had affected safety systems for such projects.
Paul Sterbcow, one of the spill victims’ lawyers said in his questioning of Bly that Lacy was fired after he sent the memo. Lacy testified earlier in the trial that there were repeated “directives to cut costs” for two years prior to the explosion of the Gulf rig.
“I was never given a directive to cut corners or deliver something unsafe, but there was tremendous pressure to cut costs,” he said in a video deposition. BP managers encouraged him to cut as much as $350 million in costs in 2009 alone, he said.
Sterbcow questioned whether BP’s agreement to have outside officials monitor future drilling operations as part of a guilty plea to criminal charges over the Macondo spill provided evidence that the company’s management systems were flawed.
“Obviously, there was a terrible tragedy here, but I don’t think it says the management system we employed here was an absolute failure,” Bly said.
During his testimony, Bly complained that BP investigators didn’t have access to all records relevant to the explosion and spill. For example, he said Halliburton officials never turned over lab results on tests of the cement formula use on the Deepwater Horizon.
BP sent e-mails to Halliburton pointing out that it was “contractually entitled” to the tests and that the contractor’s failure to hand the records over “continues to impede” BP’s investigation, Bly said.
While they had access to some Transocean records, officials of the drilling company didn’t make themselves available to BP investigators for an interview about the steps leading up to the explosion and spill, he added.
Bly told Barbier the company’s internal probe found BP and Transocean officials missed red flags raised by safety tests on the rig and maintenance issues contributed to the disaster.
For example, the rig’s emergency disconnect system had batteries that weren’t properly charged and the installation’s so-called blowout preventer, designed to stop explosions, also had dead batteries and faulty wiring, the BP executive said.
The trial, initially set to begin last March, was rescheduled after BP reached a settlement with most individual and other so-called private-party plaintiffs.
The settlement, which isn’t capped, excludes claims of financial institutions, casinos, private plaintiffs in parts of Florida and Texas, and residents and businesses claiming harm from the deep-water drilling moratorium.
It also didn’t cover federal government claims and Gulf Coast states Louisiana and Alabama, or lawsuits against defendants. BP has said the states are claiming at least $34 billion in damages.
The U.S. government sued BP and Transocean in 2010 for violations of the Clean Water Act and the Oil Pollution Act, seeking fines, cleanup costs and natural-resources damages.
Last month, Transocean pleaded guilty to a misdemeanor Clean Water Act violation and agreed to pay $1.4 billion, including $400 million in criminal penalties. The company said then it hadn’t settled natural-resource damages claims.
BP pleaded guilty to 14 federal charges, including 11 manslaughter charges, over the deaths of the rig workers. It also admitted it misinterpreted a critical safety test just before the explosion.
It agreed to pay $4 billion in fines and penalties, plus $525 million to settle a U.S. Securities and Exchange Commission claim that the company underestimated the size of the spill.
The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
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