Oil Spill Commission Final Report

Jim Brown
Printer Friendly Version

The Presidential Oil Spill Commission just released their final report and the companies involved in the spill got a look at how the liability trial will probably end. The commission assigned responsibility for each of the nine decisions that led to the disaster.

It is not a pretty picture for BP. However they did find the Oil Spill Commission (OSC) found fault with a couple of the other contractors. BP did not shoulder all the blame but the other contractors may not have been liable if BP management had not made so many bad decisions.

The OSC decided it was clearly a failure of the cement job that allowed the well to blow out but the decisions made in designing and implementing the cement process were the likely reason it failed.

What we find out from reading the report was a bunch of weary drillers eager to plug the well and go home, probably took short cuts and skipped some tasks because it was the well that would not end. It had been trouble from the start and the first rig to drill the first 9,000 feet was removed from the project for hurricane damage. The Horizon was called in to finish the well and ran into problems almost immediately.

The Macondo well was supposed to be drilled to 20,000 feet to test multiple pay zones. At slightly over 18,000 feet the pay sands were so porous that the pressure from the mud was fracturing the formation and the mud was leaking into the formation. Additional drilling had to be abandoned. BP had estimated the formation to contain 50 million barrels of oil and they did not want to risk damaging the formation by continuing to a lower depth.

Even at 18,000 feet it takes the workers on the rig 18 hours to remove the pipe to change the bit or add a tool. Basically they lose a day or more every time there is a problem in the hole. This constant fighting of problems is very fatiguing to the drillers and increases the risk of errors.

Fatigued crews tend to accept the obvious answers or the answers they want to hear when looking for a solution to a problem. The OSC said they probably had a bias and they were looking for answers that would fit their bias.

This is the list of decisions that led up to the blowout and the firm responsible for the decision.

OSC Decision List

Note that Cameron, the maker of the blow out preventer is not on the list. For all intents and purposes Cameron has been absolved from any liability although the BOP testing has not been completed. The OSC said that even if the BOP had been fully functional the blowout was fully in motion before anyone tried to activate the BOP. Also, they theorized the connections to the BOP may have been severed in the first explosion rendering the controls on the Horizon useless. I am sure there will be another OSC report once the BOP examination is completed.

Transocean is faulted for not recognizing the rising pressure in a timely fashion but BP engineers were also receiving real time data from the same source and they did not catch it either. Transocean was faulted for an incorrect response when they realized it was blowing out but with only seconds to react the OSC claims it would not have made much different.

I realize this incident has been reported to death and many readers may not have any further interest in the facts but I found the report interesting although lengthy. The report literally goes minute by minute in some cases and references the actual conversations and real time log data.

I captured the pertinent part about the sequence of events and responsibilities leading up to the explosion and you can read it here in PDF form. OSC_Section_II

Overall it was an unfortunate set of circumstances that led to some bad decisions and a serious disaster. Crew members did not really understand the seriousness of the situation. More than 55,000 wells have been drilled in the Gulf and the only major blowout was years before most of the workers had been born. None had any real life experiences with a blowout of this magnitude.

In other words they really did not realize they were playing with not just a loaded gun but an active bomb just waiting for the right set of circumstances to blow them and a $600 million rig to pieces.

You can bet that any future drilling decisions on offshore wells will be carefully evaluated by the entire team rather than have some $28 an hour assistant driller with an iPod and buds in both ears ignore facts that will cost the owners tend of billions in damages.

This was a wakeup call for the industry and even if the other majors were not as lax as BP before you can bet they will be very meticulous in the future. They have the roadmap for disaster in the OSC report and nobody is going to want to see their decisions diagrammed in a future OSC investigation.

Jim Brown

This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.

Subscribe to Energy Picks Newsletter

See a list of our closed plays from 2010 here: Closed Positions

The OilSlick Newsletter is based on the expectations for global oil production to peak and begin to decline in the 2012-2014 timeframe. This is called "Peak Oil." This is the point where global production of conventional oil supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Oil countdown clock is ticking and time is growing short. Peak Oil is coming, are you prepared?