Execs Point Fingers over Oil Spill

Deepwater Horizon Gulf of Mexico Oil Spill

WASHINGTON (Dow Jones Newswires), May 11, 2010

Executives of the three main companies connected with the Gulf of Mexico oil spill pointed fingers at each other in U.S. Senate testimony Tuesday as lawmakers criticized them and federal offshore-drilling regulators.

The first of a round of congressional hearings was convened Tuesday by the Senate Energy and Natural Resources Committee in the same room used for hearings into the 1912 sinking of the Titanic, the supposedly unsinkable ocean liner--a coincidence noted by Sen. Robert Menendez (D.-N.J.), a critic of offshore drilling.

The Titanic "was a boat so technologically advanced it could not sink," Menendez said. The Deepwater Horizon rig that sank April 20 was supposed to be "a rig so technologically advanced it could not spill."

Senators pressed executives from BP PLC (BP, BP.LN), the well's owner; Transocean Ltd. (RIG, RIG.EB), the rig owner; and Halliburton Co. (HAL), a major drilling operations contractor, for answers as to what caused the explosion that ultimately sank the Deepwater Horizon rig. In response, the company executives highlighted questions about each other's performance.

In his testimony, Halliburton executive Tim Probert said the company had not placed a final cement plug within the well when the accident occurred. The plug is designed to prevent gas from escaping up the pipe to the surface.

Such plugs are normally put in before heavy drilling fluid, or is removed, according to industry experts. But in the case of the Deepwater Horizon, Probert said drilling mud was removed before a final cement plug was placed in the well. The mud was replaced with seawater, which is much lighter than mud.

Probert declined to say how frequently companies remove mud before installing the final cement plug. He went beyond his prepared testimony on Tuesday and said that a final test of the integrity of the cement wasn't performed. He said that two other tests, a "negative" and a "positive" pressure test, were performed, but "I can't comment as to what the information was."

He stressed that Halliburton "is contractually bound to comply with the well owner's instructions on all matters relating to the performance of all work-related activities."

Citing a worker who was on the drilling rig at the time of the April 20 explosion, The Wall Street Journal reported Tuesday that Halliburton was getting ready to set a final cement plug at 8,000 feet below the rig when workers received other instructions. According to this worker, BP asked permission from the federal Minerals Management Service to displace the mud before the final plugging operation had begun.

Asked about The Journal's report by Sen. Jeff Sessions (R., Ala.), BP America's chairman and president, Lamar McKay, said he had not read the article and was not "familiar with the procedure on that particular well."

Probert and Transocean Chief Executive Steven Newman said any discussion with the MMS would have involved BP.

Lamar McKay, head of BP America, said it was Transocean that "had the responsibility for the safety." McKay said no conclusions should be drawn before an investigation is complete, but that "we've not dealt with a situation like this before" involving drilling in ultra-deep waters 5,000 feet below the sea.

In an interview after the hearing, Sessions called the witnesses' responses "disappointing" and faulted them for what he said was a shortage of "candor."

"It would have been appropriate for them to be more forthcoming," he added.

Deepwater drilling, which involves drilling in depths of at least 1,000 feet of water, has boomed over the past decade as U.S. oil companies shut out of unfriendly foreign territories have searched for domestic supplies. At the end of 2008, some 141 projects were producing oil in the deepwater Gulf of Mexico, up from 122 in 2006, according to the U.S. Interior Department's Minerals Management Service. Drilling in the Gulf of Mexico now accounts for 30% of domestic oil production, with three-fourths of the oil production coming from deepwater activities.

The cause of the April 20 Deepwater Horizon disaster remains unclear.

"The one thing we know with certainty" is that in the blast "there was a sudden, catastrophic failure of the cement, the casing or both," Transocean's Newman said.

The fingerpointing prompted Alaska Republican Sen. Lisa Murkowski to warn all three companies could be hurt if the industry can not restore confidence in offshore drilling safety. "This incident will impact [upon] the development of energy policy for our country," she said.

Committee Chairman Sen. Jeff Bingaman (D, N.M.), said that a combination of human, technological and regulatory failures were to blame.

"At the heart of this disaster are three interrelated systems--a technological system of materials and equipment, a human system of persons who operated the technological system and a regulatory system," Bingaman said. "These interrelated systems failed in a way that many have said was virtually impossible. We need to examine closely the extent to which each of these systems failed to do what it was supposed to do."

Senators also questioned the performance of the Interior Department's Minerals Management Service, the regulator for offshore drilling operations.

The Obama Administration announced Tuesday plans to split up the MMS, separating the parts of the agency that oversee rig safety from the operations that collect oil revenue.

Copyright (c) 2010 Dow Jones & Company, Inc.

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