British Petroleum

Gulf Oil Disaster – Beneath the Waves

The sinking of the Deepwater Horizon oil rig in the Gulf of Mexico is an economic disaster and may prove to be an ecological disaster. The graphic below shows the situation in cross-section.

Gulf-cross-section-oil-spill

The primary cause of the disaster is yet to be determined. There is speculation that an unexpected pressure surge destroyed, or overcame, the 450-ton blowout preventer. Natural gas separated from the oil and caused an explosion and fire on the rig. There have been suggestions of improper cementing in of the well head, of metallurgical failure of the drill pipes, and of human error, even some speculation of sabotage.

The Deepwater Horizon rig, located 45 miles south of the Louisiana coastline, was attempting to exploit an oil field discovered in 2006, by a consortium of oil companies. The first well in this field, called the Jack well, was drilled in 7,000 feet of water, to a depth of more than 20,000 feet below the sea floor. It found a major field in a geological area called the lower tertiary trend. It is estimated that the formation may hold up to 15 billion barrels of oil, which could boost America’s reserves by 50 percent. The three companies took major geologic risk by targeting the lower tertiary, but they were proved right. The Jack well cost more than $100 million.

When the surface rig sank, the riser pipe kinked and restricted the leakage to about 5,000 barrels (210,000 gallons) per day. However, if there is another pressure surge, that pipe or the well-head could break and result in unrestricted flow of oil into the Gulf. A good well in that region could produce up to 30,000 barrels per day.

A relief well is being drilled, but according to BP, the owner, that effort could take two to three months to stem the flow. When that well intercepts the original well, special heavy fluids can be injected to stem the flow, then the original well can be sealed.

Blowouts such as this one are uncommon in U.S. waters. The last one was in Santa Barbara in 1969. That one was close to shore. There are many natural oil seeps, especially off the California coast. In fact National Geographic has an article about an asphalt volcano developed 10 miles off-shore from Santa Barbara.

The following is taken from “Seis Matters” a blog by an oil industry professional. It discusses what probably happened. The article refers to Transocean the owner of the drilling rig, which was hired by British Petroleum, the company holding the lease on that portion of the oil field and paying for the well.

According to the Transocean veteran, BP had discovered significant quantities of oil and gas at Macondo, the name of the field that the Deepwater Horizon rig was drilling. BP had reached total depth and penetrated the reservoir horizon at 18,000 feet. Halliburton had cemented the last casing string in the well and inserted several cement plugs within it which BP intended to drill out at some future point when they returned to Macondo to begin full-field development.

With the cement plugs in place, Transocean had begun the process of removing the drill string in the well (used during the cementing operation) and had begun to replace the heavier mud in the wellbore with less dense sea water. This is apparently a common practice, as the plugs are designed to contain the reservoir fluids downhole. Effectively, the Deepwater Horizon was hours away from moving off the Macondo location.

At this point, some speculation begins. The leading hypothesis is that the cement plugs failed. The drilling crew wouldn’t be expecting a failure and perhaps weren’t monitoring the systems that detect an influx of fluids into the well, drill string, and drill pipe riser. Unbeknownst to those on the rig, a mixture of gas and water was coming up the drill string and riser to the surface and the deck of the Deepwater Horizon. The volatile mixture of high-pressure hydrocarbons likely ignited quickly and unexpectedly, killing the 11 individuals who were on the drilling floor itself.

Normally, one of these drillers would have hit the “panic button” that closed the blowout preventers (BOP) on the seabed, but likely didn’t have the time to do it. The toolpusher a bit farther away also has access to a panic button, but himself may have been incapacitated in the explosion or, if the electrical switches to the BOP were cut when the riser exploded, may have been unsuccessful in his attempt.

The next line of defense is called a “dead man’s switch” and is supposed to activate the BOP on the sea floor if electrical and hydraulic communications with the rig are lost. If this switch had activated properly, five hydraulic “rams” under thousands of pounds of pressure, including one “shear ram” that acts like a pair of scissors, should have cut the drill string and closed in the well. The shear ram is designed to cut up to 13-3/8 casing, which is far larger than what was in the well at the time.

For reasons not understood, the BOP’s either didn’t activate at all or didn’t do their job as intended. ROV pictures from the seabed show drill pipe extending out of the BOP (which should have been sheared off) and the oil is leaking at this point, as well as at several points above it where a part of the drilling riser remains.

As for liability, it primarily rests with BP according to this panel of experts. Maritime law has a precedent called “the anchored tanker” that says that the owner of the anchored tanker is liable for any damage resulting from it, even if that tanker is hit by another ship that was behaving in a reckless or negligent manner. BP is the owner of the anchored tanker in this case.

Moreover, the typical 100+ page drilling contract specifies that the rig owner (Transocean) is liable only for spills that happen in the course of the drilling operation (such as a tank of diesel rupturing and spilling overboard). In the case of a blowout, all drilling contracts specify that those are the responsibility of the oil company that has contracted the rig (BP in this case) and that most of them even specify that the oil company will “protect and indemnify” the rig owner even if they are shown to be reckless, negligent, or had behaved with gross misconduct.

It would appear that this will be hard for BP to prove, especially since the Deepwater Horizon was the “top performing rig” for BP worldwide, with an unmatched safety and operational performance record and a crew that had been on board more or less continuously since 2001. Net-net, it sounds like BP is going to shoulder the lion’s share of the liability for this accident and clean-up.

As for fall-out, there are three expected ramifications. The first is the “natural resource damage” that will be incurred (presumably by BP) as marine habitat, fisheries, etc. are shut-in and temporarily or permanently damaged. These costs, primarily resulting from jury awards or settlements in commercial litigation, are expected to far outweigh the clean-up costs (which themselves are estimated to be approaching $1 billion).

The second impact will likely be increased government intervention. The participants on the call don’t believe that there will be a blanket ban on offshore drilling (despite some White House commentary suggesting this earlier today) but they do see Congress spending significant time on the holistic topic of offshore drilling in the years ahead. In their opinions, this could actually be a good thing as it might provide a more consistent and stable regulatory regime for E&P operators.

Lastly, they expect higher costs to conduct offshore E&P operations. Similar to Congress mandating double-hulled tankers after the Exxon Valdez spill, they expect a host of regulations to be put in place to add “double and triple redundancy” in offshore operations to prevent incidents like the Deepwater Horizon explosion and the Macondo blowout and spill from repeating in the future.

A truly unfortunate incident in every sense.