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A searing indictment: U.S. report faults BP and its subcontractors for the Deepwater Horizon disaster, despite the companies' well-documented safety and prevention procedures.

summary

* The U.S. government criticizes BP and its contractors for ignoring procedures.

* Oil companies already have risk management programs in place. The question is why aren't they following them?

riskandinsurance.com

* Read the Bureau of Ocean Energy Management, Regulation and Enforcement report.

* Lloyd's examines the Macondo oil well disaster, and its effect on the offshore insurance market.

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[ILLUSTRATION OMITTED]

At 9:50 p.m. on April 19, 2010, the Deepwater Horizon oil rig was a hive of activity. Oil-soaked roughnecks, senior toolpushers, toolpushers, drillers, assistant drillers, rig operators, electricians and engineers were going about their evening on the Transocean oil platform, as they prepared to shut down BP's exploratory drilling of the Macondo oil well.

Deepwater Horizon was a colorful and noisy place, one punctuated by the occasional clanging of metals, the screeching of massive wrenches, and the yelled expletive.

Despite its slippery decks covered with the greasy film of hydrocarbons mixed with mud, flames venting excess gases vertically and horizontally were a common occurrence.

April 19, 2010, was the last day of its working life. By 9:50 p.m. on April 20, the Deepwater Horizon had exploded into an infernal hell. Million-dollar equipment on the $350 million rig exploded to deadly shards, and melted from the heat as the oil spewed into the gulf.

Managers and workers scrambled off the platform into waiting ships. Those who didn't quite make it jumped for their lives into the water. For still others--11 in all--it was the end of their lives.

By 9:50 p.m. on April 22, all that was left of Deepwater Horizon was a cold, dark crippled hulk lying more than 5,000 feet beneath the waters of the Gulf of Mexico.

And the real work hadn't even begun. It would take another 87 days for BP, its contractors and the U.S. government to permanently seal the well and skim as much oil off the water as possible.

In the end, the well spewed nearly five million barrels--the equivalent of 206 million gallons--of crude oil into the gulf. The cleanup costs have run into the billions of dollars, with contractors, subcontractors and attorneys general all joining in a massive legal battle seeking financial recovery.

Now, 18 months after the accident, a U.S. government report on the spill blames BP for its approach to risk management, which contributed to the worst offshore oil spill in U.S. history.

The 217-page report, issued last month by the Bureau of Ocean Energy Management, Regulation and Enforcement, takes BP to task for "poor risk management, last-minute changes to plans, failure to respond to critical indicators, inadequate well-control response, and insufficient emergency bridge response training by companies and individuals responsible for drilling and for the operation of the Deepwater Horizon."

It also chastises BP for choosing not investigate a March 8, 2010, incident in which the flowing well went undetected for 30 minutes, and why 10 of the 11 workers who were on duty during the March 8 incident were also on duty on April 20.

Scheduling conflicts and cost overruns were also an issue, as Deepwater Horizon was more than a month behind schedule and $58 million over budget, according to the report.

Ironically, the report found BP ignorant of its own procedures designed to promote safe drilling practices to protect workers, and concluded that the oil company suffered from the complexity of some risk management procedures.

BP has accepted the bureau's latest findings. "BP agrees with the report's core conclusion consistent with every other official investigation that the Deepwater Horizon accident was the result of multiple causes, involving multiple parties, including Transocean and Halliburton," the company said, in a statement posted on its website Sept. 14.

London-based BP said it had taken "concrete steps" to enhance safety and risk management throughout its operations, including the implementation of voluntary standards and practices in the Gulf of Mexico "that exceed current regulatory requirements and strengthen the oversight of contractors."

BP holds more than 500 active leases in the Gulf of Mexico, more than any other lessee, the government report said. The oil company produced more than 559.3 million barrels of oil from its Gulf operations from 2005 to 2009.

BP, Transocean, Halliburton, which was responsible for the cement casings used to drill into the bottom of the seabed, and Cameron, the maker of the blowout preventer, are required to have documented risk management and safety and prevention programs.

The Bureau of Ocean Energy Management, Regulation and Enforcement report noted a number of safety and prevention initiatives implemented by BP and Transocean.

In January 2009, BP issued a company standard on assessment, prioritization and management of risk, which recognized that "inconsistent or ineffective identification and assessment of risk to health and safety of people, the environment and operating performance can create many issues for the organization," the report said.

BP's purpose for issuing the standard was to "provide a consistent approach to risk management to target resources most effectively for continuous risk reduction," the report said.

On April 20, 2010, BP had a number of carefully documented policies and practices addressing drilling operations, change management, safety and risk management, the report said.

In fact, BP was in the process of implementing a companywide approach to management called the Operating Management System, intended to "provide a standardized approach that promotes effective and consistent risk management across the company," the report said.

Transocean Ltd., the company that operated the Deepwater Horizon rig, had in place a "THINK" program designed to increase awareness of safety issues through task planning, hazard identification and assessment of the likely consequences of a potential incident.

"THINK is used by the company to formulate and communicate the plan," the report said, citing Transocean documents.

As part of BP's operations integrity and risk management programs, the firm developed a systematic, risk-based "management of change" process to document, evaluate, approve and communicate changes to facilities, systems, process, procedures, organization and personnel.

With all the risk management programs and procedures in place, the question is why weren't the companies following their own sound advice? It's a good question.

Rick Nicholson, an analyst with IDC Energy Insights, wrote in a Sept. 15 Internet posting that the Macondo oil spill would "focus the industry, on prevention and incident management," and that the industry would "rethink risk."

Perhaps, or maybe the companies will simply follow their own advice and risk management programs and procedures already in place.

CYRIL TUOHY is managing editor of Risk & Insurance[R]. He can be reached at ctuohy@lrp.com.
BLOW BY DEADLY BLOW

The final nine minutes before the explosion on the Deepwater Horizon,
April 20, 2010.

9:40 p.m. Mud overflowed the flow-line onto the rig floor.
9:41 p. m. Mud shot up through the derrick. Diverter closed, and
 flow routed to mud gas separator; blowout preventer
 activated.
9:42 p.m. M/V Damon Bankston advised by Deepwater Horizon bridge to
 stand off 500 meters because of problem with the well.
 M/V Damon Bankston began to move away.
9:44 p.m. Mud and water exited the mud gas separator vents; mud
 rained down on the rig and M/V Damon Bankston as it
 pulled away from Deepwater Horizon. Toolpusher called
 wellsite leader and stated that they were "getting mud
 back, and that they had diverted the mud gas separator,"
 and had either closed or were closing the annular.
9:45 p.m. Assistant driller called the senior toolpusher to report
 that "the well is blowing out ... (the toolpusher) is
 shutting it in now."
9:46 p.m. Gas hissing noise heard, and high pressure gas discharged
 from the mud gas separator vents toward deck.
9:47 p.m. First gas alarm sounded.
 Gas rapidly dispersed, setting off other gas alarms.
9:47 p.m. Roaring noise heard and vibration felt.
9:47 p.m. Drill pipe pressure started rapidly increasing from 1,200
 psi to 5,730 psi.
9:48 p.m. Main power generation engines started going into
 overspeed.
9:49 p.m. Rig power lost. Sperry-Sun real-time data transmission
 lost.
 First explosion occurred an estimated five seconds after
 power lost.
 Second explosion occurred an estimated 10 seconds after
 first explosion.

Source: BP Deepwater Horizon Accident Investigation Report
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Title Annotation:RISK REPORT: ENERGY
Author:Tuohy, Cyril
Publication:Risk & Insurance
Date:Oct 15, 2011
Words:1377
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