April 2015

Offshore in depth

Deepwater Horizon, five years later
Ron Bitto / Contributing Editor

It’s been five years since the Deepwater Horizon blowout in the Gulf of Mexico, and the incident continues to widely impact the offshore industry and the public’s perception of oil and gas development.

On April 20, 2010, the Deepwater Horizon semisubmersible lost control of the Macondo well in Mississippi Canyon Block 252, southeast of Louisiana. Eleven men were killed in the explosion, the rig burned for 18 hours and then sank, and for the next 87 days, more than 3 MMbbl of crude oil were released into the Gulf of Mexico before the well was eventually brought under control.  

The Presidential Report on the incident concluded that a combination of mistakes, poor decisions and faulty equipment led to the blowout. An inadequate casing program, a poor cement job, a misinterpreted pressure test, poorly maintained blowout preventers, and personnel who lacked experience in handling emergencies all contributed to the disaster. With the drilling curve already five weeks behind schedule, the rig crew felt cost pressure that likely compromised safety. 

Staggering impact on companies. The blowout and spill had a devastating effect on the companies involved in the project. BP has paid, or committed to pay, $28 billion in clean-up and settlement claims, and is divesting $50 billion in assets to cover the cost. Anadarko and MOEX, BP’s partners on the well, have paid $4 billion and $1.07 billion, respectively. Transocean agreed to pay fines and penalties of $1.4 billion. Halliburton agreed to pay $1.1 billion to a class of plaintiffs who had sued BP, Halliburton and Transocean. Cameron, the BOP manufacturer, paid BP $250 million, and Weatherford paid $75 million. 

After lengthy court proceedings, U.S. District Judge Carl Barbier ruled in September 2014 that BP was grossly negligent and could be held liable for spilling 3.19 MMbbl of oil, with potential fines of up to $13.7 billion under the Clean Water Act.  

Questions about the environment. BP has waged a major PR campaign to show that it has made every effort to clean up the beaches, revive fisheries, promote Gulf Coast tourism, and fund research on the effects of oil spills on marine ecosystems. In March 2015, BP published a status report that paints a positive picture of the Gulf’s health, five years after the accident. According to the report’s introduction, “The science is showing that most of the environmental impact occurred immediately after the accident… Areas that were affected are recovering, and data BP has collected and analyzed, to date, do not indicate a significant long-term impact to the population of any Gulf species.” 

Environmental groups, like the National Wildlife Federation, immediately rejected BP’s report as propaganda. The groups contended that BP had “cherry-picked” data to support its views, and questioned the timing of the report, which BP released before the U.S. government could publish the findings of its National Resource Damage Assessment on the spill’s long-term impacts. 

Governmental response. After the Coast Guard took command of the well control operation, the U.S. federal government’s first response to the disaster was declaring a six-month deepwater drilling moratorium. Although the industry argued against the ban, the administration had no responsible alternative, as the well raged out of control, and a huge cleanup effort lay ahead.  

Following the disaster, the Department of Interior divided the Minerals Management Service, which previously had responsibility for all aspects of OCS leasing and regulation, into three separate entities. The Office of Natural Resources Revenue now collects all revenue from lease-holders. The Bureau of Ocean Energy Management (BOEM) manages development of the nation’s offshore resources. And the Bureau of Safety and Environmental Enforcement (BSEE) enforces safety and environmental regulations. 

Under the new framework, BSEE has issued new requirements for worker competency, materials tracking and regular inspections that affect all offshore operators and service companies. In response to stricter spill response guidelines, 10 Gulf of Mexico operators have invested over $1 billion in the non-profit Marine Well Containment Company, which has built a fleet of rapid-response vessels and equipment to quickly contain deepwater spills. 

Industry’s strong recovery. Predictions that the 2010 drilling moratorium and subsequent regulations would drive deepwater rigs out of the Gulf were largely unfounded. Once the moratorium was lifted, activity gradually recovered, reaching the pre-accident level of 50 units in September 2012, and peaking at 63 rigs in August 2014, before tapering off in the wake of lower oil prices.

After several years of slow decline, the U.S. EIA expects Gulf oil production to increase to 1.5 MMbpd this year, as eight new deepwater fields come online. Strong interest in the last two Central Gulf lease sales shows the industry’s ongoing belief in GOM prospects. 

Second-most serious fallout. Aside from the 11 lives that were lost five years ago, possibly the most serious fallout from Deepwater Horizon may be the industry’s damaged credibility. “Drill, baby, drill,” has become a punch line for environmentalists, proof of the industry’s recklessness. Despite BP’s assertions about the Gulf clean-up, serious questions remain about long-term environmental impacts. The images of a burning rig and tar on Gulf beaches are reasons for Eastern seaboard states to oppose new offshore leasing. The disaster also undermined the public’s trust in the industry’s ability to safely perform hydraulic fracturing. The bad rap carries over to concerns about Arctic drilling, construction of the Keystone XL pipeline, and rail transportation of Bakken crude. Our industry has safely, and responsibly, met bigger challenges than all of these, but a continued, patient effort will be needed to fully overcome the impact of mistakes made on one rig in April 2010. wo-box_blue.gif

About the Authors
Ron Bitto
Contributing Editor
Ron Bitto has more than 30 years of experience as a technology marketer and writer in the upstream oil and gas industry. RON.BITTO@GMAIL.COM
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