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The BP Saga Continues….What Can We Learn?

June 1, 2010

We have all learned a lot in the BP classroom.

1.  The pressures from the well head in the brittle lithosphere are tremendous.    There is widespread incredulity that a major oil company was so totally unprepared for a blow-out, especially given some of the internal communications (see #2).

2.   The documentation trail, as reported in the NYT, suggests corners were cut regarding both the casing used and the blow-out preventer, and that a special permission was granted internally because the casing violated BP’s own design standards and safety policies.  According to the NYT, the internal reports do not explain why the company allowed the exception.

3.  At the Congressional hearings, a string of witnesses recounted cut corners and bad decision in the days and moments before the April 20 explosion.

4.  There is distrust and continued skepticism – based on BP actions – that the company is being open and forthright about its knowledge of the well, the flow-rates, and the implications for the environment.

5.  While it appears that the PR department has reined in some of CEO’s Hayward’s insensitive comments – or perhaps his own observations of the environmental destruction his company is causing – true partnership falls short.

6.  There are still significant discrepancies in the estimates of oil flowing from the break, although all are significantly higher than BP’s initial estimates of 5,000 barrels per day.  The technology exists to easily get a more accurate number.  Since BP is on the hook for fines, based on the volume, it has been appeared to be in its interest to low ball, and to continue to be uncooperative in the efforts to gain accuracy.  I would suggest that behavior could back-fire, giving the Government little reason to mitigate their estimates.

7.  BP’s Hayward continues to dispute ANY potential for there to be plumes of oil floating beneath the surface, in spite of the evidence gathered by several universities.  Experiments at UNC-Chapel Hill by fluid dynamics researchers show that the oil’s behavior depends on “whether a spill is released in the form of a turbulent jet or is under less pressure…. The mixture from the first more turbulent jet is trapped underwater in a horizontal plume when it reaches the level where the surrounding water density changes;  the second less turbulent jet is not trapped, and the oil rises to the surface.”  (http://futurity.org/top-stories/gulf-spill-why-oil-plumes-dont-surface/#more-12625)

UNC researchers also analyzed video of the current spill to try to determine how much oil is leaking into the Gulf.  Their estimate:  56,000 barrels per day.

8.  BP continues to use the more toxic dispersant, in spite of repeated requests by the EPA to move to a less toxic option.   Apparently there is no data on the toxic effects of the dispersant in the quantities being used by BP.  Clearly, however, BP’s probable case for using it will be its “effectiveness” in less oil rising to the surface.  That is relevant only if one conveniently ignores the observations of the research groups in the Gulf on the horizontal oil plumes.

9.  The markets are punishing BP severely.  From today’s Reuter’s:  BP’s shares have lost more than a third of their value – $67 billion – since the leak began.  The cost of protecting BP’s debt against default has risen over 71 basis points to 173 basis points.

10.  A colleague talking to oil services providers noted they identified BP as one of the worst companies to deal with:  nickel and dime-ing  every step.  Interestingly, one of the best companies to deal with was identified as …… Exxon.

When there are real numbers on the risk equations, it must be amazing as to how many safeguards one can afford.

From a CSR perspective, wouldn’t it be better to truly join in a collaborative and open effort to stop this disaster? and to work transparently in identifying and mitigating the damage?  At this point, it would seem that BP has less to lose if it chooses open cooperation, than if it continues its combativeness.

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