In its report on the gulf oil spill, BP spreads the blame

BP rolled out the results Wednesday of a four-month internal investigation into the causes of the April 20 blowout of its Macondo oil well in the Gulf of Mexico, spreading blame among its contractors and giving a glimpse of the defenses it might deploy in public and in court.

The much-anticipated report asserted that a "complex and interlinked series" of failures - of equipment, engineering and judgment - led to the surge of oil and gas that exploded on the deck of the Deepwater Horizon drilling rig, killing 11 people, sinking the rig and triggering the worst oil spill in U.S. history.

The report was written by a team of 50 internal and external experts led by the company's head of safety and operations, Mark Bly, and the rollout Wednesday morning at a hotel in downtown Washington was labeled a "technical briefing."

But the document inevitably carries a heavy public relations element as well as legal and financial implications for BP. It arrives as the Justice Department is weighing whether to bring charges of criminal negligence against BP that could sharply increase the cost of the spill for the London-based oil giant and provide fodder for private lawsuits.

In addition, there is legislation in Congress that would effectively strip BP of the right to drill in the Gulf of Mexico. The company is haggling with the Obama administration over what pieces of collateral to offer while it is financing the $20 billion escrow fund that will be used to pay claims. And BP's main partner in the well, Anadarko Petroleum, has declared that it won't pay its share of the cleanup costs and claims because it views BP's well design and actions as reckless.

The BP report makes the case for "shared responsibility," saying that "no single factor" caused the blowout. It points to multiple failures by its contractors in maintenance, equipment and planning.

The investigation found fault with the recipe Halliburton used in its cement, with the flaps on a Weatherford International barrier device known as a float collar, and with the condition of hydraulic lines and batteries that might have sapped power from the blowout preventer made by Cameron International and operated by Transocean, making it impossible to clamp and cut through steel piping.

"Transocean was solely responsible for operation of the drilling rig and for operations safety," the report says in an appendix. "It was required to maintain well control equipment and use all reasonable means to control and prevent fire and blowouts."

The report also said Transocean and BP rig leaders jointly "reached the incorrect view" on well tests in the crucial hours before the explosion. And Bly said BP needs to reexamine the way it oversees work by its contractors.

BP's design not faulted

Yet the report absolves BP's widely criticized well design. It says the path that oil and gas followed as they escaped from the well meant that the well's casing and design - matters that could otherwise implicate BP - were not factors in the disaster. Instead, it says that if any one of eight failures of equipment or decision-making had not taken place, the blowout would not have happened.

The report not only offers new details and analysis of what went wrong, it also represents a bold declaration that BP is not going to assume more than what it considers its share of the blame for the accident. The report did not say how far up the BP corporate ladder the well problems went, and no employee was named or punished.

In a news release, BP chief executive Tony Hayward, who has barely spoken publicly since his disastrous congressional testimony in June, did not offer anything resembling a mea culpa.

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Reminder from Egypt: The age of oil isn't going away

The Age of Oil continues; we need to deal with it. The upheaval in Egypt reminds us of lessons that, despite decades of warnings, Americans have consistently sidestepped: The United States and the rest of the world will depend on oil for the indefinite future; global oil markets remain hostage to political crises that cannot be predicted or controlled; and we have not taken the prudent steps that would reduce - though not eliminate - our vulnerability to catastrophic oil interruptions.

Just what Egypt's crisis will do to oil markets is, as yet, unclear. Driven by cold weather and strong demand from developing countries, oil prices were already increasing before Egyptians took to the streets. After averaging about $2.80 a gallon for most of last year, U.S. gasoline prices pierced the $3 barrier in December. Prices rose further on the turmoil, but the gains could be short-lived. Egypt produces only about 700,000 barrels a day. That's not much compared with global demand of nearly 90 million barrels daily (mbd). If all of Egypt's production halted, it could be replaced because the world now has about 4 mbd of surplus capacity elsewhere.

A greater risk involves oil shipments. The Suez Canal and the SuMed pipeline (Suez-Mediterranean) together now move about 3 mbd between Asia and Europe. If these supplies were blocked, prices would almost certainly rise. But, again, accommodations would be made. Tankers would be rerouted; shipments via other pipelines would increase.

The real flash point would occur if a cascade of political turmoil cut production from major suppliers: Saudi Arabia (present output: 8.5 mbd), Kuwait (2.3 mbd), Iran (3.7 mbd), Iraq (2.4 mbd) or Algeria (1.3 mbd). This danger will remain no matter how the present crisis ends.

What can we do? Well, two things: decrease oil consumption, preferably by a stiffer gasoline tax; and increase production, preferably by less-hostile regulation. The Obama administration isn't doing either. Instead, it's touting a goal of 1 million electric hybrid vehicles by 2015. This is more public relations than policy. The goal is probably unrealistic; first-year sales of the Chevy Volt may reach 25,000. Even if the 1 million is attained, the oil savings would be tiny - perhaps 40,000 barrels a day, about two-tenths of 1 percent of U.S. consumption of 19 million barrels a day. There are already 240 million cars and light trucks using gasoline.

By contrast, lost production from restrictions on drilling in the Gulf of Mexico could total 200,000 barrels a day in 2012, by one government estimate. The administration overreacted to the Deepwater Horizon blowout. There hasn't been much encouragement of on-shore drilling, either, despite better prospects. In 2009, domestic oil production rose for the first time since 1991, in part because higher prices and new drilling techniques (hydraulic fracturing, horizontal drilling) made it profitable to extract once-inaccessible oil. Production in North Dakota's Bakken field has surged; there are guarded hopes for gains in Texas's Permian Basin.

A higher gasoline tax - gradually introduced to avoid wrecking the economic recovery - would dampen wild swings in fuel prices and push consumers to buy the more-fuel-efficient vehicles that the government is ordering auto companies to make. Americans have traditionally preferred bigger vehicles and, without the prod, might cling to old habits. There is a convergence here between energy and budget policy. An energy tax would help both. It would improve oil security and, with spending cuts, curb budget deficits. Neither the Obama administration nor congressional Republicans seem willing to grasp the possibilities.

None of this will achieve "energy independence," which has been a mirage since it was proposed in the 1970s. Our need for imported oil - now about half our consumption - is simply too great to be overcome by production increases or efficiencies. But we could temper that dependence and the cost of imports, which routinely exceeds $250 billion annually.

Barring unforeseen technological breakthroughs, oil isn't going gently into the night. That's confirmed by recent projections of future energy markets: from the International Energy Agency in Paris; from the U.S. Energy Information Administration; and from ExxonMobil. All make generous assumptions about gains from energy efficiencies, including vehicles, and expanded renewable supplies. All still conclude that oil will meet a quarter or more of global energy demand for decades. ExxonMobil projects that the number of light-duty vehicles worldwide will grow 50 percent, to 1.2 billion, by 2030. Most will use gasoline. Two-fifths of the increase will occur in China. Competition for global oil supplies will intensify. We cannot escape that reality, even if we ignore it.

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BP announces changes aimed at helping cover costs from gulf oil spill

BP said Tuesday that it will restart its suspended dividend payments, put its troubled Texas City refinery up for sale and sell another $13 billion in assets, a move aimed at covering costs flowing from last year's the massive oil spill in the Gulf of Mexico.

The British oil giant also said that it has sent a bill for $6 billion to its partners in the ill-fated Macondo oil well, Anadarko Petroleum and Mitsui, who it believes share liability for the disaster that killed 11 people and leaked nearly 5 million barrels of oil.

BP added $1 billion to its estimate of oil spill costs, bringing pre-tax charges related to the incident to a total of $40.9 billion. That figure does not include any payments by the partners, who say BP bears sole responsibility.

The announcements, including fourth-quarter operating earnings that were about 30 percent higher than a year earlier, closed out a catastrophic year for BP. Yet they painted a picture of a business on course to emerge largely intact, albeit about 15 percent smaller than it was before the spill.

BP chief executive Robert Dudley said that the company was pruning its least essential operations but would increase capital spending to $20 billion this year to explore and develop its most promising oil and gas prospects worldwide, including new frontiers in the Russian Arctic, Australia, the South China Sea and off Brazil's coast.

"We will be a different kind of company in the upstream going forward," said Dudley, who became chief executive after Tony Hayward resigned in the wake of the oil spill disaster. "We are taking this moment to make a broad strategic change," Dudley said, adding that BP would seek "different ways of unlocking value in the portfolio."

But BP executives in a Web cast said that the company's total production of oil and gas was equal to 3.67 million barrels a day, down 9 percent from a year earlier because of divestments, lower output in Organization of Petroleum Exporting Countries, and development delays in the Gulf of Mexico.

Moreover, Dudley said that output would slide to 3.4 million barrels a day this year after further asset sales.

The projections left investors cautious about BP stock on a day when the market rose broadly. Shares of BP closed Tuesday at $47.98, down 51 cents or 1.1 percent. BP stock closed at $60.48 a share on April 20, hours before the Macondo blowout, and fell as low at $27.02 a share in late June.

The restoration of dividend payments was widely anticipated. BP set the new dividend at 7 cents a share, half the previous level. That will cost the company about $5 billion a year, leaving a substantial amount of cash to fund an escrow account for spill damages. Dudley said that BP would be careful to avoid setting the divided so high that it would have to rely on very high commodity prices to meet its payments without borrowing.

BP executives also said that the Texas City refinery, where a 2005 explosion killed 15 people, no longer fit into the company's strategic plans. BP has poured money into upgrading the facility and settling victims' claims since the accident. But it said it now hoped to sell the refinery, the third largest in the United States, by the end of 2012.

BP said it would also sell its Carson refinery near Los Angeles, reducing BP's total U.S. refining capacity by half.

Dudley said he remained committed to deepwater projects, despite last year's spill. He said BP had 19 deepwater wells planned for the Gulf of Mexico and off Angola's shore.

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