BP to sell $7.06 billion in Argentina assets to help cover gulf oil spill costs

BP has agreed to sell its share of an Argentina-based oil and gas company for $7.06 billion in cash, bringing to about $21 billion its total sales of assets to help cover costs stemming from the Gulf of Mexico oil spill.

After the sale, BP will be most of the way toward its goal of selling as much as $30 billion in assets by the end of 2011 to help cover spill costs and bolster cash holdings to assure investors and lenders of the oil giant's financial stability. The sales are expected to reduce BP's assets by 10 to 15 percent.

The price of the Argentina operations fell $2 billion to $3 billion short of what many analysts expected. Nonetheless, the latest sale of what is considered a non-core asset for BP demonstrates the huge scale of the London-based oil firm's operations. In addition to asset sales, BP is raising more than $2.5 billion a quarter for spill costs from the suspension of its dividend.

BP announced Sunday that it would sell its 60 percent interest in Pan American Energy's oil and gas operations in Argentina to Bridas Corp., which already owns the other 40 percent.

BP acquired the interest when it bought Amoco in 1999. Since then, BP has revived output from the aging Argentine fields, which now produce about 100,000 barrels of oil a day and 450 million cubic feet of natural gas per day. The vast bulk of that production comes from one field, Cerro Dragon, about 900 miles south of Buenos Aires.

But Argentina's tax policies have diminished the attractiveness of operating there, analysts said.

Bridas was founded by the Bulgheroni family of Argentina. In May, the China National Offshore Oil Corp., which has been expanding its worldwide operations, bought 50 percent of Bridas for $3.1 billion. CNOOC's deep pockets helped make the BP sale possible; it will provide much of the cash for the transaction.

The price CNOOC paid earlier this year for its share of Bridas led many analysts to believe that BP would get more for its interests. The CNOOC purchase of Bridas implied a value of $15.5 billion for the entire Pan American Energy operation. That would have translated into a price of $9.3 billion for BP's share.

The sale does not include Pan American's operations in Bolivia.

"Today's agreement further demonstrates both the high quality and attractiveness of the assets throughout BP's global portfolio and also the company's ability to meet our significant financial commitments arising from the Gulf of Mexico tragedy," BP chief executive Bob Dudley said in a statement.

At the end of the third quarter, BP had incurred costs of $11.6 billion as a result of the oil spill, not counting the $3 billion first installment it had paid into a $20 billion escrow fund. Even after those payments, the company had nearly $13 billion in cash and $17 billion of bank facilities it could draw down. The company expects the total cost of the oil spill to ultimately reach $40 billion.

Dudley said BP would seek to sell other assets that might be "strategically more valuable to others than to BP."

Under the terms of the agreement, Bridas will pay BP a cash deposit of $3.53 billion, with the balance of the proceeds due on completion of the sale, which is expected to be completed by Dec. 28.

In China, CNOOC announced that it would join with Bridas's Argentine shareholders to provide $4.94 billion, or 70 percent, of the purchase price. The remaining 30 percent will be covered by loans, or additional cash contributions if necessary.

As of Dec. 31, 2009, BP's 60 percent interest in Pan American accounted for 917 million barrels of oil equivalent reserves, about 5 percent of the company's overall reserves. Production from Pan American accounted for 3.6 percent of BP's global output.

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Three books on the gulf oil spill

Just six months after BP stopped the oil that had been flowing into the Gulf of Mexico, a gusher of books about the spill has begun to wash ashore. The first wave includes three very different approaches to the disaster that riveted the nation most of last summer.

How we interpret the spill is important. A 1969 spill off Santa Barbara soiled the shores, killed birds and helped give rise to the modern environmental movement. Exxon's tanker accident in Valdez, Alaska, 20 years later became another symbol of reckless disregard for the environment. What makes the BP oil spill not just shocking but also dispiriting is that it might have relatively little impact on ocean-drilling policy beyond a retooling of the regulatory bureaucracy and the imposition of a few more technological safeguards. The spill has had no effect on the world's appetite for oil, and drilling will continue because the best prospects are offshore in the Gulf of Mexico, off Africa and Brazil, in the Caspian Sea, and in the Arctic.

The recent spill received massive coverage. At the Associated Press alone, more than 40 reporters and editors were thrown into the fray; teams of reporters were mobilized at papers such as The Washington Post, the Times Picayune in New Orleans, the New York Times and the Wall Street Journal. But even though the books under review present little if anything new, readers seeking overviews between two neat covers might find them useful.

"In Too Deep," by Bloomberg News journalists Stanley Reed and Alison Fitzgerald, opens with a brief account of the blowout, then moves on to BP's history, starting in Iran during the 1950s, when the U.S. and British governments overthrew the democratically elected regime for fear that it would hurt foreign oil interests. The authors shift quickly into more recent BP history, describing the enormous and lasting impact of former chief executive John Browne. Browne not only engineered giant mergers with Arco and Amoco, he also helped lead BP into post-Soviet Russia, Alaska and the Gulf of Mexico.

An intellectual, an engineer and a politically savvy executive with passions for art and opera, Browne guided the company into deep-water exploration in the gulf. He is credited with recognizing that the size of the discoveries in deeper water was increasing, not leveling off.

The book also profiles lower-level BP geologists who figured out where to find the likeliest prospects. A striking chart shows that BP's average cost to add a barrel of oil to its proven reserves was lower than any other major oil company's, and a tiny fraction of current prices.

Yet Browne was also a relentless cost-cutter who squeezed money out of operations that should have invested more in maintenance and equipment. The authors blame BP culture for a focus on personal rather than process safety, for leaks in the company's Alaska pipeline, for an explosion at its Texas City refinery and for the gulf blowout.

In this account, Browne's successor, Tony Hayward, who resigned in the wake of the spill last year, was the unfortunate inheritor of the company Browne built. Chosen in part because he wasn't flashy - the board of directors was weary of Browne's celebrity - Hayward lacked the skills to manage this environmental and public relations disaster.

In "Blowout in the Gulf," William R. Freudenburg, a professor of environmental studies at the University of California at Santa Barbara who died late last year, and Robert Gramling, a sociology professor at the University of Louisiana at Lafayette, concentrate on the regulatory framework that failed to prevent the accident. They compare offshore-drilling regulation to airline regulation and discuss whether regulation might be better handled by the Occupational Safety and Health Administration. They examine cleanup techniques and the prolonged and futile efforts made in Valdez. A sign of how their perspective differs from that of Reed and Fitzgerald: The two reporters write that Hayward's parting pay package was not "huge" so that "there would be no reward for failure." Freudenburg and Gramling call Hayward's $17 million package a "golden parachute."

The authors make solid points about the way the U.S. government has allowed big oil companies to march into public waters, about how the much-admired interstate highway system contributed to a fateful boom in U.S. oil consumption and about the way Americans ravenously consume oil and gas today. "Despite our habit of referring to oil 'production,' the reality is that the twentieth century was an unprecedented exercise in oil 'destruction,' " they write. "The oil was actually produced during the time of the dinosaurs."

Bob Cavnar brings an insider's view to "Disaster on the Horizon," but not one the industry will like. Cavnar has spent three decades, first on a rig and later as a chief executive, working for drilling companies in Texas, Louisiana and offshore areas. But he has a dim view of many industry practices and blogs about them for the Huffington Post.

Here, he focuses on the oil rig disaster itself and what caused it, constructing a narrative based on extensive testimony at hearings, newspaper accounts and his own experience. He makes a strong case that the spill was caused by human error. "An older engineer taught me, years ago, that wells actually talk to you," he writes. "In the hours leading up to the disaster, the Well from Hell was screaming at the crew that it was going to blow out, but nobody could understand the language it was speaking." And he notes that in deep water, "bad situations can escalate very quickly into catastrophes."

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Federal investigators again try to question BP spill witnesses

A federal investigative panel will begin its next round of hearings Monday into the Deepwater Horizon disaster and call witnesses who can address alleged shortcuts in the drilling of the BP oil well, problems with the failed blowout preventer and the confused scene after an explosion on the rig.

Whether all of those witnesses testify remains to be seen.

After challenges to the investigative board's authority and competence, the hearings are shaping up as a test of the panel as well as the parties under investigation.

At the previous round of hearings last month, some witnesses canceled at the last minute. One invoked his Fifth Amendment right to remain silent. Lawyers for other witnesses accused the board -- a joint panel of the U.S. Coast Guard and the Bureau of Ocean Energy Management, Regulation and Enforcement -- of ignoring their clients' legal rights and the rules governing the proceedings.

Toward the end of the last day of testimony, July 23, the Coast Guard officer presiding over the hearings, Capt. Hung Nguyen, implied that the board could put aside federal rules of evidence. The comment appeared to provide ammunition to the board's critics.

Referring to the federal rules of evidence, Nguyen said: "It's possible we can use it. It's possible we don't have to use it."

"It doesn't say you don't have to. It says they should be followed . . . . ," said Transocean lawyer Edward F. Kohnke IV.

"Should, not shall," Nguyen replied, according to recordings and a privately commissioned transcription.

But in the official transcript released by the panel, Nguyen's response is: "Sure. Sure."

A Coast Guard spokeswoman said that nothing in the transcript had been changed and that it is possible the person transcribing the hearing misheard the statement.

On Thursday, the Coast Guard and the Bureau of Ocean Energy Management added two legal professionals to what had been a six-member board, a move that followed complaints that the panel lacked legal expertise.

The new members are Wayne R. Andersen, a retired federal judge, and Capt. Mark R. Higgins, a Coast Guard staff judge advocate.

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Chinese oil company, Chesapeake Energy enter deal for shale project in Texas

The China National Offshore Oil Corp. will pay Chesapeake Energy $2.2 billion for a one-third interest in a South Texas oil and natural gas shale project and will pay billions of dollars more for its share of development costs over the next several years.

Chesapeake Energy, an Oklahoma City-based domestic exploration company, announced the deal Sunday night, saying it will help speed development of resources on 600,000 acres in the Eagle Ford shale play that could help keep natural gas prices low and boost production of unconventional U.S. oil resources.

"They're providing the capital and we're providing the expertise and assets, and the output will be the development of American assets, less U.S. dependence on foreign oil and the creation of 20,000 jobs and tax revenues for all levels of government," Aubrey K. McClendon, Chesapeake's chief executive, said in an interview.

The investment by CNOOC is one of the company's biggest. Other CNOOC investments around the world have been aimed in part at securing sources of oil for China's growing economy, but this investment will not result in any oil shipments to China. Chesapeake will sell the resources, almost certainly in the United States, and send CNOOC its share of the proceeds.

Chesapeake has been seeking to raise money to help develop its extensive inventory of oil and gas acreage. The company has also been trying to pare its debt, which peaked at about 60 percent of the company's book value and which on Sept. 30 stood at about 42 percent. McClendon said the company's target was in the 30s.

CNOOC will pay $1.1 billion now and another $1.1 billion over the next two years by covering 75 percent of Chesapeake's share of development costs. After that, CNOOC will pay a third of the cost of all wells, which run about $6 million each and could number 5,000 or more over the next few years as the region is developed, McClendon said.

Chesapeake said CNOOC's investment will enable Chesapeake to quadruple the number of rigs it has drilling in the region to about 40 by the end of 2012.

Given the cost of development, many independent companies such as Chesapeake have been looking overseas for investors. U.S.-based oil giants such as Exxon Mobil and Conoco Phillips already have stakes in the region. Last week, Statoil and Talisman bought about 100,000 acres from Denver-based Enduring Resources. They paid about the same price as CNOOC did for its interest.

China has some shale gas, but the deal with Chesapeake does not involve any technology transfer or future project in China, McClendon said. He said Chesapeake has its hands full trying to develop resources in the United States.

Unlike shale developments elsewhere in the United States, the Eagle Ford has greater potential to produce crude oil as well as natural gas, McClendon said. He estimated that the United States could ultimately produce half a million barrels a day from shale. The country consumes 19.5 million barrels of oil a day, most of it imported.

The development of oil and gas from shale has aroused controversy over questions of how it would affect water supplies. And so far, most shale developments in the United States recently have produced natural gas, much of it from Pennsylvania and other parts of the northeast.

"Chesapeake's embedded safety culture and integrated environmental protection strategies will be adopted to safeguard personnel and the surface and subsurface environment," Chesapeake said in its news release.

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Increase in oil revenue amid unrest in Arab world gives Russia some breathing room

MOSCOW - With the price of oil climbing to more than $100 a barrel, Russia has a little more weight to throw around on the world stage, and it is doing just that.

The stepped-up flow of petrodollars into the government's coffers relieves what had been a worrisome budget deficit and lessens the urgency of reform. Good relations with the West - and especially the "reset" with Washington - are not quite so pressing when the economy here is in good shape.

Russia is benefiting tangibly from the turmoil in the Middle East and North Africa. Urals crude sold for $113 this week, up from $75 a year ago. Of that, $76.50 goes into the Russian treasury. And the spike in oil income has compensated for growing weakness elsewhere. It arrived just as Gazprom - the natural-gas giant that until recently was a potent weapon in Russia's foreign policy - has seen its clout in Europe washing away amid a flood of competition.

An emboldened Prime Minister Vladimir Putin was in Brussels in late February angrily lecturing the Europeans on energy policy and the uprisings in the Arab world. After months in which Moscow and Washington have tried to put their differences over Georgia on a back burner, President Dmitry Medvedev two weeks ago accused the country of threatening the security of the 2014 Winter Olympics, to be held in Sochi, near the border of a breakaway region of Georgia.

Earlier this year, Russia's warming relations with Poland went sour over the handling of the investigation into the plane crash that killed Poland's president and other top leaders this past spring.

But with increased oil revenue also comes the danger of complacency. Bureaucrats, defense contractors, pensioners and workers in construction and finance all stand to gain from the money coming in, along with the oil companies. But the cash also feeds corruption, encourages increased financial opacity and discourages attempts to shake up the system - all of which could spell trouble for Russia down the road.

"All of the dominant groups in Russia get a share of the increased oil revenue," said Alexander Auzan, an economist and adviser to Medvedev. "Yet it contradicts their long-term interests."

Largest oil producer

It's a powerful prop for the status quo - which Auzan and others say is unsustainable.

But as Sergei Guriev, head of the New Economic School in Moscow, pointed out, any change is going to involve a cost for someone, so why take the risk if the money is flowing in?

Russia is currently the world's largest oil producer. When the price last spiked, in 2007, Moscow was flooded with money and people close to Putin were suggesting that Russia was genuinely self-sufficient and had no need to engage more deeply with the West. The economic crisis the following year brought that talk to an abrupt end, and Medvedev began pushing for a Western-oriented program of modernization and diversification away from dependence on energy exports.

The Kremlin moved to stimulate the economy in 2008 by increasing government salaries and hiking pensions by 35 percent. Now it is stuck with those increases. With oil revenue providing 40 percent of the Russian budget, the Gaidar Institute for Economic Policy here has calculated that at any price less than $105 a barrel the government will be in the red.

That tempers any inclination toward hubris, said Daniel Treisman, a political scientist at UCLA who follows Russian developments. The Kremlin was looking at a difficult financial crunch, with parliamentary elections coming late this year and a presidential election next March, so the timing of this rise in revenue is more a relief than a goad to aggressive behavior.

"We don't need high prices," said Leonid Grigoriev, an economist and former World Bank adviser. "We need good relations, a long-term market and reasonable prices," which he put in the $70-to-$90 range.

Russia will not turn its back on the West, by any means, he said. But, especially in an election year, its leaders may be more vocal in pointing up differences with the West. In 2010, Russia had enough problems at home that it was actively trying to avoid them abroad; now, with money to address domestic issues, that caution may not be so evident.

Treisman, like many others, did not think much would ever come of Medvedev's modernization plans - it's not the sort of change, he said, that can be ordered from the top down. But the oil bulge makes the Westernization of the Russian economy less likely. It helps big companies - which, Grigoriev said, already dominate the economy to a much greater extent than in other developed countries - and it hurts small ones, where jobs and creativity tend to be nurtured.

Information technology firms, with high labor costs, will suffer, Guriev said, and they are central to Medvedev's vision for the future of Russia.

Gazprom loses clout

Part of what got Putin so riled up in Brussels was Europe's treatment of Gazprom, a gigantic state-owned operation that at one time had unchallenged sway in the European energy market. Gazprom was a powerful tool in the Kremlin's hands, useful when threatening Ukraine and a reminder to the rest of Europe that Russia had to be given its due.

But that was before American companies began extracting cheap natural gas from shale deposits, and before developments in liquefied natural gas (LNG) technology made inexpensive transportation by ship possible.

Qatar set up a new LNG port to ship gas to the United States, but when it couldn't compete there it turned to Europe instead. Today, Europe can buy gas cheaper from Qatar than it can get by pipeline from Russia. European companies have been renegotiating their contracts with Gazprom - downward - and the European Union has insisted that Gazprom divest itself of its pipelines.

Russia will still sell gas to Europe, said Pierre Noel, an energy expert at England's University of Cambridge, "but the pricing regime is changing." Gazprom, he said, will eventually have to change with it.

But the turmoil in North Africa has temporarily masked even Gazprom's difficulties. When the Libyan gas pipeline across the Mediterranean was shut down, Italy, which is Gazprom's second-biggest customer, relented for now in trying to renegotiate its contract.

If production in Algeria, a much bigger supplier than Libya, were to be disrupted, that would make Gazprom a power to be reckoned with again.

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Academic scientists say oil from gulf spill is not going away quickly

Academic scientists are challenging the Obama administration's assertion that most of BP's oil in the Gulf of Mexico is either gone or rapidly disappearing -- with one group Thursday announcing the discovery of a 22-mile "plume" of oil that shows little sign of vanishing.

That plume was measured in late June and was described Thursday by scientists from Woods Hole Oceanographic Institution in Massachusetts. The biggest news was not the plume itself: For weeks, government and university scientists have said that oil from BP's damaged well is still underwater.

(Photos: The oil spill cleanup)

The news was what is happening -- or not happening -- to it.

The scientists said that when they studied it, they saw little evidence that the oil was being rapidly consumed by the gulf's petroleum-eating microbes. The plume was in a deep, cold region where microbes tend to work slowly.

"Our data would predict that the plume would still be there now," said Benjamin Van Mooy, a Woods Hole researcher.

(Gulf driller to light up cigar after job is done)

Their research came after a week in which other scientists had taken issue with the government's portrait of where all the oil went. On Thursday afternoon, Jane Lubchenco, the Oceanic and Atmospheric Administration's administrator, defended the government's work, saying it was done by the "best scientific minds" and reviewed by outsiders.

(Transocean accuses BP of withholding data)

"We remain confident in our assessment," she said.

The Woods Hole research, published in the peer-reviewed journal Science, provided one of the most detailed pictures yet of what this oil is doing under the surface.

The scientists said that, using a robot submarine that zigzagged across the deep gulf, they found a plume of oil droplets that was as tall as a 65-story building and more than a mile wide. The plume, whose droplets were so small that the water appeared clear, extended off to the southwest of the well, 3,600 feet deep.

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Documents indicate heavy use of dispersants in gulf oil spill

While the BP well was still gushing, the Obama administration issued an order that limited the spreading of controversial dispersant chemicals on the Gulf of Mexico's surface. Their use, officials said, should be restricted to "rare cases."

But in reality, federal documents show, the use of dispersants wasn't rare at all.

Despite the order -- and concerns about the environmental effects of the dispersants -- the Coast Guard granted requests to use them 74 times over 54 days, and to use them on the surface and deep underwater at the well site. The Coast Guard approved every request submitted by BP or local Coast Guard commanders in Houma, La., although in some cases it reduced the amount of the chemicals they could use, according to an analysis of the documents prepared by the office of Rep. Edward J. Markey (D-Mass.).

The documents indicate that "these exemptions are in no way a 'rare' occurrence, and have allowed surface application of the dispersant to occur virtually every day since the directive was issued," Markey wrote in a letter dated Aug. 1 to retired Coast Guard Adm. Thad W. Allen, the government's point man on the spill. Markey chairs the House Select Committee on Energy Independence and Global Warming.

Some of them dealt with separate dispersant applications on the same day. Markey said it appeared that the order "has become more of a meaningless paperwork exercise" than a real attempt to curb use of the dispersants.

In an interview Saturday, Allen defended the decisions to grant the waivers, saying that overall use of dispersants declined sharply after that May 26 order to limit their use. The total use of dispersants underwater and on the surface declined about 72 percent from its peak, according to the Environmental Protection Agency.

Allen said that on some days the amount of oil on the surface justified a "tactical" decision, by on-scene Coast Guard commanders, to spray some dispersants.

"There's a dynamic tension that goes on when you're managing an incident that has no precedent," Allen said. "You establish general rules and guidelines, but knowing that the people on scene have the information" means trusting them to make decisions, he said.

In the end, Allen said: "You can quibble on the semantics related to 'rare.' I like to focus on the effects we achieved" by dispersing the oil. Officials have said that, in the days since the gusher was stopped, thick sheets of oil have nearly disappeared from the gulf's surface.

EPA Administrator Lisa P. Jackson conceded that there had been "frustration in the field" from EPA officials about the waivers. But Jackson said it was partly alleviated June 22, nearly a month after the order was issued, when Coast Guard officials began giving the EPA a greater role in the discussions over whether to approve dispersant use.

"EPA may not have concurred with every single waiver," Jackson said. But, she said, the Coast Guard had the ultimate say: "The final decision-making rests with the federal on-scene coordinator. That's where the judgment, the ultimate decision-making ability, had to lie."

The dispersants -- variants of a Nalco product called Corexit -- break up the oil, acting like a detergent on kitchen grease. They are intended to keep the oil from reaching shore in large sheets and to make it easier for microbes to consume the oil underwater.

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BP shuffles top executives

BP's new chief executive, Bob Dudley, has ousted the company's chief of exploration and production in the wake of the massive oil spill in the Gulf of Mexico and divided his responsibilities among three other BP executives.

Dudley, an American who formally takes over the London-based oil giant Friday, also said he would elevate the company's safety chief, Mark Bly, the author of the recent report on the Macondo well blowout, and give him broader powers over the company's worldwide operations.

Andy Inglis, BP's head of global exploration and production, will leave the company at the end of the year and lose his seat on the company's board of directors effective Oct. 31. A graduate of Cambridge University, he joined BP 30 years ago.

The moves are the first management changes since chief executive Tony Hayward announced in late July that he would step down effective Oct. 1. They are designed to address widespread criticism of BP for failing to identify or punish key decision makers in the blowout.

"These are the first and most urgent steps in a program I am putting in place to rebuild trust in BP - the trust of our customers, of governments, of our employees and of the world at large," Dudley said in a statement.

BP has also come under criticism for the Bly report, which a senior executive from another major oil company, speaking on condition of anonymity to protect his business relationships, said was "devoid of the human factor."

The human factor played a key role, experts and oil executives say, because senior people on the rig, including BP and Transocean employees, failed to respond to multiple signs that oil and gas were leaking into the well after it was supposed to have been sealed.

Bly will report directly to Dudley, and his safety division will have employees embedded in all of BP's operations, the company said.

Inglis will be replaced by three executive vice presidents: Mike Daly heading exploration, Bernard Looney in charge of development and Bob Fryar responsible for production. Together with Andy Hopwood, who becomes executive vice president for strategy and integration, they will join an expanded top management team reporting directly to Dudley.

MORE FROM THE WASHINGTON POST:

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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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Afghan government awards oil contract in first phase of revenue-generation plan

KABUL - The Afghan government on Monday awarded a small but potentially path-breaking crude oil contract, marking the first phase of an effort that U.S. and Afghan officials say could bring the cash-strapped government significant revenue.

The six-month deal for crude from the Angot field in Sar-i-Pol province in Afghanistan's north was designed as a confidence-building venture for one of the world's least-attractive foreign-investment markets.

If successful, Afghan and U.S. officials hope the deal will put Afghanistan on the hydrocarbon industry map and attract direly needed private investment to this landlocked country, which is kept solvent by international donors.

"This is just the beginning," Afghanistan's Minister of Mines Waheedullah Shahrani said in an interview. "But the potential is great."

Angot is among a handful of developed fields in the Amu Darya Basin, which straddles Afghanistan and Turkmenistan. The Afghan side of the basin has an estimated 80 million barrels of proven crude reserves, according to the U.S. Geological Survey. The nearby Afghan-Tajik Basin could hold as much as 1.5 billion barrels worth of crude, according to a study the agency commissioned in 2006. Together, the two areas have the potential to generate hundreds of millions of dollars per year in government revenue over the next two decades, U.S. officials estimate.

If the Afghan government manages to attract energy companies to develop its oil sector over the next few years, the country could meet its own fuel needs and perhaps export oil sometime in the next decade, U.S. officials said.

"This step means that Afghanistan is now an oil-producing nation, creating jobs for Afghans and an environment that will enable future investment in developing the oil sector," said U.S. Deputy Under Secretary of Defense Paul A. Brinkley, who oversees the Pentagon's business stabilization efforts in Iraq and Afghanistan.

Brinkley's office has invested nearly $1.5 million dollars in devising the strategy to revive Afghanistan's oil sector, which has been paralyzed for decades because of war and poor governance.

American officials acknowledge the challenges are huge. The country remains mired in a nearly decade-long war. Its entrenched culture of corruption has long dissuaded foreign investors. Its politics remain volatile. And its regulatory and legal sectors are arbitrary and vulnerable to cronyism.

"There's huge room for error," said a senior American official involved in the effort who spoke candidly on the condition of anonymity. "The whole thing could fall flat on its face."

Ben Lando, who runs the Iraq Oil Report and has studied emerging oil markets, said, too, that oil wealth can be destabilizing in the short term.

"There's a good chance Afghanistan could be stricken by the resource curse rather than come to use its oil for the benefit of its citizens," Lando said. "Oil wealth has a history of having a deteriorating effect on unstable governments with underdeveloped institutions and institutionalized corruption."

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Suit alleges BP cut back on safety before oil spill

The New York State comptroller, the Ohio state pension funds and other large investors have alleged that BP made cost-saving cutbacks in its safety operations prior to last year's major oil spill and that it disregarded safety warnings from its own managers.

The new documents in a securities fraud class action suit allege that the company "terminated" Curtis Jackson, then a senior manager for Gulf of Mexico operations, and Phil Dziubinski, a senior safety official at BP Alaska who warned of worker fatigue from extensive overtime.

Dziubinski's quarrel with BP was described earlier in the Wall Street Journal, which said he and BP had reached a confidential settlement.

The new filing also says that Kevin Lacy, described as BP's senior vice president for drilling operations in the Gulf of Mexico, resigned in late 2009 "because of disagreements with BP over its lack of commitment to process safety." The lawsuit says that Lacy had been recruited from Chevron to improve BP's drilling protocols.

BP spokesman Scott Dean said the company would not comment on pending litigation.

The investors, represented by the firms Cohen Milstein Sellers & Toll of Washington and Berman DeValerio of Boston, produced what they said was an internal BP document that said: "It's become apparent that process-safety major hazards and risks are not fully understood by engineering or line operating personnel. Insufficient awareness is leading to missed signals that precede incidents and response after incidents, both of which increases the potential for and severity of process-safety related incidents."

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Development in once-rural areas put populations closer to natural gas pipelines

On Sept. 9, a 30-inch natural gas pipeline exploded in the suburban community of San Bruno, Calif., creating a 2,000-degree fireball that killed eight people, destroyed 37 homes and left more than 60 people injured. A gaping crater replaced homes at the center of the blast.

Could it happen here?

A pipeline rupture of approximately the same magnitude did occur not far from the Washington area a couple of years ago, but with less-dire consequences.

On Sept. 14, 2008, a 30-inch span of the Transco pipeline ruptured in Appomattox County, Va., creating a fireball that destroyed two homes and caused five injuries. Twenty-three families were evacuated.

The Appomattox explosion was larger than the explosion in San Bruno, but it occurred in a less-populated area, said Carl Weimer, executive director of the Pipeline Safety Trust, a watchdog organization based in Bellingham, Wash.

The Appomattox rupture was caused by corrosion of the 53-year-old pipeline, which had been inspected three months earlier by a "smart pig," a computerized scanning device that travels through a pipeline searching for dings, dents or corrosion, but had not yet been repaired. Transco's owner, the Williams Cos., paid the U.S. Transportation Department a $952,000 fine, replaced 2,500 feet of the pipeline, "smart pigged" all of its pipelines in Virginia, and performed pressurized water tests to validate the repairs.

Aging pipelines - and growing populations in the once-rural areas where pipelines were routed decades ago - have increased the risks associated with ruptures throughout the United States.

"The average transmission pipe is 50 years old," Weimer said. "If you put a steel pipe in the ground 50 years ago, you can have problems. It's not the same strength as steel today, and it doesn't have the anti-corrosive coating. But the more important factor is how the company has operated and maintained the pipes."

Some of the largest interstate pipelines in the United States run through the Washington area. The massive Transco pipeline, which consists of three and four parallel pipelines of 30 to 42 inches each, runs through Culpeper, Fauquier, Prince William, Fairfax, Montgomery and Howard counties on its way north from the Gulf of Mexico and shale resources in Alabama to supply natural gas up the East Coast to New York City.

One of the largest import facilities for liquefied natural gas in the United States is at Cove Point in Calvert County. Tankers travel up the Chesapeake Bay to deliver gas from abroad; from Cove Point it is distributed via transmission pipelines throughout the region.

Columbia Gas Transmission also runs major gas pipelines across the western edge of the metro area. Washington Gas taps into these resources with 200 miles of high-pressure transmission pipelines, which run through every county in the metro area and even beneath the Mall. The pipelines connect to a 26,000-mile web of smaller distribution pipelines, typically three-quarters of a foot to one foot in diameter, where the pressure is reduced so the fuel can enter homes and businesses.

Digging up trouble

The majority of pipeline incidents in the D.C. metro area, however, are not from the large transmission pipelines. In fact, there haven't been any incidents on the 20 miles of 24-inch transmission pipelines in the District (most of which date to the 1960s) "as far back as anyone can remember," said Betty Ann Kane, chairman of the D.C. Public Service Commission.

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BP names Dudley as CEO, announces $17 billion loss

BP gave investors a glimpse of its future Tuesday, one that will feature a new American chief executive, slimmed-down operations, and $32.2 billion or more in payments to clean up and compensate people affected by the massive oil spill in the Gulf of Mexico.

In announcing its second-quarter earnings, the London-based oil giant tried to walk a line between reassuring bankers and investors about its vast assets and financial strength, and avoiding the appearance of being a rich, powerful company insensitive to the plight of the Gulf Coast.

"We have much to do to make it right," BP Chairman Carl-Henric Svanberg said in a conference call with investment analysts Tuesday, referring to the spill. But he added that BP's directors are also "determined to restore value to our shareholders."

In mapping out plans to pay for damage and cleanup, BP said it will sell $25 billion to $30 billion in assets over 18 months, shedding about 10 percent of its oil and natural gas output. That should enable it to shrink its outstanding debt and reinstate dividends next year for shareholders while still covering payments to the massive escrow fund for spill damage claims.

"It's still going to be the second-largest oil and gas producer among international oil companies," said Fadel Gheit, oil analyst with Oppenheimer & Co. "Smaller than Exxon Mobil but bigger than Royal Dutch Shell."

In a sign of how difficult it will be for BP to turn the page on the crisis, however, Rep. Edward J. Markey (D-Mass.) lashed out Tuesday at the company for concealing its estimates of the rate at which oil had flowed into the gulf. Markey released a letter from BP Chief Operating Officer Douglas Suttles to the Coast Guard in early July in which Suttles estimated that oil was pouring forth at a rate of 53,000 barrels (2.23 million gallons) a day.

The BP briefing for investment analysts was a somber one, as Svanberg announced that the board had picked Robert Dudley, a BP managing director and former Amoco executive, to replace chief executive Tony Hayward, a British geologist who had spent his entire career with BP. Dudley, 54, who grew up in Mississippi and spent summers boating with his family in the Gulf of Mexico, will become the first foreigner to lead the century-old company.

"Today is a very sad day for me," Hayward said. "I love the company and everything it stands for." He said, however, he realized that for BP "to move forward, particularly in the United States, it should do so under new leadership."

Hayward's compensation package includes a pension valued at about $17 million and a severance of $1.6 million, or a year's salary.

Without costs from the spill, the company would have declared a profit of $5.6 billion for the second quarter. Spill charges turned that into a $17.2 billion loss.

The appointment of Dudley, who will take charge Oct. 1, comes at a turning point in the calamity. After gushing for three months, the damaged oil well in the Gulf of Mexico has been capped for the past 12 days. Kenneth Feinberg, the master for the $20 billion escrow fund, is taking over the task of scrutinizing and processing claims and proposing settlements.

Still, Dudley's task will be immense. Congress is set to raise liability limits for oil spills and to impose tougher regulations on offshore drilling. Some lawmakers want to prevent BP, the largest producer of oil and gas in the United States, from acquiring new federal leases. The Justice Department is investigating criminal charges against the company, which could complicate its ability to do business with the federal government or bid for leases.

Asked how BP would be viewed in five years, Dudley said in "a perfect world" people would realize that "BP met its commitments to restore the Gulf Coast and as a result of that BP has restored its reputation" and it would be allowed to grow its U.S. business. He said, "Five years from now, I hope that people look back and say that was a quite incredible response to a quite tragic accident."

Although BP's provision for claims and cleanup is unprecedented in size, some analysts questioned whether it is big enough. If found to be "grossly negligent" in the way it was drilling the Macondo well that exploded on April 20, BP could wind up paying an additional $12 billion in fines alone and nearly twice as much overall, said Gheit of Oppenheimer.

BP's chief financial officer, Byron Grote, said that in calculating the size of anticipated federal fines under the Clean Water Act, BP assumed that it was not guilty of negligence. By doing so, it pegged its fines at $1,100 per barrel spilled. If found negligent, BP would have to pay $4,300 a barrel. It would also have to pay 100 percent of the fines, while Anadarko Petroleum and Mitsui, its partners in the lease, would not have to share the cost of the penalties.

Critics in Congress decried the company's failure to say precisely how much oil it thinks has spilled into the gulf. Hayward said only that BP had used a number around the middle of published estimates, which most recently have been 35,000 to 60,000 barrels a day.

In addition, BP's financial statement reflected an offsetting tax benefit from lower earnings. Because the reserve for claims is deducted from profit, BP will not pay $9.9 billion in taxes that it would have otherwise owed.

Bracing for unknown costs, BP also said that it would shrink its outstanding debt to $10 billion to $15 billion, from its current $23.2 billion.

Dudley assumed his new title with modesty. He said he has the "greatest respect" for Hayward.

"I did not seek out this job," he said in a conference call with journalists. "I was asked to step into these shoes."

But in Washington, some people were ready to bid good riddance to Hayward, who had aggravated public anger by saying he wanted his "life back" and by going sailing on his yacht on his return to England after weeks on the gulf coast and in Washington.

"While it's now happy sailing for Tony Hayward, rough conditions will persist in the Gulf of Mexico for years to come because of his failed leadership," Markey said. "The new leaders of BP will have an uphill climb to correct the legacy left by Hayward, indelibly inked by the disaster in the gulf."

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