Current Events

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July 1st, 2010

Blowout Update

This photo is serving as my iconic symbol of the BP blowout in the Gulf. The photo was taken by Lee Celano, a photographer based in New Orleans. Of course, my first reaction was that the hard hat belonged to one of the 11 oilmen killed in the initial explosion on April 20. Upon further reflection, the hard hat could have been lost from one of the hundreds of unaffected oil platforms. A worker leaned over the rail to admire a big turtle, his hard hat fell off, and it washed ashore along with the oil. Then there is the unlikely possibility that the photographer partially peeled a sticker on his own hard hat, sloshed the hat in the spilled oil, and took a great photo. I don't want to know, I'm sticking with my initial impression.

Before getting into the main issue, there are two corrections needed in the previous posting. The "Wild Mary" blowout in Oklahoma City was in 1930, not 1928. The original estimate of oil produced from the BP blowout has been raised from about 5,000, to almost 50,000 barrels per day. Try it in your calculator: 50,000 barrels per day, times 365 days per year, times $70 per barrel gives $1.28 billion per year; impressive well. The later development wells in that lease, over their productive life, might actually pay the damages for the entire spill.

The postponements and cancellations, after the BP blowout, are going to reduce the world production of oil and gas.

The postponements and cancellations, after the BP blowout, are going to reduce the world production of oil and gas. Production from older oil fields is declining. From July 2008 to January 2010, OPEC production has dropped by about 2 million barrels per day. The big unknown is whether the two million barrels per day is a temporary reduction by OPEC to support the oil price, or whether it is a normal decline in production capacity. Whichever it is, we are likely to see oil-price volatility—rapid price swings—over the next five years. There are ways of using volatility to make money in the oil futures market. I don't understand the strategies at all, but one tactic to make money from volatility is called the "long bull straddle." Great name, but I'm not about to invest in it.

The engineering of the blowout, before and after, is endlessly fascinating. I grew up with this stuff, but my formal education in petroleum engineering consists only of a single course almost 60 years ago. (My methods for understanding abnormally high fluid pressures beneath the Gulf Coast are on pages 89 – 98 in Hubbert's Peak.) Specifically, I am not trying to divide up the blame for the BP blowout among the various participants: President Obama is not to be judged on his performance as a petroleum engineer.

Coming up, BP is considering replacement of the existing connection to the cut-off riser pipe. Their plan is to install a new connection right above the nonfunctioning blowout preventer. They describe the new connection as an "overshot." This blowout is a rich source of new vocabulary. Several years ago, Schlumberger posted a relatively complete oil field dictionary: www.glossary.oilfield.slb.com. "Overshot" is in their glossary. The opposite of an overshot is a "spear," which is not in their glossary. Here's the mnemonic: overshots are female, spears are male.

In the BP plan, the overshot would get a better grip on the top of the blowout preventer. Here's The Big Question: Suppose the overshot replacement is attached tightly. Why not stop the oil flow simply by closing a valve at the top of the overshot? The worry is that oil and natural gas would fracture out below the surface casing and start gurgling up to the surface, with no chance for containing any of it. Yes, I'm aware of lots of Internet rumors that oil is already leaking through the ocean floor. At the moment, there is no evidence for seafloor leaks that I consider conclusive. However, BP might be keeping the well-head pressure low by piping some oil and gas to the surface and letting the rest escape from their present connection to the riser. A detailed list of all the casing strings in the well would be a help in pondering the problem.

There are conflicting stories about the targets for the two relief wells. Does the relief well drill bit have to go "clang" against the steel casing inside the original Macondo well? Some descriptions describe the "nine-inch target." The alternative view is that the relief well would best encounter the oil-producing horizon a few feet, or a few tens of feet, from the bottom end of the Macondo casing and would stop the existing flow by injecting heavy drilling mud.

We have a small off-campus, unofficial, Princeton committee following the problem. Charlie West, class of '81, a geology major, was working for Shell's offshore division in New Orleans when he developed magnetometer techniques for homing in on the existing well casing. Joel Achenbach, class of '82, took my beginning geology course and writes for The Washington Post. Earlier this week, Joel was out on one of the relief wells, his pictures are at voices.washingtonpost.com/achenblog, dated April 28, 2010.

Although I wrote in the fourth paragraph that I wasn't interested in placing blame, this is too fascinating to pass up.

Although I wrote in the fourth paragraph that I wasn't interested in placing blame, this is too fascinating to pass up. What follows is entirely speculation and deserves no legal standing. The major players are:

  • BP, formerly British Petroleum, formerly the Anglo-Persian Oil Company
  • Anadarko, a US "independent" oil company, big but not big enough to be a "major"
  • Transocean, owner of the now-sunk Deepwater Horizon drilling rig
  • Schlumberger, originally French, now largely a US company, oilfield services
  • Halliburton, US company, founded by the inventor of oil well cementing technique

BP has the largest financial responsibility. The BP lease of the drilling rig from Transocean, and an early signed agreement with President Obama, are both quoted as saying that BP assumes the primary responsibility for any damages. The question is whether any of the other players share some of the financial burden.

In my mind, the relationship between BP and Transocean is the hardest to understand. Anecdotes about the pre-blowout dialog between the senior BP representatives on the rig and the Deepwater Horizon senior staff sound like testosterone shootouts, with BP winning. On an immensely smaller scale, I have operated with research-vessel captains and small-plane pilots on a "double veto" basis. If I suggest doing something that they consider dangerous, they stop me. If I think something they are planning is unacceptably hazardous, I can say, "No." It worked, or at the least I am lucky enough to be here to tell about it. Should the captain of the Deepwater Horizon have been able to veto any of the BP decisions?

A subsidiary question concerns the fireboats pouring seawater on the burning Deepwater Horizon. One Internet speculation says that the fireboats filled all the rooms on the upper decks with seawater and the rig tipped over and sank. Should the strategy have been to direct water streams only to cool the top of the riser pipe and let the derrick melt? If the top of the riser pipe, plus the attached kill and choke lines, had remained intact then controlling the well would have been quicker and easier.

Oddly, putting out the fire is not difficult. Once things get stabilized, the fire can be puffed out like blowing out a birthday candle. Only the "puff" is generated by setting off an explosive charge near the base of the fire. How far back does that go? Boots and Coots got it from Red Adair, Red Adair got it from Myron Kinley, who got it from his father. Kinley's father did it with dangerous liquid nitroglycerine. Back in those days, men were men,

Both Schlumberger and Halliburton had representatives on the rig, to recommend actions and to carry them out. BP has made some noises, suggesting that Schlumberger and Halliburton should share in the responsibility for the blowout. The letter that the US Congress sent to Tony Hayward before his testimony stated that:

  • Halliburton recommended using 21 casing centralizers, BP cut it to 6.
  • A Schlumberger crew was on the rig, ready to run the cement-bond log when BP put them on the outgoing helicopter because the cement-bond log would not be needed.

If stories like this turn out to be true, if BP rejected the advice then it will be tough to demonstrate that the advisers share the responsibility.

Anadarko owns a 25 percent share of the Macondo well. Anadarko has accused BP of being "reckless" and therefore Anadarko should not have to share in the cleanup costs. Here is one of the most fascinating lines in the entire libretto: In the New York Times, www.nytimes.com/2010/06/19/business/19nocera.html?ref=joe_nocera

(published June 18, on-line June 19) Joe Nocera wrote about BP: "Taking shortcuts was ingrained in the company's culture, and everyone in the oil business knew it." Wouldn't "everyone" tend to include Anadarko? I'm dumbfounded that the Times lawyers let that line slip by. The Nocera statement would suggest that Anadarko knowingly tried to get a cheap oil discovery by crawling into bed with a notorious corner-cutter.

BP, Anadarko, and Transocean have taken heavy hits in the stock market. All three have lost almost half of their market capitalization. For scale, remember that the "trust fund" for damages was initially set at $20 billion, but the total damages may eventually be much larger.

  • BP (BP) $90.4 billion market cap
  • Anadarko (APC) 17.8 billion
  • Transocean (RIG) 14.8 billion

The market caps are from Bloomberg, June 30, 2010. There is at least a theoretical possibility that some or all of these companies might not make it through the crisis. A particularly frightening possibility is that BP might declare bankruptcy under British law. The lost income of a Louisiana shrimp fisherman might sound pretty distant from a London courtroom. Not that an American court would be flawless. Judges sometimes get a huge penalty from a jury and then go shopping for anybody and everybody who had any remote connection to the disaster. Companies that were scheduled to come on the job even after the disaster are forced into substantial donations through the threat of long-continuing legal action. Is the next contractor who was going to paint the Deepwater Horizon financially responsible for the blowout?

It even comes down to the family level. Last night, my daughter fixed a delicious pasta-with-shrimp dish for dinner. To dampen down the teasing, she explained that the shrimp were frozen, from a non-marine shrimp farm in Bangladesh. That's about as far from Louisiana as you can get.

On the book front, Nanoscale, the book that I wrote with Steve is being translated into Russian. My third oil book, When Oil Peaked will go on sale September 28. It's OK to abbreviate the book as WOP because my surname is from Val d'Aosta, in Italy.


 
 
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