Hayward urges oil industry rethink

Hayward urges oil industry rethink
By Ed Crooks in Houston
Copyright The Financial Times Limited 2010
Published: June 2 2010 16:20 | Last updated: June 2 2010 16:20
http://www.ft.com/cms/s/0/e1e0e21c-6e53-11df-ab79-00144feabdc0.html


The oil industry and BP need to “change the paradigm” for how they operate in order to continue developing hard-to-reach resources in deep water, the company’s chief executive has said.

Tony Hayward also admitted that the company had not had all the equipment it needed to control its leaking Macondo well in the Gulf of Mexico, which has created the largest ever offshore oil spill in the US.

With BP and the rest of the industry threatened with being shut out of the deep waters of the Gulf, the most promising region in the US for oil development, Mr Hayward argued that the industry could reform itself to justify continued drilling in those challenging areas.

Speaking to the Financial Times in Houston as engineers worked on their latest bid to trap the escaping oil, he said BP was looking for new ways to manage “low-probability, high-impact” risks like the Deepwater Horizon accident.

The gas blow-out that caused a fatal explosion on the rig on April 20 and created the oil leak had been a “one in a million” chance, Mr Hayward said, but that risk had to be cut to “one in a billion or one in a trillion.”

Analysts believe the disaster could cost BP $20bn in clean-up costs, compensation, damages and fines, and has done incalculable damage to the company’s position in the US.

Mr Hayward said the industry needed to cut the risk of accidents, and to increase its capability to deal with leaks on the sea bed in a mile or more of water.

Reducing the risk of accidents could mean redefining the relationships between the companies involved in drilling a well.

BP believes that on the Deepwater Horizon there were seven separate problems that could have contributed to the accident, including failures of the cement in the well, the tests run on the well, and the blow-out preventer, intended to stop releases of oil and gas.

Those failures could have involved a number of different companies besides BP, including Transocean, which owned and operated the rig, Halliburton, which cemented the well, and Cameron International, which manufactured the blow-out preventer.

BP was in overall control of the project, but responsibility for safety was shared. That model, according to Mr Hayward, may have to change.

“We have been driving safe and reliable operations through the company within the existing industry paradigm,” he said. “What this causes us to question is whether that paradigm is right for the future.”

It was possible, he added, that in future BP could operate its own rigs working in deep water.

“This is not about BP and Transocean,” he said. “Transocean are a very very good drilling contractor… But we have to ask how much further we can drive the risk down.”

Mr Hayward also accepted it was “an entirely fair criticism” to say that the company had not been fully prepared for a deep water oil leak.

The containment effort on the surface, he said, had been “very successful” in keeping oil away from the coast. “Considering how big this has been, very little has got away from us,” he said.

However, BP had not had ready any equipment or even ideas for stopping the leak. It has been reaching for many of the same techniques used to control the Ixtoc 1 blow-out in the Gulf of Mexico 31 years ago.

“What is undoubtedly true is that we did not have the tools you would want in your tool-kit,” Mr Hayward said.

“After the Exxon Valdez spill in 1989, the industry created the Marine Spill Response Corporation to contain oil on the surface…. The issue will be to create the same sub-sea response capability.”

With BP’s hopes of future growth in the US riding on deep water development, it will be vital for Mr Hayward that the administration ultimately accepts that those reforms will be enough to allow drilling to continue.