The sea is slow to reveal its secrets, and so is BP Plc. The regulators and other companies caught up in the Gulf of Mexico oil disaster are almost as opaque.
Whether motivated by the need for self-protection, the desire to get it right before releasing information, or the inevitable fog of a shape-shifting crisis, the sometimes conflicting statements released by BP, the Minerals Management Service, and others have left a raft of unanswered questions, as reported in the June 14 issue of Bloomberg Businessweek. How much oil is spewing into the Gulf each day? How much damage is it doing, and will the ecosystem ever recover? Who made the decisions that led to this nightmare?
The woman in charge of measuring the spill, Marcia McNutt of the U.S. Geological Survey, invoked the Rumsfeldian phrase “unknown unknowns” on May 27 while explaining why her Flow Rate Technical Group was having trouble figuring out how much oil was billowing from BP’s broken well (12,000 to 19,000 barrels a day was the May 27th estimate, which was increased to 20,000 to 40,000 barrels a day on June 10).
The same uncertainty surrounds environmental impacts. “I don’t think anyone knows, no matter what they say,” says Nicholas Fisher, a professor of marine science at Stony Brook University in New York. “People want clean, simple answers to clean, simple questions, but we don’t have them.” What follows is a careful attempt to take stock: asking the important questions and laying out the best current thinking on them. At the very least, we should all know what we do not know.
Will oil reach the U.S. East Coast?
This may be the first big question with a definitive answer -- and that is likely to be yes, according to a computer simulation released June 3 by the National Center for Atmospheric Research in Boulder, Colorado.
A detailed animation available on the center’s website shows oil swirling slowly around the Gulf until it gets picked up by the Loop Current, a flow of warm water that snakes into the Gulf and then moves east. Scientists say the Loop Current could carry the slick at a speed of about 100 miles (160 kilometers) a day around the tip of Florida -- potentially soiling the Keys, Biscayne Bay, and Miami Beach -- and up the East Coast to the vicinity of Cape Hatteras, North Carolina.
At that point, according to the computer simulation, most of the oil heads east toward the open ocean -- some reaching across the Atlantic almost to the British Isles, home of BP. The simulation didn’t attempt to predict when that might occur. Oddly, the planet might be better off if oil does escape to the Atlantic, where it will be diluted.
The Boulder animation shows concentrations of oil close to the coasts of Florida, Georgia, and the Carolinas about 4 percent as dense as those near the wellhead, dropping to one ten-thousandth farther out in the ocean. Atlantic beachgoers won’t like it, but the Loop Current could diminish the harm to the Gulf.
Will part of the Gulf of Mexico be a Dead Zone?
Big oil spills of the past are poor guides to the Deepwater Horizon disaster because all of them occurred in shallower water. This time, with the leak at 5,000 feet, a great deal of the oil hasn’t reached the surface. Scientists say that under the immense pressure at that depth, much of it has turned into a diluted mist of hair-width droplets that are staying submerged in vast clouds.
As recently as June 6, BP Chief Executive Officer Tony Hayward said there was no evidence of such plumes in the Gulf. On June 8, however, the National Oceanic & Atmospheric Administration announced that they had indeed been found thousands of feet down. Biologists have little experience with undersea plumes. “This is going to be groundbreaking science,” says Roger Helm, chief of the environmental quality division of the U.S. Fish and Wildlife Service.
Microbes that customarily feed on oil seeping from the seabed are expected to consume most of this oil, but that creates its own problems: The bugs use up oxygen needed by other sea creatures, potentially creating dead zones devoid of animal life, says Frank Muller-Karger, professor of biological oceanography at the University of South Florida. Marine biologist Rick Steiner says two-thirds of the fish and wildlife species injured in the Exxon Valdez spill 21 years ago have yet to fully recover. Stony Brook’s Fisher says that the spill might promote bacteria that convert inorganic mercury into toxic methylmercury, which is taken up in the flesh of fish and other seafood.
How did this happen -- and who’s to blame?
Investigators have begun to assemble the chain of errors that led to the disastrous April 20 explosion that sank the Deepwater Horizon drilling rig, killing 11 crew members and causing oil to pour out of the ruptured riser pipe. What’s not yet clear is who at BP and inside the federal government made the wrong decisions.
The slide toward disaster was greased when BP sought and received permission to use pipes and casings in the well that deviated from the company’s own policies. Then the company obtained an exemption to test the blowout preventer on top of the well at a lower pressure than federal rules required. BP pressed ahead even though, as e-mails released by House investigators show, employees had worried six weeks before the explosion that workers were struggling to control the well. If the government had refused to bend its rules, or if BP had not sought exemptions in the first place, the Deepwater Horizon accident might not have occurred.
What’s unknown is whether the people who asked for and those who granted exemptions were defying orders or believed they were carrying out their superiors’ wishes. Those questions are certain to be explored by investigators and plaintiffs’ lawyers. BP said it was recommitting to safety after a 2005 refinery explosion in Texas City, Texas, that killed 15, and a 2006 oil pipeline leak in Prudhoe Bay, Alaska. It implemented a safety-oriented “operating management system” across 80 percent of company operations in 2009 and was rolling it out to the rest of the company this year.
According to BP’s annual sustainability review, the system “provides a single framework for all BP operations to follow, covering all areas from process safety, to personal health, to environmental performance.” The unanswered question is why this brand-new system failed so utterly.
Is there a chance the relief wells won’t work?
Drilling two relief wells to stop the flow of oil is almost certain to get the job done, just not necessarily right away. “It’s been done thousands of times,” says Nansen Saleri, chief executive officer of Quantum Reservoir Impact in Houston. “Where the uncertainty lies is how much time it is going to take.” That’s because it’s fiendishly difficult to intercept the broken well, which is narrower across than a soccer ball, by drilling another well more than two miles beneath the ocean floor.
Both relief wells might miss -- as other emergency wells have -- requiring a second, third, or fourth try, says Dave Rensink, president-elect of the American Association of Petroleum Geologists. It took Mexico’s state-owned oil company, Petróleos Mexicanos, or Pemex, nine months to plug its Ixtoc I well after an explosion and fire in 1979. The company’s first relief well failed, so it had to drill a second. Eventually more than 140 million gallons of crude spilled into the Gulf of Mexico. Last year, a blowout at a rig off the Australian coast, owned by Thailand’s national oil company, PTT Exploration & Production, required five attempts before it could be plugged by a relief well 10 weeks after the spill began.
“Technology has improved, but it can take a while,” energy banker Tudor Pickering Holt said June 7 in a note to investors. If the well is intercepted in August, as planned, stopping the flow may take another two weeks. BP must not only cement the well shaft, but also plug the well bottom so oil and gas no longer flow into the hole.
How will the oil spill lawsuits proceed?
It may take months, but the 200-and-counting leak-related lawsuits will be consolidated into one or more megacases -- excruciatingly complex proceedings teeming with litigants and lawyers -- and a single federal judge will emerge as the Solomon of the Spill. One man apparently angling for the job is U.S. District Judge Carl J. Barbier, a former head of the Louisiana plaintiffs’ bar and thorn in the side of business. Barbier, who has been hearing preliminary legal motions, announced this month that he preemptively sold his oil-industry bonds to eliminate any “perception of a conflict in these cases.”
Whoever ends up presiding over what may become one of the most convoluted courtroom struggles in U.S. history will wield extraordinary authority. Many plaintiffs’ lawyers want to do battle in New Orleans, where Barbier sits; corporate defendants prefer Houston, U.S. headquarters of the oil industry.
A federal panel in remote Boise, Idaho, will make the geographic call in late July. Six of the 12 federal trial judges in New Orleans have recused themselves because of oil-industry investments or other connections to the controversy. Not Barbier, who was appointed by President Bill Clinton in 1998. “We think Judge Barbier would be a fine judge to preside over this unprecedented litigation,” says Louisiana lawyer Burton LeBlanc of the firm Baron & Budd. The Louisiana Association of Business & Industry would be “skeptical” of such a selection, says vice-president Ginger Sawyer. Her group opposed Barbier’s appointment to the bench, noting his lobbying against legislation aimed at restricting civil lawsuits.
In 2002, the U.S. Supreme Court vindicated the judge’s refusal to step down from a tobacco-liability case, despite the cigarette industry’s allegation of bias. The justices said he had no conflict.
Will anyone go to prison?
Although outraged Americans would like to see people hauled off in handcuffs -- for negligence, for obfuscation, or just as payback -- the road from scorn to prison in cases of this kind is prohibitively long. Jail terms are “very rare,” says Noah Hall, a law professor at Wayne State University in Detroit and former attorney with the National Wildlife Federation. On June 1, U.S. Attorney General Eric Holder said the Justice Dept. had opened criminal and civil probes, although he didn’t say which companies are being investigated. Holder said the government is looking into potential violations of the Clean Water Act and other environmental laws.
Even if criminal charges are filed, such cases are typically settled with guilty pleas and the payment of fines. Hall says that prison terms, when they are imposed, are usually limited to cases of “spiteful, intentional acts,” such as dumping a known toxic substance into a waterway. Following the Exxon Valdez oil spill in Alaska in 1989, Exxon pled guilty to misdemeanors and was hit with $125 million in fines and restitution. (The ship’s captain, Joseph Hazelwood, was convicted of a minor charge and did community service.) In the BP case, “based on everything public,” Hall says, “I’m not sure we’ve seen enough that would warrant jail time.”
Could BP go bankrupt?
Estimates of the potential spill liability for all parties range into the tens of billions of dollars. Credit Suisse has said the disaster may cost BP alone as much as $37 billion over time, almost double this year’s likely profit. That’s raised questions about whether the British oil company will cut its dividend or put one or more of its units into bankruptcy proceedings to protect them from legal claimants and other creditors.
The cost of BP credit default swaps soared on June 9, reaching nine times their pre-spill level. Contrary to headline- grabbing predictions of doom, a Chapter 11 filing by BP seems unlikely, says Barry Adler, a bankruptcy expert at New York University Law School. “Despite the spill, this is a company with valuable assets and strong cash flow; it’s hard to see BP reaching insolvency.” Like many very large companies, BP is self-insured, meaning that it will pay claims out of its own pocket. “We are generating far and above the cash we need to satisfy all of the things we can see,” BP CEO Tony Hayward said in early June.
If evidence of egregious wrongdoing surfaces, that could alter the bankruptcy outlook for BP. A civil jury assessing punitive damages or prosecutors seeking to make a point with enormous criminal fines could push the company toward insolvency. “The uncertainty of potential punitive damages or the credit risk that might come with serious criminal liability could change the picture,” Adler notes. Politics and public perception will also come into play.
The Obama Administration could pressure BP into a reorganization, possibly via bankruptcy court, in which parts of the company were sold off and its leadership replaced. “If we get to the fall and the Loop Current has taken the oil around Florida, bankruptcy becomes a more viable option,” says Baron & Budd’s LeBlanc.
Is a climate and energy bill more or less likely to pass?
Here’s a harsh political reality: The disaster that dramatizes the need to get America off oil makes it harder to pass a bill to help it do so. Before the spill, President Barack Obama tried to win Republican support for climate and energy legislation by tying it to expanded offshore drilling. That tactic is dead. Obama’s new idea is to harness public anger and link a climate-and-energy bill to measures making offshore drilling safer. On June 2 he said the spill sends Congress an urgent signal to complete this work.
The House has already passed a climate bill; it’s far from clear that the Senate’s version will include a cap on carbon emissions -- the most important and politically difficult provision. Also unclear is whether Obama will really fight for the cap, as he promised on May 26. Majority Leader Harry Reid has asked eight Senate committee chairmen to submit language for a new bill by the July 4 recess. The Senate’s third-ranking Democrat, Chuck Schumer of New York, recently suggested that the Senate bill would omit the carbon cap, and that the sponsors of a climate bill, Massachusetts Democrat John Kerry and Connecticut independent Joseph Lieberman, could offer it as an amendment. Isolated in that manner, the cap would surely fail.
On June 8, Senator Lindsey Graham of South Carolina, the only Republican to help draft the Kerry-Lieberman bill, came out against it more forcefully than ever. The next day, he threw his support behind a weaker rival bill -- one with no cap. Kevin Book, a managing director at ClearView Energy Partners, says Obama may need to win back Graham’s support to get 60 votes for a filibuster-proof bill. For environmentalists, this is one crisis that may well go to waste.