Spill Panel Found No Evidence BP Put Cost Over Safety

The U.S. panel investigating the BP Plc oil spill found no evidence decisions were made to put profit ahead of safety on the drilling rig, its co-chairman said.

Environmental groups and lawmakers have said BP cut corners to reduce costs as the company sought to complete the doomed well that was $58.4 million over budget and move the Deepwater Horizon rig leased from Transocean Ltd. to another project. The U.S. House in July passed legislation that would bar BP from offshore drilling leases based on safety lapses.

“We certainly found no evidence that anyone had scrimped on safety, for example, to save money,” William Reilly, co- chairman of the National Commission on the BP Deepwater Horizon Oil Spill, told reporters at a break in the commission’s meeting in Washington. He later said, “What we have really heard today is a story of what appears to be several very human decisions made by competent professionals who missed signals.”

The panel released preliminary findings today on causes of the blowout, which killed 11 workers, spewed crude into the Gulf for 87 days and shut thousands of square miles to fishing. Last month, the commission appointed by President Barack Obama said cement recommended by Halliburton Co., the world’s second- largest oilfield-services provider, to seal the well in April was unstable and may have led to the largest U.S. offshore oil spill.

Photographer: Derick E. Hingle/Bloomberg

The Transocean Development Driller III at sunset in the Gulf of Mexico July 29, 2010. Close

The Transocean Development Driller III at sunset in the Gulf of Mexico July 29, 2010.

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Photographer: Derick E. Hingle/Bloomberg

The Transocean Development Driller III at sunset in the Gulf of Mexico July 29, 2010.

“There were a series of challenges that had to be addressed,” said Reilly, a former head of the Environmental Protection Agency. “It looks as though, by and large, almost every one of the responses to those challenges was justifiable and professional.”

‘Plus’ For BP

“It’s a plus for BP,” said Philip Weiss, an analyst at Argus Research Corp. in New York who owns BP shares and has a hold rating on the stock. Cost-cutting is “certainly an accusation a lot of people have made in the aftermath of this disaster,” Weiss said.

Stuart Smith, a New Orleans lawyer for clients claiming economic damages from the spill, said the panel’s report is “not going to change anything because the presidential commission’s findings are not going to be admissable at any trial. From our engineers’ reviews of the documents so far, it is clear that profit motives played a part in every aspect of this well.”

Representative Edward Markey, a Massachusetts Democrat, said in a statement that BP’s culture “favors risk-taking and cutting corners above other concerns” and failures such as the Gulf blowout “result without direct decisions being made or tradeoffs being considered.”

BP Shares Fall

BP’s American depositary shares, each representing six ordinary shares, fell 56 cents, or 1.3 percent, to $43.23 at 4 p.m. in New York Stock Exchange composite trading. Halliburton rose 4.7 percent to $33.43 and Transocean rose 4.9 percent to $67, the biggest advance for both companies in two months.

Panel Chief Counsel Fred Bartlit, who presented the preliminary findings, touched on the role of BP’s wells-team leader, John Guide, who vetoed a proposal to install equipment that may have kept explosive natural gas from seeping into the well and jetting up to the floating rig.

Guide discounted results of computer-generated modeling that showed a potential defect with cement used to keep natural gas from seeping into the well, Bartlit said.

“From time to time, cement jobs are not perfect,” Bartlit said. “They were running these cement models and the BP man in charge didn’t think they were worth much. We’re not saying that it was right or wrong or that that caused any problem.”

Engineers Faulted

London-based BP faulted its own engineers for the fatal drilling-rig blast in an internal investigation of the April 20 explosion, and said contractors Transocean and Halliburton share the blame. Bartlit said today the panel agrees with “about 90 percent” of BP’s findings.

“We have not seen a single instance where a human being made a conscious decision to favor dollars to safety,” Bartlit said.

BP’s report was compiled by a team of investigators who reported to Mark Bly, the company’s chief of safety, who appeared before the commission. Bartlit said the choice of well design didn’t contribute to the blowout, a finding that corroborates BP’s internal inquiry.

Many disagreements between BP and contractors such as Halliburton and Transocean over how to proceed in the days and hours before the catastrophe probably were driven by differences of engineering judgment rather than cost concerns, said Weiss, the Argus analyst.

Companies’ Role

“Based upon what we know, and these are preliminary findings, there are three companies that had some part in the decisions that contributed to what happened that evening on the rig,” Reilly said, referring to BP, Halliburton and Transocean.

Investors and oil-industry analysts are watching the inquiry panel, which is due to submit its final report in January, and a Coast Guard-Interior Department board scheduled to complete a separate probe by late March for signs of who may bear liability for the disaster, Weiss said. Beyond the government panels, state and federal courts probably will take years to resolve the issue, he said.

Bartlit’s investigators have had to seek cooperation from witnesses without being able to issue subpoenas to compel testimony. Co-Chairman Bob Graham, a Democrat and former U.S. senator from Florida, said the panel will ask Congress this month to approve subpoena power.

Halliburton was ordered by a federal judge in New Orleans to turn over cement used on the Deepwater Horizon to investigators from the U.S. Chemical Safety and Hazard Investigation Board.

Chevron Tests

Preliminary findings from the spill commission’s staff show Halliburton conducted at least three tests of similar mixtures, in February and April, showing the recipe wasn’t stable. Separate tests by Chevron Corp., using material supplied by Houston-based Halliburton, couldn’t generate a stable mixture in a laboratory, according to an Oct. 28 staff letter.

Halliburton said in a statement that differences between internal cement tests and the commission’s test results “may be due to differences in the cement materials tested.”

Richard Vargo, Halliburton’s Gulf of Mexico regional manager, said today that explosive gas seeped up around the outside of the steel pipe lining the well, rather than through gaps in cement at the bottom of the hole and through the center. BP has said gas seeped up the middle of the pipe

“I disagree with that,” Vargo said at the hearing.

Well Declared Shut

The Bureau of Ocean Energy Management, the agency that oversees offshore drilling, said today the plugging of the Macondo well was complete. The well was declared dead on Sept. 19, and pressure tests have verified the integrity of the nine plugs used to kill the well, the agency said.

Also today, BP named Frank L. “Skip” Bowman and Brendan Nelson as non-executive directors as the company seeks to restore its reputation following the spill.

Bowman rose to the rank of admiral during 38 years in the U.S. Navy during which he specialized in nuclear reactors. Nelson is a non-executive director of Royal Bank of Scotland Group Plc.

To contact the reporters on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net.

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.

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