Pressure to save time, money may have contributed to oil disaster

By Steven Mufson
Tuesday, May 25, 2010; 12:37 PM

When it comes to offshore oil drilling, time isn't just money. It's a whole lot of money.

Now, five weeks after the Deepwater Horizon blowout that triggered the oil spill in the Gulf of Mexico, there is mounting attention being paid to whether concerns about money created an atmosphere of haste that -- even more than broken gadgets, buckling cement or faulty plans -- may have led to the disaster.

Even before the Deepwater Horizon drilling rig went down in flames, BP's ill-fated exploration well in the Gulf of Mexico's underwater Mississippi Canyon had been consuming time and burning through money.

BP had been drilling for six months, about twice as long as expected. And it was paying probably around $2 million a day -- half a million dollars a day just to lease the rig, and more for supplies and a bevy of top-drawer contractors such as Halliburton. The company had paid over $5.2 million since January for drilling mud alone, according to a daily drilling report. Industry experts estimate that the total cost was nearing twice the $100 million typical for deepwater wells.

"Poking anything in the deep water, it's above $100 million just for starters and the meter keeps running," said Fadel Gheit, oil analyst with Oppenheimer & Co. "For a tricky well, it could cost $150 million or $200 million."

That price tag and the pressure to save money appear to have weighed heavily on the minds of people on the Deepwater Horizon, according to interviews rig workers have given to congressional investigators and publications including The Washington Post.

"There appears to have been a number of changes in the well plan during its construction," Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) said during a May 18 hearing. "These decisions can be driven by cost and the desire to make up lost time in a drilling project."

Industry sources say that BP told three workers from the oil services firm Schlumberger they could go home without doing a key test of the sturdiness of the cement in the hole, something that would have taken several hours; they left the rig 11 hours before the well blew up.

Rig workers and lawmakers have faulted BP for failing to pay enough attention to a spike in pressure in the drill pipe and for neglecting to ask for a second cement plug in the well -- both of which could have been addressed with more time. Instead, rig workers have said, BP pressed ahead with substituting sea water for drilling mud in preparation for closing the well and moving the exploration rig off the site. (A separate platform would be built later to produce the oil.)

BP says Transocean had primary responsibility for the rig's safety. Transocean and other contractors blame decisions by BP.

"People in these jobs are under a lot of pressure to save time and money," said Tadeusz W. Patzek, chairman of the department of petroleum and geosystems engineering at the University of Texas at Austin.

Time worries weren't the exclusive province of BP. In a 2006 trade journal, Transocean and General Electric engineers wrote about how to save time on blowout preventer tests by leaving test valves in place. At a conference in 2009, a Halliburton official spoke about how to get cement to set faster. And in a conference call last August, Transocean's chief executive was grilled by investment analysts to explain how time lost because of rig accidents and blowout preventer problems had cut into profits.

This particular well seemed jinxed. The oil prospect, named Macondo after the fictitious town where the novel "One Hundred Years of Solitude" took place, was tricky, with high pressures and temperatures. A different rig, the Transocean Marianas, had arrived to start drilling there Oct. 21 but on Nov. 28 was damaged and forced to shut down by Hurricane Ida. The Deepwater Horizon rig arrived in January, only to run into technical obstacles in the hole. Ultimately those cost an extra $20 million to $25 million and forced BP and Transocean to drill a new well, the one that later blew out and caused the spill.

Given the high-stakes nature of offshore drilling, that figure seems trifling. Oppenheimer's Gheit estimates that developing Macondo and nearby fields could cost $8 billion to $10 billion. At current oil prices BP and its partners would make that back in less than five years, he said.

Yet even big public companies strive to boost their bottom lines. At Transocean, rig accidents and blowout preventer repairs had hurt earnings in the second quarter of 2009, and during an August conference call disappointed analysts wanted explanations.

"During the quarter, we had an unusual number of major operational incidents, mostly with respect to deepwater rigs, which resulted in a $30 million increase in lost revenue," Gregory L. Cauthen, Transocean's chief financial officer, said.

Transocean chief executive Steven Newman added, "We had a couple of human error incidents" and "a handful of BOP [blowout preventer] problems."

The "human errors" shut down two other rigs for four to six weeks each for repairs and investigations, according to a source close to Transocean. In one, an inattentive worker hoisted equipment too far, causing some large bolts and other parts to fall 167 feet to the rig floor, according to the Minerals and Management Service accident report. In the other, 17,500 pounds of steel casing was dropped by a crane and fell 10 feet.

Pressed by an investment analyst from Credit Suisse, Newman added that "We did a deep dive on each one of those incidents. . . . They were anomalies, and I think I would just leave it at that."

Concerns about time -- and money -- might also explain the installation of a test valve in the Deepwater Horizon's blowout preventer. In a 2004 letter, Transocean and BP agreed to substitute a test valve for one of three variable bore rams capable of pinching off oil flow in a blowout -- while acknowledging that the substitution would reduce redundancy and increase risk.

An article in the November/December 2006 issue of "Drilling Contractor" notes that "vitally important tests" of blowout preventers "carry a considerable cost in terms of rig time spent conducting the test, particularly in deepwater." The article, written by Gary Leach of Transocean and Bob Judge, chief engineer of Hydril, a GE unit that makes blowout preventers, said "substantial savings" were possible by leaving a test valve on the blowout preventer and turning it upside down to avoid having to withdraw pipe for testing. They said companies could save 12.5 hours or $260,000 of rig time with each test.

Yet BP recently told congressional investigators that it lost a precious day of time when it was trying to activate the blowout preventer after the accident; BP was baffled by the test valve's connections to the control panel.

Saving time was also the subject of a 2009 presentation by a Halliburton employee to the American Association of Drilling Engineers. He said "the cement slurry should develop compressive strength rapidly. This is particularly important in the deepwater environment given the associated rig cost."

Oil industry executives say that consequences of a catastrophic failure like the oil spill are so great that they have plenty of incentives, including financial, not to cut corners on safety.

Asked whether time pressure might have skewed key decisions on the rig, BP's senior spokesman Andrew Gowers said, "We have found no evidence that anything of that kind had anything to do with the incident." He added that "as the investigations go on, all sorts of other things may be drawn in but that will not be found to be an issue."

Rep. Michael C. Burgess (R-Tex.) said at the May 12 hearing of the House Subcommittee on Oversight and Investigations that inquiries "may reveal issues of mechanical failure, systems failure, human error or a combination of the three." But, he added, "What we hope we do not find is that corners were needlessly cut in order to save time and money, because ultimately now time and money are what are at risk."

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