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BP Gulf Disaster and Its Failed Russian Experiment

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A couple of interesting, tangentially related things happened today.

First, in a bid to wall off the PR disaster of the Gulf spill from the rest of the company, BP has assigned someone–an American BP employee–to take charge of cleanup efforts.

BP is to hive off its Gulf of Mexico oil spill operation to a separate in-house business to be run by an American in a bid to isolate the “toxic” side of the company and dilute some of the anti-British feeling aimed at chief executive Tony Hayward, the company said today.

The surprise announcement was made during a teleconference with City and Wall Street analysts in which Hayward attempted to shrug off the personal criticism saying words “could not break his bones”.

In tangentially related news, a business unit in BP’s Russian subsidiary, TNK-BP, has filed for bankruptcy.

Russian-British oil venture TNK-BP says a subsidiary that holds the license to a huge Siberian gas field has filed for bankruptcy.

The oil company said in a statement Thursday that RUSIA Petroleum was unable to repay debts to its parent company.

Note, this is just one subsidiary of TNK-BP, but still presumably a significant deal.

I say it’s tangentially related because the dude BP has put in charge of cleaning up our Gulf was run out of Russia a few years ago.

Responsibility for the leaking well and the clean-up strategy will placed in the hands of Bob Dudley, one of the company’s most able directors.

Dudley, a US citizen, has been looking for a suitable role in the company since he was thrown out of Moscow in a battle with the Russian shareholders of the TNK-BP joint venture in the middle of 2008.

Hayward said the clean-up business would be run separately by Dudley with his own staff but the finances and budget would come from the main BP group. The BP chief executive said the purpose of the split was to allow Dudley to concentrate on the Gulf problem while he and other directors were not distracted from keeping the main business on track.

Until 2008, Dudley was CEO of TNK-BP, when he got run off by the Oligarchs. The guy in charge of negotiating with the Russians at TNK-BP during the same period was James Dupree.

Mr. Hayward delegated much of the handling of TNK-BP and the relationship with the Russian partners to James Dupree, the head of Russia and Kazakhstan for BP. He knew the business well, having worked as a senior TNK-BP executive. But that history also complicated relations in his new role, since he’d been formally a subordinate to some of the Russian shareholders, who also held management jobs.

“Dupree was a midlevel functionary who wasn’t senior enough to make any decisions,” said one person close to AAR. BP officials acknowledge they mishandled the relationship. A spokesman said Mr. Dupree wasn’t available for comment.

Around the same time Dudley was run off, Dupree was replaced by a triathlon partner of Tony Hayward. Here’s more extended background on BP’s 2008 Russian fiasco.

Dupree was–at least when this whole mess started–BP’s Senior Vice President for the Gulf of Mexico. He was the guy who first told Congress about the negative pressure tests the Macondo well failed, but neglected to mention the company pushed ahead on capping the well in spite of the tests (company lawyers corrected that version). I haven’t heard a peep from Dupree since.

In addition to Hayward’s triathlon partner, after Dudley was chased out by the Russian Oligarchs, BP brought in Lamar McKay.

Mr. Hayward also brought in a top troubleshooter with years of Russian experience, Lamar McKay, to take over talks with the AAR partners instead of Mr. Dupree, the executive who had worked for them inside TNK-BP.

Fearing detention, Mr. Dudley fled Russia in secret in late July. BP’s board was meeting the day he left and several directors were stunned when told of the news, according to people close to the company.

Before being brought into save BP Russia, McKay had negotiated several of the legal settlements–for Texas City and Prudhoe Bay–for which BP remains on probation. McKay was in Russia for just a few months before he got put in charge of BP America. McKay’s the guy who spent a chunk of time in the last month–as President of BP America–testifying before Congress.

Now, I don’t know what any of this means. But I do think it worth noting that BP keeps putting the guys who had been in charge of its failed Russian project in charge of our Gulf. It makes me ask several questions:

  • Some of the dudes who botched the Russia relationship are portrayed as very close to Tony Hayward. Is this part of a pissing contest between Hayward and Chairman Carl-Henric Svanberg? (The Guardian article that reported this has Hayward denying tensions between himself and Svanberg.)
  • Is this, instead, an effort to isolate the ballooning financial responsibilities of BP from the rest of BP?
  • Why has BP chosen to put a bunch of guys who fought the Russian Oligarchs–and lost–in charge of our Gulf?

I can’t help but wonder whether this move is about protecting Tony Hayward, rather than protecting what’s left of the Gulf Coast.

BP Fixed a Negative Pressure Test before the Well Blew

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Back when the House Commerce Committee had its first hearing on the BP Disaster, Henry Waxman revealed some inconsistencies about the negative pressure test BP did on the well before it moved to close off the well.

The next bullet says: “After 16.5 hours waiting on cement, a test was performed on the wellbore below the Blowout Preventer.” BP explained to us what this means. Halliburton completed cementing the well at 12:35 a.m. on April 20 and after giving the cement time to set, a negative pressure test was conducted around 5:00 p.m. This is an important test. During a negative pressure test, the fluid pressure inside the well is reduced and the well is observed to see whether any gas leaks into the well through the cement or casing.

According to James Dupree, the BP Senior Vice President for the Gulf of Mexico, the well did not pass this test. Mr. Dupree told Committee staff on Monday that the test result was “not satisfactory” and “inconclusive.” Significant pressure discrepancies were recorded.

As a result, another negative pressure test was conducted. This is described in the fourth bullet: “During this test, 1,400 psi was observed on the drill pipe while 0 psi was observed on the kill and the choke lines.”

According to Mr. Dupree, this is also an unsatisfactory test result. The kill and choke lines run from the drill rig 5,000 feet to the blowout preventer at the sea floor. The drill pipe runs from the drill rig through the blowout preventer deep into the well. In the test, the pressures measured at any point from the drill rig to the blowout preventer should be the same in all three lines. But what the test showed was that pressures in the drill pipe were significantly higher. Mr. Dupree explained that the results could signal that an influx of gas was causing pressure to mount inside the wellbore.

Another document provided by BP to the Committee is labeled “What Could Have Happened.” It was prepared by BP on April 26, ten days before the first document. According to BP, their understanding of the cause of the spill has evolved considerably since April 26, so this document should not be considered definitive. But it also describes the two negative pressure tests and the pressure discrepancies that were recorded.

What happened next is murky. Mr. Dupree told the Committee staff that he believed the well blew moments after the second pressure test. But lawyers for BP contacted the Committee yesterday and provided a different account. According to BP’s counsel, further investigation has revealed that additional pressure tests were taken, and at 8:00 p.m., company officials determined that the additional results justified ending the test and proceeding with well operations. [my emphasis]

Today, Waxman is out with an interim report on what happened. And here’s what that report says about this negative pressure test.

Further, BP’s preliminary findings indicate that there were other events in the 24 hours before the explosion that require further inquiry. As early as 5:05 p.m., almost 5 hours before the explosion, an unexpected loss of fluid was observed in the riser pipe, suggesting that there were leaks in the annular preventer in the BOP. Two hours before the explosion, during efforts to begin negative pressure testing, the system gained 15 barrels of liquid instead of the 5 barrels that were expected, leading to the possibility that there was an “influx from the well.” A cementer witness stated that the “well continued to flow and spurted.” Having received an unacceptable result from conducting the negative pressure test through the drill pipe, the pressure test was then moved to the kill line where a volume of fluid came out when the line was opened. The kill line was then closed and the procedure was discussed; during this time, pressure began to build in the system to 1400 psi. At this point, the line was opened and pressure on the kill line was bled to 0 psi, while pressure on the drill pipe remained at 1400 psi. BP’s investigator indicated that a “fundamental mistake” may have been made here because this was an “indicator of a very large abnormality.” The kill line then was monitored and by 7:55 p.m. the rig team was “satisfied that [the] test [was] successful.” At that time, the rig started displacing the remaining fluids with seawater, leading to the three flow indicators described above.

[snip]

Negative pressure testing was initially done on the drill pipe rather than the kill line, even though the drill plan specified that it would be done on the kill line. After anomalous results, the negative pressure testing was conducted on the kill line and ultimately accepted. Evidence suggests that spacer fluid used during the displacement of drilling fluid with seawater did not rise above the BOP to the level required by the drilling plan; this increased pressure in the drill pipe and may have interfered with later pressure testing. [my emphasis]

Click through to read the whole memo. You’ll see that before BP played this little game with the negative pressure test, there were already indications that something was amiss. Yet they still used procedures that violated their drill plan. And in spite of indications of a “very large abnormality,” they kept testing until they got something they could claim fulfilled the test. And then, kaboom!

I’m most disgusted by the description of some discussion of the procedure they were using for the test. Remember–there were a bunch of BP bigwigs on the rig, celebrating its spotless safety record! It sort of makes you wonder who took part in those discussions that ultimately led them to ignore two contrary tests and do another one?

And I’m wondering about Mr. Dupree. Did he deliberately forget to tell the Committee about the third test, the one they miraculously declared adequate?

You almost get the feeling BP didn’t know precisely what it wanted to tell Congress about these multiple and contradictory tests, huh?