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Top Execs at Oil Firms Trade Blame in Rig Fire

Posted on 11 May 2010

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Top executives from BP PLC, Transocean Ltd. and Halliburton Co. began turning on one another Monday over who bears ultimate responsibility for the April 20 oil-rig explosion that took 11 lives and is causing a huge spill in the Gulf of Mexico.

The question of who shoulders the blame will loom large Tuesday at the first set of congressional hearings on the disaster. Testifying will be Lamar McKay, chairman of BP America, Inc.; Steven Newman, chief executive of Transocean, which owned and operated the Deepwater Horizon rig; and Tim Probert, a top official at Halliburton Inc., which was brought in to cement the well.

BP, owner of the well, which was just being completed and not yet producing oil, says it has already spent $350 million in cleanup efforts and paid out $3.5 million in initial claims to businesses along the Gulf Coast. The company's effort to stop the flow, which will soon include two additional drilling rigs, could also cost well over $1 million a day. The company also faces dozens of lawsuits for damages. While BP owned the well, Transocean owned the rig that caught fire and ultimately sank in a mile of water.

BP's Mr. McKay plans to testify that a 450-ton set of valves called a blowout preventer "was to be the fail-safe in case of an accident" and that determining why the equipment failed to work is critical, according to a prepared statement for the Senate Committee on Energy and Natural Resources. The testimony was reviewed by The Wall Street Journal.

"We are looking at why the blowout preventer did not work because that was to be the fail-safe in case of an accident...Transocean's blowout preventer failed to operate," according to Mr. McKay's prepared statement. "All of us urgently want to understand how this vital piece of equipment and its built-in redundancy systems failed and what measures are required to prevent this from ever happening again."

Mr. McKay's statement appears to set up a conflict with Transocean. In written testimony prepared for Tuesday's hearing, Transocean puts the blame on subcontractors working under BP's direction.

After laying out how the drilling proceeded, Transocean's Mr. Newman's prepared statement says the explosion occurred "after the well construction process was essentially finished." Mr. Newman then blames the blowout on a failure of the well's lining, saying the blowout had to be caused by "a sudden, catastrophic failure of the cement, the casing or both." The casing is the area in the hole outside the pipe.

Contradicting BP's assertion that the final blame must fall to the blowout preventer, Mr. Newman says in his statement that it "simply makes no sense" to blame the blowout preventer, the multi-valve system meant to stop a blowout from happening. At the point that the blowout occurred, "the well barriers—the cementing and the casing—were responsible for controlling any pressure from the reservoir," his prepared statement says.

Halliburton, the Houston-based oilfield-services company, which was a subcontractor on the well, plans to say in its Senate testimony that its workers did not set a cement well plug before the blowout and explosion.

While Halliburton had finished cementing the casing area outside the pipe, it had not yet been able to set a cement plug to block the pipe before the explosion. Such a plug is necessary before the well could be temporarily closed, according to testimony from Mr. Probert, Halliburton's president of global business lines. BP planned to close the well for a time while it devised a plan to bring it into production and start pumping oil.

"Prior to the point in the well construction plan that the Halliburton personnel would have set the final cement plug, the catastrophic incident occurred," Mr. Probert will say, according to a copy of the planned statement reviewed by the Journal.

Two Senate panels are to hear testimony from company executives Tuesday, in the first hearings since the accident. The other one besides the Energy and Natural Resources panel is the Senate Committee on Environment and Public Works.

BP's efforts to control the leaking oil haven't worked so far. As a result, reverberations from the disaster could affect BP's global ambitions to expand its already large footprint in deep-water drilling.

No other company has invested as heavily as BP has in the high-risk, high-reward business of deep-water oil exploration as BP. It is the largest deep-water producer, with interests off the coasts of Angola and Libya, as well as the West Nile Delta in Egypt.

BP Chief Executive Tony Hayward, speaking on Monday, said, "The industry has been exploring in deep water for over 20 years." The global industry "has drilled over 5,000 wells in greater than 1,000 feet of water and has not hitherto had an issue of this sort to contend with."