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00379411 BP Told To Reduce Chemical Use in Sea
By SIOBHAN HUGHES And ISABEL ORDONEZ The Wall Street Journal, Online Edition, Tuesday, May 25, 2010.
PORT FOURCHON, La.—Environmental officials on Monday ordered BP PLC to slash its use of a toxic chemical being used to break up oil leaking from the Deepwater Horizon site in the Gulf of Mexico.
But the Environmental Protection Agency retreated from an earlier order to stop using the chemical altogether, saying early tests showed it was doing less damage than feared to undersea life while limiting the amount of oil washing ashore.
The agency and BP have been fighting over the use of the chemical, known as a dispersant, since last week. That dispute ratcheted up on Monday as the government tried to assert itself in the response effort, sending four cabinet officials down to the Gulf on Monday.
BP said it was looking for an alternative to Corexit 9500, manufactured by
Nalco Holding Co. The EPA last week ordered it to stop using Corexit by Sunday.
But Doug Suttles, the company's chief operating officer, said Monday that BP hasn't been able to find a good replacement available in large quantities. "If there is one available, we will switch to that product," he said.
The EPA is bracing for the long-term use of dispersants in case BP's efforts to shut down the leak continue to fail.
"Everything that the president has told us to do is to plan for the worst," said Lisa Jackson, the EPA administrator. "I think about the need to have dispersant on hand a month from now."
That is one reason why the EPA will be examining whether there are less toxic and more effective dispersants that could be produced in large volumes.
Ms. Jackson said BP must cut its use of Corexit 9500 by 50%, and perhaps by as much as 75% immediately.
Ms. Jackson said the agency was conducting its own tests on the effects of the chemical, which is being used in unprecedented amounts both on the surface of the Gulf and deep underwater, instead of relying on BP's own analysis.
"Rather than take their word for it, I would rather have my scientists do their own testing," she said.
Amid increasing questions on Capitol Hill and along the Gulf Coast about how dispersants might be affecting marine life, Ms. Jackson said tests so far showed reason for hope.
"The toxicity tests are actually not bad news," she said, citing high survival rates for tiny organisms at the bottom of the food chain.
Lawmakers and Gulf Coast residents have been raising questions about how dispersants might be affecting marine life. On Monday evening, Rep. Jerrold Nadler (D., N.Y.), a member of the House Transportation and Infrastructure Committee, said the EPA should bar the use of dispersants until it is sure that they are doing more good than harm.
About 60 miles of shoreline have been touched by oil so far, according to BP. The company continues to try to siphon oil from the damaged well.
But the amount being recovered has declined recently to 1,120 barrels a day, a BP spokesman said Monday, down from a high of about 5,000 barrels.
BP said Monday it would make $500 million available to researchers studying the effects of dispersants and other environmental impacts of the oil spill.
Some of the money is to go to scientists at Louisiana State University and some will finance an independent panel of experts.
# 00379412 Insurance Premiums for Offshore Drilling Soar 15%-50%
By ERIK HOLM The Wall Street Journal, Online Edition, Tuesday, May 25, 2010.
The price to insure offshore drilling in the Gulf of Mexico has risen at least 15% since last month's Deepwater Horizon disaster and may stay permanently higher, as unknowns about the spill cleanup have left insurers feeling in the dark about their risks, industry executives say.
Before the rig sank in 5,000 feet of water and touched off a massive oil spill, the cost of insuring a physical rig itself ranged from $3 million to $9 million a year, said Richard Kerr, chief executive of MarketScout, a Dallas-based electronic insurance exchange. The premium would depend on the deductible and other factors.
Liability coverage, including for a large oil spill, would be priced separately, Mr. Kerr said.
Rates have risen 15% to 25% for rigs operating in shallow water, said Mr. Kerr, whose monthly summary of insurance prices are followed by insurers and their commercial customers. Price increases for operations further out to sea might be as high as 50%, he said.
Pre-Deepwater, insurers were mostly focused on the risk of a hurricane sinking an offshore platform. Now, they are focusing on the risk of drilling for crude a mile or more beneath the sea.
"The science and engineering involved were believed to be quite advanced, and you have to rethink those assumptions," said George Stratts, head of marine and energy coverage at Chartis, a unit of
American International Group Inc., one of possibly dozens of insurers who will share costs in the disaster.
The physical loss of the Deepwater Horizon rig is costing insurers $560 million, according to several people in the industry. The spill also is expected to require insurers to shoulder liability costs to clean up beaches, compensate coastal business owners and fight a wave of litigation against the well's owners and contractors.
Two weeks ago, Swiss Re estimated in its earnings release that insurers would incur $1.5 billion to $3.5 billion in total claims. The spill has only grown since then.
The total claims could surpass the $2.2 billion to $2.5 billion generally believed to represent the annual premiums that insurers collect globally from companies involved in oil and gas exploration.
Lawsuits could spread the blame from the owner of the well, BP PLC, to contractors such as Transocean Ltd. and Halliburton Co. "to a degree much larger than anticipated" when insurers priced and sold the coverage to the contractors, warned John Lloyd, the chairman and chief executive of insurance broker Lloyd & Partners Ltd., in a letter last week to U.S. senators.
Insurers will bear much of the cost of fighting lawsuits filed against their customers. Liability policies typically include no cap on the cost of mounting a legal defense.
As for coastal hotels, beachfront resorts and fishermen, "people who are harmed can go directly to their insurance companies and let them work out how to get money from" companies involved in the spill, predicted Marshall Gilinsky, an attorney at Anderson Kill & Olick whose clients are typically plaintiffs seeking money from insurers.
A handful of insurance companies, including
Warren Buffett's Berkshire Hathaway Inc., capitalized on an earlier increase in prices following hurricanes in 2004, 2005 and 2008. But the higher rates caused some oil companies to forgo some of the coverage they had purchased in earlier years.
Now, insurers may become less willing to back policies just as the companies working in the Gulf rediscover their appetite for insurance, said Richard Kern, the head of energy and environmental coverage at James River Insurance Co. in Richmond, Va.
Some of the new entrants who did manage to sell coverage "are going to step back and look at what's taking place, look at what their results are, and realize we're not doing restaurants," said Mr. Kern.
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00379507 BP Cites Crucial 'Mistake'
'Very Large Abnormality' in the Well Wasn't Heeded Hours Before Fatal Explosion
By STEPHEN POWER The Wall Street Journal, Online Edition, Wednesday, May 26, 2010.
Oil giant BP PLC told congressional investigators that a decision to continue work on an oil well in the Gulf of Mexico after a test warned that something was wrong may have been a "fundamental mistake," according to a memo released by two lawmakers Tuesday.
The document describes a wide array of mistakes in the fateful final hours aboard the Deepwater Horizon—but the main revelation is that BP now says there was a clear warning sign of a "very large abnormality" in the well, but work proceeded anyway.
The rig exploded about two hours later.
The congressional memo outlines what the lawmakers say was a briefing for congressional staff by BP officials early Tuesday. Company representatives provided a preliminary report on their internal investigation of the April 20 disaster, which killed 11 workers and continues to spill thousands of barrels of oil daily into the Gulf of Mexico.
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The new developments come as President Barack Obama, working to tame a political storm over the spill, is expected to announce Thursday that the government will impose tougher safety requirements and more rigorous inspections on off-shore drilling operations.
According to the memo, BP identified several other mistakes aboard the rig, including possible contamination of the cement meant to seal off the well from volatile natural gas and the apparent failure to monitor the well closely for signs that gas was leaking in, the congressmen wrote in their post-meeting memo. An immense column of natural gas, erupting from the oil well, fueled the fireball that destroyed the rig.
A BP spokesman declined to comment on the memo's specific statements. He said the company had identified "what we believe to be a series of underlying failures" that caused the accident.
Although the memo identifies some of the problems that led to these mistakes, it doesn't identify who made the key decisions. Most of the work aboard the rig was performed by employees of Transocean Ltd., the rig's owner and operator, and other contractors, but BP had managers aboard the rig to supervise the work at the time of the accident.
Associated Press A BP cleanup crew collects oil from a beach at Port Fourchon, La. Despite a massive containment effort, oil from the spill is now contaminating the state's coastal marshes
A Transocean spokesman said in response to the memo: "A well is constructed and completed the same way a house is built—at the direction of the owner and the architect. And in this case, that's BP."
The memo sheds new light on a key test performed hours before the explosion that has been a focus of congressional investigations. BP previously told investigators that a "negative pressure" test, which checks for leaks in the well, was inconclusive at best and "not satisfactory" at worst.
But in the meeting Tuesday, BP went further, saying the results were an "indicator of a very large abnormality" but that workers—unnamed in the memo—decided by 7:55 p.m. that the test was successful after all. That may have been a "fundamental mistake," BP's investigator said in the meeting, according to the memo. Reps. Henry Waxman (D., Calif.) and Bart Stupak (D., Mich.) wrote the memo, which was made public Tuesday.
After that, workers began to remove the heavy drilling fluid, called "mud" in the industry, that provides pressure to prevent any gas that seeps into the well from rising to the surface.
The memo also describes a breakdown in communication aboard the rig in the hours leading up to the explosion that made it tough for workers to monitor how much mud was coming out of the well—a key measure of whether gas is leaking in, according to the memo.
BP identified "several concerns" related to the cementing process used on the well, the memo indicated. The cement work that was supposed to hold back gas "failed," the memo said, allowing gas into the well.
Halliburton, Co., the cementing contractor on the rig, said it followed BP's instructions. "As a contractor, Halliburton made recommendations regarding the contract services provided," said Halliburton spokeswoman Cathy Mann. "However, ultimately, the responsibility for what operations to conduct lies with the well owner, and Halliburton is obligated to act at the direction of the well owner."
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