Steffy: ‘BP’s Gulf focus may leave other operations vulnerable’

A week after a joint government investigation laid much of the blame for the worst offshore oil spill in U.S. history on BP, the British oil giant began pushing ahead with plans to begin drilling anew in the Gulf of Mexico.

Last week, BP asked the Bureau of Ocean Energy Management, Regulation and Enforcement to approve a plan for five wells in the Kaskida prospect, about 250 miles southwest of New Orleans.

Kaskida is among the most promising in BP’s lucrative Gulf portfolio. BP wants to get the project moving because any wells it drills there probably won’t enter production before at least 2016.

Environmentalists, of course, oppose the move, but they will oppose BP’s return to the Gulf no matter when it happens, so their objections are little more than background noise.

They are correct, though, in their claim that BP’s safety record deserves more scrutiny. The Obama administration has largely rejected the common-sense idea that a company’s safety and operating record should be considered before granting permits to drill in deep water – some of the most technically challenging drilling projects on Earth.

Other, more powerful incentives, though, are likely to push BP’s plan forward. Given the current fiscal situation in Washington, the decline in royalties from the Gulf won’t be tolerated forever. No company holds more Gulf leases than BP, which makes it a key potential revenue generator for the government.

More specifically, the administration allowed BP to pledge its Gulf production as collateral for the $20 billion claims fund to reimburse business owners harmed by the Macondo spill.

Production off sharply

BP’s Gulf production has fallen to about 250,000 barrels a day from 390,000 barrels before the accident. Without prospects for an increase, the government may worry it will get stuck with some of the tab from the claims fund that it agreed to administer on BP’s behalf.

BP’s history of operating problems shows that its Gulf drilling efforts may be relatively safe, at least initially. The company rarely repeats the same mistakes in the same places. Just as it spent heavily after the Texas City refinery explosion in 2005 to install long-overdue safety equipment and improve maintenance, so has it outlined a series of new procedures to improve its Gulf drilling operations.

Avoiding the root cause

It has said it will install a second set of blind shear rams on every well, improve testing of blowout preventers and more closely review the testing of cement used to seal wells. These, of course, are outward-looking safeguards that ignore the root cause of the Macondo disaster: BP’s own decision-making.

The question, after all, isn’t whether BP can drill safely, but whether it’s changed its culture to prevent the sort of lapses that led to the Macondo blowout from happening somewhere else. BP has never believed in “connecting the dots,” to use former CEO Tony Hayward‘s term, among the operating problems in different corporate divisions – pipelines, refining, trading, offshore drilling.

This is a precarious time for the company. It’s under mounting pressure to revive its flagging stock price, which remains more than 35 percent below the price at which it traded before the disaster.

The financial pressures, always paramount within BP, may be greater than ever. Those pressures, combined with the company’s focus on the Gulf, raise concerns that problems in some other part of the company’s operations, the seeds of some new potential disaster, may be overlooked.

Loren Steffy is the Chronicle’s business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.chron.com/lorensteffy. Follow him on Twitter at twitter.com/lsteffy.

2 Comments

  1. Ed

    Why does the Chronicle call it Macondo and the rest of the world calls it Deepwater Horizon?

    #1
  2. Tom Fowler

    Ed
    If we’re talking about the rig itself I’d say Deepwater Horizon. If we’re talking about the spill after the blowout I’d say Macondo because that’s the name of the well itself. But we’re not always consistant from reporter-to-reporter on our usage.

    #2