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Could it be that the share price has fallen heavily because it was over valued to begin with? The oil price remains elevated ($80 a barrel after touching $88 recently). This is speculators as demand remains weak. Far too weak for $80 oil.
The more likely scenario is a slow down in global growth taking oil back to $70. The share price of BP was too high.
Neil Woodford, the unit trust manager renowned for his cautious approach, believed at the beginning of this year that BP would struggle to pay their dividend this year. After this it seems more likely that they will reduce it. How will that go down with the stock market?

Mr Peston wrote:
'So governments may be re-thinking whether deepwater oil is oil worth having'

And perhaps insurers may be wondering whether they can underwrite the risks of drilling for it.

Let me first say that this is clearly a dreadful accident of huge proportions and the potential damage is quite appalling. I caught the end of Tony Hayward on the radio this morning and I thought that his response was only that which could be expected given the circumstances. He gave the impression that BP is currently firmly focussed on containment and clean up which I think is the right answer at the present time. If he had been able to provide numbers for the likely costs, the implication would have been that management time had been spent thinking about that which would, I believe, paint a picture of a fairly cynical company.
With regard to the future of high risk drilling I am personally convinced that mankind will continue undertaking such activities. As resources become more scarce and prices increase there will always be people who choose to take an opportunity of a calculated risk at the right price. For example I recall watching a programme about crab fisherman going out for the season. They all knew that the odds were that one in a hundred would die each season. Nevertheless the high wages they could earn in a short period meant they were lining up to go.
When it comes to government intervention the same principle applies. This incident may cause a backlash for now against high risk operations but again there is tension between this risk and the requirements nations have for energy security and consumption. I believe that at some point (maybe even today - we'll have to see the medium term US response) the national value of conducting these operations will override the perceived risk that they represent.
We all take risks crossing the road but decide to go ahead - the same calculation applies to deep sea drilling and at some point the argument to go and do it will become compelling.

A £100Bn company it is but one without an effective business continuity/disaster recovery plan or more to the point without demanding a plan from its key contractor. While not every eventuality can be provided for it is obvious in deep sea drilling that a massive leak whatever the cause must be planned to avoid or contain. One also has to ask what auditing or operational diligence was undertaken by BP of the management and safety of the rig. I am sure the Americans will ensure the event is thoroughly investigated and if appropriate the guilty party(ies)dealt with.

It doesn't matter where the oil is, while the world relies on it as a primary fuel source which we know is running out and the oil barons love their money, oil companies will drill oil from wherever they can.

Until the oil runs out the drilling won't stop because greed and hunger for oil won't change.

Hence the urgent need for alternative, cleaner fuels. The oil WILL run out and everyone's lives will change indescribably. I can't even imagine how planes will be able to fly without aviation fuel, nor ships etc.

The world really will grind to a halt unless leaders get their heads out of the sand!

Otherwise we'll be back to steam engines and horses!

I can see the looming oil crisis wreaking far more disaster on the world than the financial crisis. Richard Branson was right when he spoke of this a little while back, but noone in government listens and anyone who does make a 'fuss' is treated like a nutter!

:
"Cantwell, the chairwoman of two key Senate Commerce and Energy Committee subcommittees with oversight over the offshore drilling, said her staff has found extensive documentary evidence demonstrating the problems with blowout preventers."
"Despite frequent failures, industry assumed the preventers were fail-safe and, as a result, had no back-up plan for responding to a catastrophe like the one now unfolding in the Gulf."
- This is looking less like a "dreadful accident" and more like the 'calculated cost' part of a cost-benefit analysis : "a reasonable goal for the industry one Blow Out Preventer failure for every 10 years a rig is operating"

You note that "The big question, for Hayward, is why this this defence against leaks failed. And if you accept Hayward's analysis, that's a question for Transocean to answer, not BP."

Two parts about this case make me feel that Tony Hayward's comment is a little over-bold. Specifically, the optimistic use of the words 'worst case' analysis that BP referred to in their Exploration Permit, and the low expected success rate of the blow-out preventer - the industry knows that these fail.

The Exploration Permit gives a figure for the worst case 'Volume Uncontrolled Blowout (per day)’ of just under 3900 barrels/day ... or less than 20% of what a decent single well can produce (20,000+). Makes the use of the words 'worst case' look possibly naive (see for more info). And, this is a BP document, not a TransOcean one - so not easy to duck who is responsible.

As for the blow-out preventer, for a system of last resort, it doesn't feel very robust. It is not as simple as a valve, as sometimes described, as it needs to cut through the drill pipe to close the well. And, from what I have read that seems like something that is far from certain - if it hits a joint then basically it won't shut (see for more info).

So, I started with some sympathy for BP here, and they do seem to be responding well now ... but until I hear why these two aspects are not what they seem then my sympathy is dramatically reduced. And, I would rather that they were competent before the event rather than 'heroic' afterwards.

> As of this moment, BP certainly doesn't look a
> more robust organisation than prior to the accident.

You spend too much time with bean counters.

Engineers do _hard_ things, not like bankers,
who just push buttons and send emails.

Get out a bit more and find out how the world works.
When (not if) they succeed, they will be stronger
and more able to cope with the next event.

Put simply, the risk is worth it.

With a leading operator and contractors and sub-contractors, sophisticated equipment, impeccable safety procedures, emergency planning etc, accidents can still happen.

The chances of this event happening were miniscule compared to the massive economic return assured from the oilfield development.

As usual with this type of event there is only going to be one winner - the lawyers.

Years ago, maybe in the late 60's, when the platform sank in the north sea I thought then that valves were talked about being fitted on the sea bed to stop of at least slow down the flow of oil preventing incidents such as this.
There have been several incidents since then and for the overall cost of a valve to the bad publicity in the least why have they not been fitted?
As always the main problems will be felt by those workers on the platform and locals who have a very small living in the area.
It is not as if BP are a small concern who don't employ talented staff, I cannot see how the lack of vision has been missed for oh so many years. Its not as if there is no cash to be made......

"That said, what's clear from the rhetoric of the US administration and President Obama is that the most powerful government on the planet believes that the buck stops in every sense (financial, ethical) with BP, in that the rig was being operated for the benefit of BP and its owners."

Although BP have a responsibility, liability only goes so far. If you had a builder working for you and he happened to run over someone reversing his van to your house. Are you willing to take responsibility for this, given that you employed the builder?

It is the American Nation that are the final beneficiaries of the oil that is extracted from the Gulf, it is they that issue the drilling licenses and they who see a reduction in their current account defecit for every barrel that is produced.

Tony Hayward came into BP on the back of serious safety concerns from cost cutting under John Browne to give a perceived increase to "shareholder value" (Texas oil refinery disaster). I'm afraid that Tony has been lured into the same situation regarding "shareholder value" and this has led to the current problems. Contracting out work is not a way of reducing liability and BP remain, rightly, with the full responsibility. If you read the corporate BP policies on their website they set out how BP managers must drive the BP philosophy onto their contractors to ensure they meet BP standards. That Transocean have failed to do this is a failure of BP management or indeed a reflection of it? This is where the post disaster investigation should start.

With oil drilling, world governments must ensure that disasters like this cannot simply be offset against oil company profits or they will continue to take risks. Risks to the environment and jobs outside the oil industry cannot be measured by simply by financial accounting it must take social degradation into consideration. What is the social cost of a lost fishermans job outside the simple wage calculation?

One other thing, we have heard that these so called domes are available for shallow oil extraction so they must know there are risks at that level. Why has BP, or any other oil extractions company, not modelled the risks of a deep sea leak? If they had done then they would have had a system in place and a dome prepared for such an outcome rather than relying on one being made after the event. Oh, I forgot, that would have cost money and may have impacted on the share price and dividend payment to shareholders.

Poor old Pesto must be having a bad day. This article adds nothing to what is already being said about the event in generic news reporting, and provides no insight into the economic implications - his area of specialism.

But all is not lost as I did learn something useful from some of the comments!

Pesto we love you, but resist the temptation to blog for blogging's sake.

Transocean's shares haven't been a stellar performer, down from a high of 92$ a couple of weeks ago to 72$ now.
There are clearly concerns as to who is going to pick up the bill.

I am sure its not meant to be just about money but people lost their lives in this incident and we seem to be forgetting that....its a damn dangerous business working on the no matter what you are doing.

Now at the moment the focus is on BP and rightly so but there are many other companies doing exactly the same thing in exactly the same difficult and dangerous environments.At some point they too will have to face the possibility of being shut down even if it is only to prove to the now roused regulators that the devices they have installed on the seabed actually work and are not just a showpiece.......there will be repercussions throughout the whole industry if they are shown to be of a flawed design...

I heard a good one - a senator (or maybe an American environmental representative) giving it the old big 'un with BP - demanding that
"there is no expense spared for cleaning up this mess"

What a naive fool - this is the private sector - they simply don't do "no expense spared" - unless of course it's the shareholders bubbly at the AGM.

"That said, what's clear from the rhetoric of the US administration and President Obama is that the most powerful government on the planet believes that the buck stops in every sense (financial, ethical) with BP"

Of course he does - he only assured the American people a few months ago that "there is very little environmental impact to US offshore drilling" - his butt is on the line here - I'm sure he will be blaming BP for a lot of things.

What happens when BP are fined so heavily and their reputation so damaged they face collapse? - another bailout perhaps?

I mean if we bailout the banks on the basis of 'an unforseen event in the credit markets' and the airlines for 'unforseen events with volcanic ash' - then why not BP for an 'unforseen leak of oil in the Gulf'.

Round and round and round it goes - where it stops - nobody knows....

I don't have much sympathy for BP or Transocean. Deep water drilling has always been recognised as risky and the potential for a blow out much bigger because the pressure differential between the seabed and the surface is considerably higher. A few years ago at least a couple of technology companies investigated seabed drilling and at least two viable solutions were produced. This would have dramatically reduced the blow out risk and made the whole process safer and considerably cheaper.

Sadly these companies ran up against the traditionalists inside the oil majors and those with vested interests in the drilling contractors and these ideas got nowhere.

Perhaps they should now be revisited.

In the meantime some may find this interesting.

This comment was removed because the moderators found it broke the house rules. Explain.

...and because this is the only 'Economics' blog left on the ³ÉÈË¿ìÊÖ - you might want to take note of this story.



Expect a similar thing to start happening here again soon - as the 'bailout boys' come back for more.

Once again, the politicans were wrong, and the media were misleading.

9. At 10:52am on 06 May 2010, bill wrote:

"Put simply, the risk is worth it."

Oh really? - well can you explain what the rush is? The only reason there are increased risks is because oil companies would rather drill in increasingly difficult environments (upping the risk) because they want to retain our dependence on oil by boosting the supply. We could easily extract this oil relatively risk free - but it takes longer and that doesn't fit in with oil companies 'expansion and growth plans'

"With a leading operator and contractors and sub-contractors, sophisticated equipment, impeccable safety procedures, emergency planning etc, accidents can still happen."

With an industry which is so intent on cutting costs it hires a sub-contractor to reduce it's costs of drilling - only to discover that the subbie has been cutting corners - it happens in every outsource arrangement - or didn't you realise?

"The chances of this event happening were miniscule compared to the massive economic return assured from the oilfield development."

???? - you must be having a laugh. How can you compare the irrepairable damage to the environment (an amount you can't even quanitfy as you don't have a clue what the imbalance to the ecology does in the long term) - with the 'paper money' generated from extracting it.

If you don't work for an oil company PR department - then you should be ashamed to call yourself human. (and if you do work for one then it's excusable that you don't recognise humanity through the cloud of fictional wealth you are looking through it at)

I shall not weep when the 'middle men' are all sqaushed in the forthcoming events - I mean if that's your attitiude to your environment then you will deserve what is hurtling down the railroad at you.

2. At 10:11am on 06 May 2010, Dempster wrote:

"And perhaps insurers may be wondering whether they can underwrite the risks of drilling for it."

Why would they bother when the combination of the taxpayer and the environment can pick up the bill for any spillages....

Union negotiation the 'Willie Walsh way'....



That should calm those stormy waters...

Who makes all of the detergents, dispersal agents and other products that will be used to clear up this mess ?

The oil companies of course.

So it's heads they win, tails we lose and the environment has to take one for the team while local residents see their homes and businesses ruined.

The company providing the clean up products for this oil spill is Nalco Holding Company and that is owned by Nalco/Exxon Energy Chemicals, L.P. (NEEC).

There's a good article on Reuters about the environmental damage that their products are likely to do that you can find here:

There must be a competition out there to see who can make the most blindingly obvious economic statement. Our entry for today is:

"Banks in the UK and Europe risk their credit ratings being damaged because of "contagion" from Greece's debt crisis, a ratings agency has warned"

Well Duh!

"Moody's said banking systems faced "very real, common threats" if doubts were raised about their governments' abilities to pay debts"

...now this sounds familiar - banking systems facing threats? - where have I heard that before? - must have been a couple of years ago.....

The blindingly obvious answer is this debt is threatening banks because it's the same debt!!!!!

The banks built it up, the Governments took it on and now 2 years later - the markets have finally won the game of hide and seek by discovering it on Governments balance sheets.

Meanwhile....back in the Capitalist's mind, this debt has occured due to 'lax Government spending controls' and not 'doubling the outstanding debt of your nation by taking on the banks failed enterprise'.

Clearly the Greeks don't think this is the case - which is why they are burning the financial system in their country to the ground.

Don't worry, banks or no banks, the sun will still be shining on Greece tomorrow!

What we haven't heard yet is how this accident happened. Was it negligence on behalf of the contractor, someone taking a short cut to meet a dealine or could it not have been prevented at any cost?
Engineering at the cutting edge of technology is difficult and demanding. Society as a whole must understand this.
My question would be about the safety ethos within BP which used to have a reputation second to none for its engineering expertise. The safety and protection of the workforce is determined by policies adopted at board level, they set the tone here.
Mr Heyward may be a fine CEO, securing good returns for the company's shareholders by cost cutting management levels (always a popular move) but questions need to be asked if any of these subcontracting decisions were backed up by proper hazard analyses.
As a previous poster pointed out, mens lives were lost here, carrying out this difficult work.
The drilling rig used had previously set a record for drilling at depth so the firm involved knew what they were doing.
There is no such thing as perfect safety in any operation but a dollar figure has to be attached to the cost of losing a life and preventative measures taken up to this cost.
Mr Haywards safety record since he took over isn't good but perhaps the rot had already set in before, fostered by the previous management.
Maybe we will never know!

5. At 10:19am on 06 May 2010, Tigerjayj wrote:

I can see the looming oil crisis wreaking far more disaster on the world than the financial crisis. Richard Branson was right when he spoke of this a little while back, but noone in government listens and anyone who does make a 'fuss' is treated like a nutter!

*

Isn't Branson currently building a fleet of spaceships? What's powering these? Solar panels & wind turbines?

This spill could change the oil industry.
The environmental and financial damage could be enormous....particularily if the oil reaches the West Florida paradise resorts of Tampa Bay and Fort Myers or Key West etc..or the Mississippi estuary or Port of New Orleans are blocked.
The tourism and industrial damage claims don't bear thinking about.
Deep water drilling may have to be permanently accompanied by a massive "back up" operation (double BOPs, relief well drilled at same time as main well, standby containment ships and domes etc permanently on site), as well as major new regulations.
Otherwise who is going to bother with any deep-water drilling, if the failure of one piece of kit can almost bankrupt you?
It's a dilemma for the US government, who badly need the oil.
A standby "spill containment" industry may cost billions, but may be vital if deep-water drilling is to continue.

There seems to be quite a bit of mis-understanding about how the oil industry works here. ALL oil companies subcontract the drilling of wells to drilling companies like Transocean. It's obviously suprising that the US politicians are aiming their fire at a British oil company and not a very large US drilling company (Transocean)or very large US service company(Cameron)who provided and serviced the BOP.

Hope Obama slings them all in gaol

GC

#21 WOTW

You clearly know nothing about risk analysis, economics or the oil business.

Yes, I do care about humanity and the environment, that's why we need petroleum at minimum risk.

No, I do not work for an oil company PR department. I am fully aware of some of the unspeakable atrocities perpetrated by oil companies, but this is not one of them.

BP is to be commended on doing a first-class job in dealing with the emergency.

Some new design will be put forth and everyone will be told that the new device will prevent this from happening again...until the next time.
A very good example of big business and government regulators working together to protect the people and the environment..

I heard of the news that BP's liability is limited to 50 Million USD - quite cheap really!

I'm waiting to see if the BP guys receive a request to appear at in front of the Bolivian Court of Mother Earth rights!

BP could be the first! Isn't it the case that BP also have a dreadful reputation in Health And Safety in that area? If that is true, then it is yet another example of light touch regulation being an extremely bad idea.

Shareholders, prepare to dig deep because the global public can't afford to make donations to help you pay the bills that will soon arrive.

"...And if the blow-out preventer was so important, some will wonder why BP sub-contracted responsibility for it...."

Robert, could it be the same reason that you don't do DIY heart or brain surgery? Or perhaps you do?

So much reporting on this topic has been badly informed, if not deliberately inaccurate. I expected better from you, but have been disappointed.

In other news, Moody's, part owned by Warren Buffet, say there is a high risk of contagion across European banks due to the Greek crisis. The Greek crisis was not helped much by the fact that Goldman Sachs, part owned by Warren Buffet, helped hide Greek debt off balance sheet for years. At the same time Goldman Sachs were shorting Greek debt. I wonder how many other short positions Goldman are taking on European banks and sovereign debt, all of which can be sent into turmoil at the drop of a few words from Moody's?

26. At 1:13pm on 06 May 2010, splendidhashbrowns wrote:

"What we haven't heard yet is how this accident happened. Was it negligence on behalf of the contractor, someone taking a short cut to meet a dealine or could it not have been prevented at any cost?"

Isn't that Capitalism - running risks to hammer down costs and produce 'efficiency'??

This situation is no different to the banks using 'financial innovation' to improve the bottom line which eventually was at great cost to the taxpayer.

...or the airlines (rightly or wrongly) pressuring the air traffic controllers to allow flights through volcanic ash clouds in pursuit of profit - no matter that 'serious scientific tests' were not carried out - I mean if a plane comes down I'm sure they will be very sorry (like BP are right now)

Let's not be so harsh on BP - they were simply doing what the system is designed to make them do. Puffins, fish and alligators are not 'tangeble profit' - so therefore, sticking to their mandate of 'shareholder value' - they are doing what they are paid to do.

The fact that none of these examples can see the long term consequences of their short term measures is not relevant - I mean do shareholders demand consideration for others when they greedily await their dividends?

I don't know if everyone can see the end result of this - but short term capital accumulation is always put ahead of the long term survival of the human race.

...it's why Capitalism is going to kill us all eventually. It's the law of unintended consequences - when everyone follows their own self interest then this can be the only outcome.

I'm sure Friedman disagrees - but where is he to answer for his folly now it's all unravelling?

29. At 1:31pm on 06 May 2010, p watson wrote:

I think you defeated your own point there...

"ALL oil companies subcontract the drilling of wells to drilling companies like Transocean."

If you subcontract your work, it doesn't mean you subcontract your responsibilities.
....or are you just as understanding when your local bank cannot resolve your problem because it's 'sub-contracted' it's customer service to the far east who have failed to grasp the issue.

Once again the fictional gains promoted by the bean counters by contracting out come home to roost.

31. At 1:42pm on 06 May 2010, bill wrote:

"You clearly know nothing about risk analysis, economics or the oil business."

You're right, 14 years analysing risk in the investment management world is testament to that fact.

"Yes, I do care about humanity and the environment, that's why we need petroleum at minimum risk."

No we don't if we had bothered to look into alternative fuel sources then we would be doing dangerous drilling now. Didn't you realise that the oil industry is having to take bigger and bigger risks and absorb larger costs in order to drill oil? - where have you been lately - Mars?
Why do you think they're drilling off the Falklands?

"No, I do not work for an oil company PR department. I am fully aware of some of the unspeakable atrocities perpetrated by oil companies, but this is not one of them."

...the biggest oil slick since the Exxon Valdez and this isn't an environmental attrocity? - I don't believe you don't work for an oil company - you must be a shareholder then.

"BP is to be commended on doing a first-class job in dealing with the emergency."

Yeah - an emergency it created itself! - well done BP, for trying to clear up your own mess, I suppose it's one up from a certain chemical company who didn't even bother doing that and just lied about the leak.

I suppose the banks are doing a 'commendable job' in clearing up the mess they created too - yes?

Gosh what a lovely world we live in - I create a mess through the greedy pursuit of money and people like Bill pat me on the back for attempting to clean it up!

34. At 2:12pm on 06 May 2010, copperDolomite wrote:

"Shareholders, prepare to dig deep because the global public can't afford to make donations to help you pay the bills that will soon arrive."

What are you talking about - BP are expecting a bailout for this one!!

35. At 2:46pm on 06 May 2010, WolfiePeters wrote:

"Robert, could it be the same reason that you don't do DIY heart or brain surgery? Or perhaps you do?"

Call that an analagy! - well I don't get someone else to operate the pedals while I steer the car when I'm out for a drive.

BP are in the OIL BUSINESS - not the oil rig provision business.

If this was a leak in transportation - then you might have a point, but it isn't - it's in the core drilling business. It's a BP oil field - therefore they are responsible for the management of it.

...and you have the cheek to call reporting on this subject ill-informed.

I bet you're a BP shareholder / employee too - trying to protect your investment perhaps?

The pawns in the game are always the first to be brushed aside.

Not sure how accurate it is to say that the rig, equipment, processes and people are all the responsibility of Transocean. While this may be strictly true, this rig has been working for BP for many years now and every drilling / well operation carried out will be as per BP's procedures and programmes. Operations will not happen on the rig without BP's approval, certainly to any safety-critical equipment.

As the biggest drilling contractor in the world and with a reputation of operating some of the largest, most advanced and safe there would be no safety improvement by Transocean giving BP responsibility for the BOPs, indeed it is more likely to confuse things and to cloud accountability. BP is an operator, not a drilling company like Transocean. The BOP is an integral part of the rig and the drilling crew fully trained in its operation. For the operator to supply one as the rig moved from operator to operator would increase the risk.

It obviously is key to understand why the BOPs did not close and still will not close but I don't believe this tragic incident makes drilling in deepwater any less safe. Of course there are risks in exploration, as much so in shallow water as deepwater, but responsible operators and drilling contractors, counting BP and Transocean as one of these, strive to make these operations as safe as reasonable practicable.

Its easy to be naive and suggest that we can do without oil - even ignoring fuel products we all love our gadgets and devices, none of which can be made without oil as a source for the plastic or oil to fuel the factories.

Having worked on many rigs operated by various drilling contractors contracted to various operators over the years, my experience is that BP is noted for a conservative approach which is all the more mystifying why this happened - it may turn out to be something which could not be predicted.

I would assume that BP have insurance to cover accidents and any resulting damage.

Based on the assumption that they have insurance, the question which springs to mind, is who are their insurers?

Which is closely followed by: and are they good for the payout?

When I was little, my uncle told me BP stood for "bad people." Maybe he was right.

There have been many wells just like this one drilled in the Gulf of Mexico and in the North Sea. The only difference is the North Sea is not as deep. Mudslingers almost give the impression that BP are ambivalent to the fact that this is hurting the environment and BP's bottom line - it's absurd. This is one of the most heavily regulated global industries - the industry needs to find out what happened and try to prevent it happening again.

Would BP be getting such a hammering from the US if they were a US company?Have we forgotten what happended when Occidental's (US oil company) Piper Alpha platform blew up in the North Sea 20 years ago?

42. At 3:42pm on 06 May 2010, EllonOffshoreArab wrote:

"Its easy to be naive and suggest that we can do without oil - even ignoring fuel products we all love our gadgets and devices, none of which can be made without oil as a source for the plastic or oil to fuel the factories."

Speak for yourself - not everyone is so materialistic and self-loathing that they think they need the latest gadget to improve their social standing....and who is talking about living without oil? - If we used a lot less of it then we wouldn't need to be drilling in the ocean for it and land based rigs could supply all we needed.

As for plastics - ever heard of recycling?

"Having worked on many rigs operated by various drilling contractors contracted to various operators over the years, my experience is that BP is noted for a conservative approach"

That is not comforting at all - BP are the conservative ones? - what are the others like???

@ 41, writingsonthewall wrote

"I bet you're a BP shareholder / employee too - trying to protect your investment perhaps?"

As an expert on risk assessment, you’ve just lost a bet.

I did not say that BP has no responsibility. However, I do state that it’s perfectly reasonable to have a specialist contractor perform services requiring expertise. Drilling offshore in deep water is a specialised activity. The people, who do it, practice it every day and know their own equipment well. They need to because it’s intrinsically dangerous. It is not something you do now, leave for a few months and do something else because your company isn’t drilling and then try to re-familiarise yourself.

The analogy with medicine is reasonable. I’m sure that a lot of people would prefer to be able to treat themselves and their loved ones when they are sick, because they feel their own sense of responsibility would be greater than they expect form an unknown doctor. They don’t do it because couldn’t obtain or maintain the expertise.

To be honest, in many ways, I don’t like oil companies as I understand you don’t like banks. They get a ton of stuff wrong. But, I end up defending them, because so many people criticise them for completely the wrong problems.

45. At 4:10pm on 06 May 2010, mb6266 wrote:

"Mudslingers almost give the impression that BP are ambivalent to the fact that this is hurting the environment and BP's bottom line - it's absurd."

Oh I don't doubt that the 'bottom line' is the greates concern of BP's - however their concern for the environment doesn't come from some great responsibility they feel to teh world, but from the same effect on the bottom line they fear as their reputation gets damaged.

"This is one of the most heavily regulated global industries - the industry needs to find out what happened and try to prevent it happening again."

Heavily regulated? - so how can an oil company subcontract it's workings and then try to absolve themselves of blame when it happens in a 'heavily regulated' industry. We all thought finance was 'heavily regulated' until it turned out that our version of 'heavy regulation' is not the same as the regulators version.

"Would BP be getting such a hammering from the US if they were a US company?Have we forgotten what happended when Occidental's (US oil company) Piper Alpha platform blew up in the North Sea 20 years ago?"

...what did you just say about 'the industry needs to find out what happened and try to prevent it happening again'?

It seems it's the same old mistakes being made over and over again, just like a credit crisis caused the 1929 depression, and today's situation, as did poor controls, lack of regulation and cost cutting measures (which is what the end result always is) caused every major oil spill since it was very first discovered.

I swaer some people are like the mouse and the electrified peanut - you keep getting shocked, but still go back for more telling yourselves "this time I know it will be different"!

47. At 4:20pm on 06 May 2010, WolfiePeters

"As an expert on risk assessment, you’ve just lost a bet."

Well betting is a losers game - I should know that...

What you are describing there is the division of labour within the oil industry. It's done to cut costs - no other reason. Your own attempts to justify the scenario demonstrate that perfectly.

These specialist companies in any industry are usually 'spun off' the big corporate in the name of profit - not in the name of safety or anything which would benefit ordinary people.

Maybe if BP had been in charge of the whole end-to-end process then there wouldn't be so much confusion about who's fault it was (and the inevitable delays which followed)

You might suggest BP have sub contracted out their corporate responsibility - but who is proffiting from this rig (well before it started leaking)? - is it the specialist, the oil giant - or in fact both?

How can BP take a cut and yet point elsewhere for the responsility of the people they hired

...it's just more profit before people - and now dolphins and everything else living off the lousiana coastline...

And they want to let these people build nukes ???

Bp=British company
Transocean=American Company
Transocean part failed
America documented problems with the blowout preventers
Did nothing about it
Who do the Americans blame
As usual anyone but themselves.

India is still involved with litigation in the American courts around the Bhopal disaster which is still leaking poison. American law protects American interests and Obama's statements about the oil spill are humbug.

...have the markets worked out the election result - or was there some 'bad news' about 3:30pm today?

So much for progress, that's 3 straight down days - and the FTSE was closed on Monday.

If the FTSE doesn't capitulate tomorrow into one of the biggest one day falls - then it will be a 'good' day.

52. At 4:54pm on 06 May 2010, reasonforit wrote:

"India is still involved with litigation in the American courts around the Bhopal disaster which is still leaking poison. American law protects American interests and Obama's statements about the oil spill are humbug."

I wanted to say that - but I thought this subject was a 'touchy' one for the BEEB as they were duped so badly.

Well - once again giant corporations demonstrate that their profits are far more important that human (or natural) life and Governments make it clear that they will always support that stance.

I shan't weep when these people are destroyed by a civil war they created.

Humans vs profit makers

Let battle commence.

Well, I don't know where everyone was today - must be an election or something. Good to see that everyone on here is prepared to put their vote where their blog is!

I'm off home to watch on TV which poor bugger gets to steer this sinking ship for the next few months.

First action - stem the losses we're suffereing with Lloyds and RBS - because in 2 weeks we've gone from talk of 'profit' - back to the losses we were sitting on previously.....and don't be surprised if another cash call or bailout is announced in the near future.

It's just like 1931....

49, writingsonthewall

...division of labour.... I'm sure that you can justify it in terms of cost. BUT, for maintaining safety and expertise, it would be a stupid idea for one company to try to maintain an in-house operation for this type of drilling in one basin.

And as I understand it, they are accepting financial responsibility, which is the only kind most people seem to underatand. As for explaining why it happened, which is something different, certainly the drillers are in a better position to understand.

WoW - I have a lot of respect for most of what you write, certainly on banking and finance, where your knowledge is way more sophisticated than mine. However, although the bits and pieces may look like crude engineering to many, oil and gas is a very complicated activity. A lot of very able and decent engineers and scientists occupy themselves in it. They try to improve safety for personnel, the general public and the environment. These are people who could make more money (and avoid a lot of criticism? this week) by going in to bamnking and finance...... if that were their bottom line.

@39 WOTW

With respect, your 14 years analysing risk in the investment management world is irrelevant to the risk analysis of this type of venture.

The low risk of permanent environmental damage occasioned by the miniscule risk of human error (for that's what this event will be down to) is grossly outweighed by the certainty of developing a highly productive oilfield with proportionately low development costs.

As regards economics, you appear to be unfamiliar with the concept of diminishing returns - "the oil industry is having to take bigger and bigger risks and absorb larger costs in order to drill oil" - exactly.

BP created the emergency? You seem to be unaware that oil companies the world over do very little of the actual work on these high-tech operations; their function is technical project management of various specialists on behalf of a consortium that raises project financing. They have overall responsibility under the licence but negligence of others is covered by their contractors' insurance.

Hope this helps.

#18 Wee-Scamp,
Excellent link; this discussion ought to be on all of the mainstream news sites. Way too much knee jerk opinionating going on.

#8 Jaques Cartier
"You spend too much time with bean counters.

Engineers do _hard_ things, not like bankers,
who just push buttons and send emails."

Well said.

Whats betting that BP asks for a financial aid package to help them when the costs of this gigantic clean up start coming in. Any company which has a record of poor safety standards , bear in mind this is the 2nd incident at BP. Should not get financial aid or support, the company is a private company like the banks.Its should have have cleaned its act up following the Texas oil refinery blast. But its fairly obvious the business has a culture of cutting corners if production is threatened, again a senior management bonus culture might be the root cause of this mess.

@39 WOTW

You seem to neither understand the technology nor the market so given you analyse risk in the investment management world your attitude - which I assume you share with your colleagues - probably helps explain why, as the former energy minister Malcolm Wicks said in his report late last year on energy security, that the UK doesn't have a major industrial base in the energy sector.

I feel that any measure of risk assessment, any currency, or any measure yet invented will be sufficient to describe the extent of this disaster. Oil and water dont mix. You can disperse it but you cant remove it, it just settles as an undescribable filth on the sea bed.

The leak a the moment can only be contained. Even if the funnel works then it will continue to leak oil into the sea.

The only measure suitable is a measure of the damage done to the environment, I can't think of one at the moment that has been invented, because we have no accurate measure of the life of our plant or the lifespan of the human race.

This disaster puts the issue of a hung Parliaments and even sovereign debts into perspective.

This disaster is a world problem, of course the world will need a scapegoat, BP ar the obvious choice, there we are! Until we reassess our values and priorities, we will continue like alcoholics, with tunnel vision, looking for another drink.

Markets then?

Those who think that BP will not be given governmental aid haven't been watching for the past couple years about how the government feels no restraint in reaching in the pockets of taxpayers to bail out private businesses.

It's gratifying to know that a funnel, that looks as if it was designed for 'Dr Who' circa 1970, is going to save the day. Perhaps a bit of simplicity and first principles are just what the banking sector needs!

Wall Street shares falling like lemmings going over a cliff while a banker has been arrested in Iceland



Is this a new dawn with a new UK government Robert?

People should be aware just how dangerous oil exploration and development is. Mechanical equipment is pushed to its limits. The sheer number of personnel out over the well can cause problems.
Lets hope that no safety shortcuts are taken which could jeopardise the lives of those striving to bring this debacle to a close.
11 lives have already been lost. That is 11 too many.

There seems to be a fair few people who don't know much about the oil industry making comments about industry practice. I don't work in the industry any more, but I spent some years on rigs, closely connected to the drilling process, so perhaps I can make a few comments based on my own experience and understanding.
Firstly, it is usual practice for an oil and gas company to sub contract much of the process. The expertise of an oil and gas company is in picking a target to drill into and designing a well to reach that objective. A lot of thought and preparation goes into that design process. The oil company then provide specifications to specialist service companies who take care of different aspects of constructing the well. During the actual drilling of the well, the oil company does however closely monitor progress, and direct operations with on site staff, who regularly communicate with other staff 'in town' who are responsible for making higher level decisions.
So, BP will have provided specifications to a drilling company for the sort of rig they needed, including the specifications of the equipment. Although BP may have specified the type of rig, and BOP (Blow Out Preventer), and local regulations would have required the BOP to be regularly tested, responsibility for providing, testing and operating the BOP lies with the drilling company, as so it should as it’s just a piece of rig equipment, albeit an important one. BP however, is ultimately responsible for the well. If, as it seems, the BOP failed, I'm assuming legal arguments will result over who is responsible for the failure.
Although at this point there are few hard facts in the public domain and a few limited witness statements, it's apparent that there was a chain of failures. The technology and capital required to operate in deep water exclude all but the biggest companies, so this event happened to the oil industry A list. Until now there's been a rush to drill deeper wells in deeper waters. I think this is a game changer for the industry. The failure of so many systems and processes shouldn't have happened on a state-of-the-art rig working for a super giant oil company. Before a government allows drilling in deep water, investors will finance it, and an insurance company will insure it, there are going to have to be big changes. There are certain inherent technical problems with drilling in such deep water that need to be solved better. It’s also obvious that better provision needs to be made if the worst happens if a well does blow out. All these things make deep water drilling harder and costlier.
In the future, one plentiful source of oil which isn't at the mercy of belligerent or chronically unstable governments is going to be more expensive to produce. In the unlikely event of oil prices falling, some of these deep water fields are not going be profitable. More likely, is that it's a further support for high oil prices. Politically it’s a tricky one; how does a politician balance the popular bashlash against oil pollution, with the public assumption of dependable affordable energy?

@55 WOTW
Another early knock off WOTW?
Given the amount of time you spend blogging on a work day it's no wonder the financial prospects are so bad.

One of my old bosses once said to me, Keith you can delegate tasks to others inside and outside your organization but you cannot delegate responsibility.
Every boss knows this is true,they have a duty of care to everybody that works for them be it a BP employee or a subcontractors employee.
In this case Trans Ocean worked for them under contract, they are responsible for policing that sub contract.
That`s how the city see`s it too, the share price drop tells us that.
The 12 poor souls that lost there life blame BP first then Trans Ocean.