Truth? Or Self-serving, Two-faced Doubletalk?

[GRG55]

I was travelling overseas last week and missed this little tidbit...apologies if someone has already posted this elsewhere.

I have consistently taken the postion in my posts on BP and the Macondo blowout that contrary to all the public reports there are few real differences in the way BP operates in any jurisdiction compared to its peers, including Exxon, Shell, Chevron and Conoco.

So I found it interesting that the NYT reports on the Congressional hearing earlier this week stated that the executives of some of these companies stated publicly that they would not have drilled the well the way BP programmed and executed it [highlights mine].

Oil Executives Break Ranks in Testimony

Published: June 15, 2010

WASHINGTON — The chairmen of four of the world’s largest oil companies broke their nearly two-month silence on the major spill in the Gulf of Mexico on Tuesday and publicly blamed BP for mishandling the well that caused the disaster.

Seeking to insulate their companies from the continuing crisis in the gulf and the political backlash in Washington, the leaders of Exxon Mobil, Chevron, Shell and ConocoPhillips insisted at a Congressional hearing that they would not have made the mistakes that led to the well explosion and the deaths of 11 rig workers on April 20.

“We would not have drilled the well the way they did,” said Rex W. Tillerson, chief executive of Exxon Mobil.

“It certainly appears that not all the standards that we would recommend or that we would employ were in place,” said John S. Watson, chairman of Chevron.

“It’s not a well that we would have drilled in that mechanical setup,” said Marvin E. Odum, president of Shell...

...Until now, the other major oil companies had provided technical assistance to BP and refrained from criticizing the company’s handling of the disaster. Even as they watched their offshore rigs idled and their stock values fall, they had presented a united front.

But that unity crumbled Tuesday before the House committee, mirroring growing private frustration with being linked to BP. Some executives have been angered at BP’s efforts to paint the gulf accident as an industrywide problem that will require industrywide reforms. The executives of the other companies asserted Tuesday that they believed BP was an outlier, cutting corners to save time and money in ways that they would not tolerate...

Now, in light of such clear indictment of BP, not by some journalist or politician, but by no less than its esteemed peer company colleagues [don't kid yourself, these guys go to the same charity events and send their kids to the same private schools, so they don't break ranks on a whim] one would tend to think there must be something to the claims of BP incompetence and so forth.

But then I read a little further in the article and lo and behold, my faith in the herding tendencies of Big Oil was restored...

...Although most of the Congressional fire was aimed at BP on Tuesday, the other executives came under criticism as well, particularly for the response plans that they prepared for a major spill in the gulf. The five companies submitted virtually identical plans to government regulators and to the committee. The 500-page document, prepared by a [read: "the same"] private contractor, refers to measures to protect walruses and gives a phone number for a marine biologist who died five years ago.

James J. Mulva, chief executive of ConocoPhillips, said the citations were “certainly an embarrassment to Conoco,” adding, “Plans need to be updated more frequently.”

Representative Henry A. Waxman, the California Democrat who is chairman of the Energy and Commerce Committee, noted that each of the companies said it had planned for a much larger spill than the BP accident, even though it is clear that even a spill of the current size is beyond any company’s ability to handle.

“BP failed miserably when confronted with a real leak,” Mr. Waxman said, “and Exxon Mobil and the other companies would do no better.”

Mr. Tillerson admitted that the only way to deal with major spills was to keep them from occurring...

And the only way to be absolutely certain to "keep them from occurring" is to never, ever drill another deepwater offshore oil well ever again. Rex Tillerson and all the rest of them are completely full of shzt by claiming they, unlike BP, can drill these types of wells without risk of a blowout and subsequent oil spill...which is exactly what I think they were trying to say at this hearing.

Don't kid yourself folks, these companies are not much different from each other. They compete for the same leases at the same auctions, they are subject to the same regulations, they use the same contractors, they hire the same consultants, and they spend lots of money "benchmarking" their performance against their peer group...which is each other.

One final word about all the controversy around "saving money" and "costs" that BP is being subjected to. These companies are absolutely no different than BP in that regard, no matter what their executives or the media or the politicians would like you to believe. They all produce a fungible commodity...the crude oil that Exxon sells cannot be distinguished from the oil that is sold by BP, or Shell, or anyone else [unlike, say auto manufacturers, where the products can be differentiated in the marketing effort]. That means in the down part of the price cycle, and there is always another down part of the cycle coming, the ONLY strategy that is viable is to be the low cost producer. They all have that mindset, they all measure [benchmark] their cost structure against each other, and they are all trying to urge their employees to deliver top quartile cost efficiency performance. Cost cutting is a way of life in the oil industry [and most other commodity industries] because if you do not control your costs you will be out of business the next time your commodity price starts dropping like an elevator without a brake.

[c1ue]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

GRG,

What about the reports which note that BP was cited for violations hundreds of times more than the rest of industry?

Also the reports which note that BP doesn't own hardly any equipment unlike most of its peers?

Again, just wondering.

[Roughneck]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

Well, I'm going to break ranks a bit and have to politley disagree with your assesment that all the oil companies operate in the same manner when it comes to production and safety. True, they all face the same cost pressures and have the same goal of being the lowest cost producer. But what I have seen in the industry over the last 10-15 years is an increasing awareness of improving safety measures from the top down. By designing and building operations integrity management systems to deal with safety from a proactive not reactive posture. After the valdez incident XOM devolped OIMS systems to try and prevent large scale incidents from occuring and increase operations safety. Wether it's drilling a rig in the gulf or operating a petrochemical plant. One of the findings from the BP texas city explosion was that the company focused a lot on individual safety measures,preventing personnel safety incidents,but had dropped the ball on the big picture items with regards to safety.They had repeatedly refused to tie in an outdated atmospheric blow down drum to a closed flare system due to costs,allowed non explosion proof office trailers in the blast zone of said drum and had in adequate risk management procedures. As a result a bunch of people got killed due to an operating incident caused by operator error and a failure of instrumentation. In fact the transocean rig had a high personnel safety record. But it was BP's disregard of safe design and operating practices which doomed the well. The response plans mentioned above are spill response plans. The truth is no one could adequately prepare for a spill of this magnitude. The amount of people and resourses necessary are too cost prohibitive to have just on stanby for 50 years just in case something happens. That is the bottom line. What they have done is ensure that they design and build wells and equipment and use procedures that prevent this type of thing from happeneing. From what I am reading between the lines BP took several measures to save cost that comprimised safety and the design of the well given the geology of this formation. They also may have tried to cement with mud comprised by gas from the well and relied on a dubious negative pressure test before displacing the mud from the riser prior to setting the last plug. I think MOST of the majors have learned that reducing costs in highly safety critical areas can bite you in the ass. For example, due to the cost pressures on project managers and engineers, the engineering design is done by a different group within the company. A group that doesn't have the same cost pressures to implement the project,ie coming in under time and budget. Any changes to the process design have to be approved by an outside group and go through a safety review process that involves people outside the project . If asked to sign off on a change for cost reasons most of these engineers aren't going to put their ass on the line unless there is no way it is going to come back and bite them. This type of systematic approach to safety with multiple layers of redundency has been a step change from the way things used to be done years ago. Unfortunately, I think BP has dropped the ball in this regard.

[BiscayneSunrise]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

A few weeks before the accident, I had asked GRG in a PM about the capabilities around deep water drilling. GRG reminded me that like in the airline industries there are many safety protocols developed over the years to prevent problems. (I was looking for the note so GRG remind me if I have that right)

Industrial engineering has gotten so good that many problems can be foreseen and designed out early.

Just like in many other industrial and aviation accidents, it is usually determined that the event happened due to a breach of safety protocols, either intentional or incidental. Oftentimes, it is further determined that safety protocols are commonly ignored in some company's because of a poor safety culture.

It is being said that drilling in water this deep is possible but rescue efforts are not possible, kind of like an Apollo moon mission. With stakes so high and with little chance of an easy fix if a major problem erupted, one would think that a strict adherence to safety protocols would be paramount. As rougneck points out, this was a tricky geological formation but the BP safety culture was very nonchalant about it.

It seems, to me, extraordinarily rare and cheeky for competitors' to pile on like this. My guess is that these other executives are basically telling like it is; trying to distance themselves from BP and the BP safety culture in order to avoid industry wide retribution.

BTW, GRG, you're post count must really be going through the roof lately what with answering all these technical questions and defending the industry

[Roughneck]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

Let me cite just one example of what I am refering to. lets say you are a project engineer building a new processing unit. The design calls for a certain alloy of piping material to be used. The project manager informs you that this type of piping is in short supply and very expensive. He believes that a lesser quality material will do just fine for the service and reduce costs significantly. In some comapnies the project engineer and mangager submit a proposal and as long as their bosses sign off on it it's done. In other companies you have to go through a change management process which is like dealing with the federal government. The process involves having an outside the group piping design engineer sign off,the inspection QC people etc.Then it has to go through a review team of engineers and the owners of the euipment who make sure all the documentaion is completed and sign off on the change. One reason for this is to have another set of eyes who's job performance is not tied to the project approve the change. But also to make sure the change is documented and things like welding procedures and inspection criteria get updated. Also for certain types of alloy material all of the material has to be verified by a technician as being correct. I mean every piece of pipe and every piping joint,valve etc. This was not done 20 years ago. If the bill of material said it was a certain alloy that was good enough. It is this type of systematic approach to safety that has been a step change in the industry. Some of the companies do a better job of this than others but this has been the overall trend. When it comes to operations wether it's drilling a well or operating a processing unit in the old days there were no written procedures. Job knowledge was learned on the fly from more experienced operators. These days companies have detailed operating procedures for almost every aspect of operations. Any deviation from these procedures better have a good reason and be approved by management. The bypassing of safety equipment to increase production or prevent a shut down or delay is not tolerated and will get you fired if you are caught. There has been a zero tolerance on this in industry the last decade. 25 years ago the attitude was more WIT,whatever it takes and don't ask don't tell when it came to operations.

[GRG55]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

GRG,

What about the reports which note that BP was cited for violations hundreds of times more than the rest of industry?

Also the reports which note that BP doesn't own hardly any equipment unlike most of its peers?

Again, just wondering.

I've seen some media reports that stated that something like 97% of all the citations and violations were BP's. Now, in an industry as large, as complex, as technically difficult, as dangerous as the oil and gas industry to believe that ALL the other players combined only make 3% of the "mistakes" is illogical. This is simply not possible. It is not possible for one company to be in reality that far out of line with it's peers, and it's not possible for every single one of the peer companies to be that much better than BP. Such a skewed distribution of outcomes cannot possibly have occurred if the assessment methodology was objectively applied to all the companies that make up that cohort. To believe otherwise is to believe that every other operator is nearly whistle clean. To believe otherwise is to believe that the April 2, 2010 Tesoro refinery explosion that killed 5 workers falls into that "other 3%" even though:

"...The state of Washington fined Tesoro $85,700 a year ago after an inspection found 17 serious safety and health violations at the Anacortes refinery. The state Department of Labor and Industries reached an agreement with the company in November requiring the hazards to be corrected and an independent safety audit, the agency said on its Web site. The fine was reduced to $12,250, according to the federal Occupational Safety and Health Administration’s Web site..."

In the posting that initiated this thread it notes that the five companies whose executives were called to testify submitted essentially the exact same offshore spill response plan [including all the same errors] to the committee at which they were going to testify. Why did that happen? Because they all used the same consultant. And that is exactly how this industry works in this age of outsourcing of "non-core competencies". Once again, they all use the same safety consultants, similar internal processes [developed by the consultants of course], safety training standards, equipment suppliers, benchmarking against each other, and so forth. Doubtless there are differences in performance between the companies, but it is just not possible for one company in this industry to be that far out of step. Period.

As for the reports about BP "owning hardly any equipment" compared to Exxon and the rest of its peers, whoever provided that information is not only completely ignorant of how this industry actually operates, they didn't even take the time to do any basic homework.

Here is link to Transocean's most recent [April] Fleet Update [pdf file]. A scan of the column titled "Customer" will show that most every deepwater driller in the world, including ExxonMobil, Chevron, Eni, Petrobras, Statoil, ConocoPhillips, Total & BP, is a client of Transocean. Here's the Fleet Report for Noble Corporation, another drilling rig contractor...you'll notice names like ExxonMobil, Pemex, Gaz de France, Occidental, Marathon and Shell. A check of Nabors Industries [drilling, well completion & workover rigs, helicopter drilling/workover/wellsite construction capabilities] will show a similar pattern. So will the client lists of every other significant oil field services company including Schlumberger, Halliburton, Baker Hughes, BJ Services [now owned by Baker Hughes], Veritas, Weatherford International, Western Geco, M.I. Swaco, and a host of others.

The major oil companies long ago dispensed with having gobs of capital tied up in service equipment, keeping staff on the payroll to manage and maintain it all, and running the R&D labs needed to keep that equipment capability up to date. The oil exploration/production/refining/chemical businesses are capital intensive enough...and shedding the capital that used to be invested in service related equipment such as drilling rigs improved the ROCE [return on capital employed] for the industry...something that the financial geniuses on Wall Street want to see before they will give the company a good analyst report [and we all know how important that is to management].

Now these companies all hire the equipment and services for everything from seismic surveys, well cementing, well stimulations, workovers, completions, and even spare parts inventories from contractors, who also run large R&D operations in their particular specialties. That is the only way that everyone in the industry can access and benefit from the latest technologies...trying to invent them all themselves as they used to 30-40 years ago is impossible. Even when they want a specialized piece of kit the oil companies will contract with one of the service companies to develop it for them and operate it. Any oil exploration and production company that tried to own and operate any significant amount of its own service related equipment would soon find itself at a serious competitive disadvantage.

Nothing personal C1ue...I know your questions are genuine and asked in earnest, but frankly I am tired of trying to field answers to completely nonsensical assertions about the blowout, BP and the industry. I am going to make this my last post on at least the first two of these subjects, and like Tony Hayward see if I can get my life back.

[hayekvindicated]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

GRG55, I completely agree with your post. For Exxon and Chevron to pretend that a blow-out would never occur at one of their wells is beyond absurd. If you drill hole in the ocean floor, you risk a spill.

I wonder if they are trying to screw BP so that thay may be able to buy some of BP's assets on the cheap in the event of a liquidation?

I also found Obama's national address quite funny. He promised this would never happen again. Reminds me of King Canute.

GRG,

What about the reports which note that BP was cited for violations hundreds of times more than the rest of industry?

Also the reports which note that BP doesn't own hardly any equipment unlike most of its peers?

Again, just wondering.

The violations were related to the Texas City refinery and occured during 2005 and 2006. This cost Lord Browne his job as CEO of BP. BP's safety record in the period after that is no worse than any other major oil company.

[Roughneck]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

I agree with what GRG55 has to say about the companies using sub contractors for drilling, construction exploration services etc. However, the company which has an off shore lease IS the responsible party and all deciscions about well design and drilling procedures are decided by the company. The company man on the rig has the final say. Transocean was quick to point this out. My experience as a sub contractor has been that while the overall trend in the industry is more safety oriented some companies do a better job than others. To throw a blanket around all the oil companies because of BP's screw up is IMHO not fair. A LOT of deep water rigs have been drilled without incident. Of course oil companies are looked at as some evil entity making obscene profits when their profit margins are in fact in line with most business. People have ready acess to cheap energy and the conveniences of life made possible by the products that these companies supply us with yet we still want to villify them. I imagine not many folks would be going to the sunny beaches of south florida if transportaion was not so cheap and available. This industry also supplies a lot of good paying jobs something which is in short supply these days. This incident is a tragedy no doubt the effects of which we will live with for a while. But mother nature has a way of healing itself. Far more than we give it credit for. Hopefully, over time, our coast will heal. Hopefully the industry can learn from what went wrong and move forward and prevent another disaster from happening.

[Minion]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

I wonder if they are trying to screw BP so that thay may be able to buy some of BP's assets on the cheap in the event of a liquidation?

"The trend is your friend"

Traders take advantage of market conditions to make a profit. Who wouldn't want to get a big discount on BP's former equipment if the opportunity presented itself?

[karim0028]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

Well, I'm going to break ranks a bit and have to politley disagree with your assesment that all the oil companies operate in the same manner when it comes to production and safety. True, they all face the same cost pressures and have the same goal of being the lowest cost producer. But what I have seen in the industry over the last 10-15 years is an increasing awareness of improving safety measures from the top down. By designing and building operations integrity management systems to deal with safety from a proactive not reactive posture. After the valdez incident XOM devolped OIMS systems to try and prevent large scale incidents from occuring and increase operations safety. Wether it's drilling a rig in the gulf or operating a petrochemical plant. One of the findings from the BP texas city explosion was that the company focused a lot on individual safety measures,preventing personnel safety incidents,but had dropped the ball on the big picture items with regards to safety.They had repeatedly refused to tie in an outdated atmospheric blow down drum to a closed flare system due to costs,allowed non explosion proof office trailers in the blast zone of said drum and had in adequate risk management procedures. As a result a bunch of people got killed due to an operating incident caused by operator error and a failure of instrumentation. In fact the transocean rig had a high personnel safety record. But it was BP's disregard of safe design and operating practices which doomed the well. The response plans mentioned above are spill response plans. The truth is no one could adequately prepare for a spill of this magnitude. The amount of people and resourses necessary are too cost prohibitive to have just on stanby for 50 years just in case something happens. That is the bottom line. What they have done is ensure that they design and build wells and equipment and use procedures that prevent this type of thing from happeneing. From what I am reading between the lines BP took several measures to save cost that comprimised safety and the design of the well given the geology of this formation. They also may have tried to cement with mud comprised by gas from the well and relied on a dubious negative pressure test before displacing the mud from the riser prior to setting the last plug. I think MOST of the majors have learned that reducing costs in highly safety critical areas can bite you in the ass. For example, due to the cost pressures on project managers and engineers, the engineering design is done by a different group within the company. A group that doesn't have the same cost pressures to implement the project,ie coming in under time and budget. Any changes to the process design have to be approved by an outside group and go through a safety review process that involves people outside the project . If asked to sign off on a change for cost reasons most of these engineers aren't going to put their ass on the line unless there is no way it is going to come back and bite them. This type of systematic approach to safety with multiple layers of redundency has been a step change from the way things used to be done years ago. Unfortunately, I think BP has dropped the ball in this regard.

Roughneck, you have some good points, just a polite request please put a space somewhere in your paragraphs so they can be easily read instead of one long run on paragraph... It makes it difficult to read..

[World Traveler]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

I have to agree with Roughneck, at least with regards to Exxon. I worked at several Exxon sites after Valdez and they are now close to fanatical about safety. It permeates the company, even in the office environment. I worked at an ExxonMobil Chemicals office site where there were quarterly safety meetings that everyone was required to attend, and where any team or group meeting had to open with a safety reminders, re: both work (office!) and personal, home environments. Cars could only go 10 mph in the parking lot and there was a big electronic billboard that flashed your speed if it was over 10 mph. Any "safety incidents" were recorded and studied, to minimize future occurances. And a managers performance evaluation included the safety record of his/her group.

Based on accidents statistic and violations recorded in the past 5 years by the government, BP is in a category by itself. I cannot remeber the exact numbers, but for recent recorded violations, BP was highest at around 290, Exxon was lowest at 1, and rest of major oil companies were in between, typically under 50.

Based on everything I've heard and read, for BP it's all about cost cutting.

[cobben]

Re: Truth? Or Self-serving, Two-faced Doubletalk?

Jim Rickards - Why BP Will Not Survive

There are two dynamics that BP bull analysts are missing, one political, one economic.

. . . .

As long as BP has the money, there will be an irresistible dynamic to enlarge the claim until the money is gone.

. . . .

BP is an irresistible cookie jar into which politicians will reach their hands over and over. Again, the dynamic is not "how much do you owe?" but rather "how much can you pay?".

. . .

BP may not literally go to zero. It may go to $2.00 per share or so at which point a pre-packaged bankruptcy will be used to transfer valuable assets to, say, ENI, Total or Exxon with some value preservation for BP debt holders.