House Panel Questions BP Actions Before Deepwater Horizon Disaster

The House Committee on Energy and Commerce has sent a letter to BP plc (NYSE: BP) CEO Tony Hayward questioning the actions of the company and some of its employees before the explosion on the Deepwater Horizon rig.

The government raises the issue of whether BP may have cut corners at the Deepwater Horizon well because of commercial reasons. If it is proven that BP’s acted recklessly to boost profits from the well, the liability facing the company would increase considerably.

In the letter, the committee wrote:

On April 15, five days before the explosion, BP’s drilling engineer called Macondo a “nightmare well.” In spite of the well’s difficulties, BP appears to have made multiple decisions for economic reasons that increased the danger of a catastrophic well failure. In several instances, these decisions appear to violate industry guidelines and were made despite warnings from BP’s own personnel and its contractors. In effect, it appears that BP repeatedly chose risky procedures in order to reduce costs and save time and made minimal efforts to contain the added risk.

The revelation will certainly heighten criticism of Hayward, who already faced a grilling by the panel.The charges are not just damning, they are specific.

At the time of the blowout, the Macondo well was significantly behind schedule. This appears to have created pressure to take shortcuts to speed finishing the well. In particular, the Committee is focusing on five crucial decisions made by BP: (I) the decision to use a well design with few barriers to gas flow; (2) the failure to use a sufficient number of “centralizers” to prevent channeling during the cement process; (3) the failure to run a cement bond log to evaluate the effectiveness of the cement job; (4) the failure to circulate potentially gas-bearing drilling muds out of the well; and (5) the failure to secure the wellhead with a lockdown sleeve before allowing pressure on the seal from below. The common feature of these five decisions is that they posed a trade-off between cost and well safety.

The federal government wants BP to set up an independently operated escrow fund  to cover clean-up costs and other liabilities from the disaster. Some members of Congress want the fund to be as large as $20 billion. BP’s board has discussed a deferral or cut of its dividend to provide money for the fund and other costs of the oil leak.

BP’s chairman will meet President Obama on Wednesday. On Tuesday night, Obama will address the nation on television.

Douglas A. McIntyre