This is long... sorry! I asked for permission to post this from my source and was told "(I) can share it... just don't say where you came across the info. It can all be verified if you dig enough..." I know it's 'hear-say' at this point since I can't name my source but I trust them. Some of this is probably repeat info but thought some of this was quite interesting.
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The side of the Disaster you haven’t heard about in the news:
BP had three levels of safety valves and flow restrictors in place plus a massive dead-man fail-safe master switch and cut-off valve system. When BP started encountering an adverse pressure issue they immediately called their management people and the workers soon found that they had drilled into a pressure pocket dome unseen in all human history and a pressure beyond all human capability. The long slant drilled pipe with 2" solid steel walls and all the safety valves and the master fail-safe valve were instantly shredded by 70-100,000 psi of pressure. The sea floor is now leaking from five different locations along a 20 mile line corresponding with the slant drill line. These undersea oil plumes are not even on the news.
When the accident happened, the BP operators hit what they described as “an unusual gas pocket.” Within a moment, a giant blast of gas, oil and drilling mud roared up the three miles of pipe they had laid. The fluids burst through the rigging floor and into the gigantic draw works which ignited the hydrocarbons. There was an explosion and fireball.
They abandoned ship immediately. Many were able to get off the rig from lifeboats but some had to do the 80’ jump into the water where several men broken bones.
In addition, There was a supply ship—The Damon B. Bankston—tethered to the Deepwater Horizon rig sitting 40 feet away. The ship’s captain said he saw “drilling mud flying out of the top of the drilling derrick like a volcano”.
Of the 126 people on board, 6 were BP employees. Two of these were BP executives that had arrived there on the day of the accident to present a 7-year Safety Award to the crew.
115 people were evacuated after this incident. Of the dead, 9 were Transocean employees and 2 were sub-contractors. No remains of the dead have been recovered. They are presumed to have been incinerated during the explosion.
Of the total crew, 3 were females.
There were 17 non-death reported injuries in this incident.
Internal BP estimates are that the total spill could exceed 100 million barrels.
The oil that is floating to the surface and how it is coming ashore on the beaches and coastal estuaries is only part of the problem. Forget the fish, sea turtles, and the birds that are dying. There is a much worse thing that is happening--the deadly gasses that are coming out of the sea to the air. The EPA has done many samples of air quality. Just as an example of three gasses being released:
1. Hydrogen sulfide safe levels for humans is 5 to 10 ppb (parts per billion) and the tested levels are 1,500 ppb
2. The Benzene safe levels are 0.4 ppb and the measured amounts are 3,000 ppb. Benzene is a deadly gas that destroys the kidneys, brain, blood stream, immune system, fetal tissue in pregnant women, and bone marrow.
3. Methylene Chloride safe levels are 61 ppb and the measured levels are 3,000 to 3,400 ppb.
It is unknown if these gasses pose a threat to people on shore, but they pose a grave danger to recovery operations at the leak site.
The “Players”….
Transocean
• Steve Newman is President & CEO of Transocean Ltd. Robert E. Rose is Chairman of the Board.
They are described as the world’s largest offshore drilling contractor. They report over 50 years of experience and have over 18,000 employees.
They purport to have one of the most modern and versatile fleets in the world. They have a fleet of 138 mobile offshore drilling units of which there is a mixture of fully and partially owned sites. 44 are high-specification floaters like the one involved in this incident. This drill ship was anchored on the ocean floor. It measured 396 ft x 256 ft. A drop of 100 ft took you from working platform to the ocean.
This particular rig appears to have entered into service in 2001. It is in 5,000 feet of water with a potential to reach a drilling depth to 30,000 feet. The start date of the BP contract was September 2007 and it was due to expire in September 2010. The current contract “day rate” was $497,000.
The work team on this site had won a Safety Award in 2009. Prior to this event they had gone 6 years without a serious incident. It should be noted however, that they have had some injury issues on sites and the board of directors was clawing back on bonus provisions to executives to get them focused on employee safety programs.
• Transocean is a Swiss corporation with executive offices in place Vernier, Switzerland Transocean is listed on NYSE under symbol, “Rig”. Shares today are around $73 mark. They had just received approval to list the shares on the Switzerland Stock Exchange. The 52-week high on the stock was $95 and the low at $65. So, there has not yet been a significant impact to the stock price but it should be noted their shares were trading at the $91 mark when this incident took place and they have steadily dropped from that point onward.
Revenue in 2009 was about $11.5 billion against $12.7 billion in 2008. Net income last year was about $3.2 billion.
Their assets total about $36.5 billion against debt, current and long term, of about $11.6 billion.
They report their contract backlog is $32 billion which is down $7 billion from the prior year.
Transocean released their first quarter results on May 5, 2010. Key details are:
Net revenue was $677 million on $2.6 billion in revenue for Q1. In Q1 of 2009, it was $943 million on $3.2 billion revenue.
Several notations about this incident were in this Q1 report including:
Deepwater Horizon incident—Subsequent to March 31, 2010, our Ultra-Deepwater Floater Deepwater Horizon, which had been drilling a well for its operator in the U.S. Gulf of Mexico, sank on April 22, 2010 after an explosion and fire onboard the rig that began on April 20, 2010. Eleven persons are missing and presumed dead and others were injured as a result of the incident. Our underwriters declared the vessel a total loss and, as of May 5, 2010, we received $401 million as partial payment of the expected insurance recoveries. The combined response team was unable to stem the flow of hydrocarbons from the well prior to the sinking of the rig and efforts to contain the flow of hydrocarbons are still underway. The Departments of Homeland Security and Interior have begun a joint investigation into the cause of the incident. The U.S. Coast Guard and the Minerals Management Service share jurisdiction over the investigation into the incident. In addition, various committees and subcommittees of the House of Representatives and the Senate of the United States have requested our participation in hearings related to the incident. We have also received a request to preserve information from the DOJ. There have also been numerous lawsuits filed related to the incident, and we expect additional lawsuits to be filed. We expect to incur significant legal fees and costs in responding to these matters.
And…
Environmental matters—On April 28, 2010, in connection with the Deepwater Horizon incident, one of our subsidiaries was notified by the U.S. Coast Guard that, under the provisions of the Oil Pollution Act of 1990 (“OPA”), Deepwater Horizon had been designated as a source of oil discharges and our subsidiary has been designated as a responsible party under OPA. In the notice, the U.S. Coast Guard noted that its information indicates that oil discharges resulting from the incident include discharges from Deepwater Horizon on or above the surface of the water and ongoing discharges from the well head. Because the ongoing discharges from the well head are occurring nearly a mile below the surface of the water, for which we believe we have no responsibility under OPA, we have responded to the U.S. Coast Guard’s notice and denied our subsidiary’s designation as a responsible party to the extent of any underwater discharges from the well head. There can be no assurance as to the ultimate outcome of this matter.
And…under Risk Factors,
Under our drilling contract for Deepwater Horizon, the operator has agreed, among other things, to assume full responsibility for and defend, release and indemnify us from any loss, expense, claim, fine, penalty or liability for pollution or contamination, including control and removal thereof, arising out of or connected with operations under the contract (other than for pollution or contamination originating on or above the surface of the water from fuels, lubricants, motor oils and other substances, as to which we similarly agreed to assume responsibility and protect, release and indemnify the operator). The operator has also agreed, among other things, (1 to defend, release and indemnify us against loss or damage to the reservoir, and loss of property rights to oil, gas and minerals below the surface of the earth and (2) to defend, release and indemnify us and bear the cost of bringing the well under control in the event of a blowout or other loss of control. However, to the extent any of the indemnities from the operator are not enforceable or the operator does not indemnify us, our insurance policies may not fully cover these amounts. In addition, we may be subject to various claims, costs, penalties and fines for which we may not be indemnified. Also under the drilling contract, we have, among other things, generally agreed to defend, release and indemnify the operator for the claims for personal injury or death of our employees and those of our subcontractors as well as for damage to the rig, equipment and removal costs. We carry personal injury and other third-party liability insurance coverage; however, this coverage is subject to significant deductibles and to overall aggregate policy limits. See Notes to Condensed Consolidated Financial Statements Note 12—Contingencies—Retained risk. Insurance coverage can be the subject of uncertainties and, particularly in the event of large claims, potential disputes with insurance carriers.
Our business may also be adversely impacted by any negative publicity relating to the incident and us, any negative perceptions about us by customers, the skilled personnel that we require to support our operations or others, any increased premiums for insurance or difficulty in obtaining coverage, any claims that may be asserted against us and any other expenses that are not covered, in whole or in part, by our insurance policies or indemnification arrangements, the outcome of any investigations relating to the incident and the diversion of management’s attention from our other operations to focus on matters relating to the incident. Any increased regulation of the drilling industry as a whole that arises out of this incident could result in higher operating costs, which could, in turn, adversely affect our operating results. Although we are currently unable to estimate the full impact of the incident on our business, the incident is expected to have a material effect on our future consolidated results of operations and cash flows and may have a material effect on our future consolidated statement of financial position
• In this same Earning’s call, they noted that in Q2 they anticipated that they could be involved with over $200 million of additional costs to pay for insurance deductibles, increases in insurance rates and also legal expenses related to this event.
• On May 13, 2010 it was revealed that Transocean’s largest investor, Marsico Capital Management Inc. liquidated its entire holding in Transocean. They had at one time about 21 million shares. They previously had a 6.5% stake in the operation at the end of 2009.
• Transocean had contracted the usage of this drilling platform to BP. In 2009, BP accounted for 12% of Transocean’s revenue. This was their largest single customer.
• Their average daily revenue can run from $350-450,000 / day depending on the type of “floater or jackup” operation.
• Their auditors are Ernst & Young.
• Effective May 1, 2009 they renewed their hull and liability coverage. They report that they do not “generally have commercial market coverage for physical damage losses including liability for removal of wrecks expenses” that result from named storms in the Gulf.
They do not ordinarily carry coverage for loss of revenue. Insurance coverage highlights include:
$125M deductable per occurrence on Hull and Machinery subject to an aggregate deductable of $250M. However, in the event of a total loss (like this event) the deductable could be between $500,000 to $1.5 million.
They maintain a $10M / occurrence deductable on crew personal injury and a $5M deductable on other third party, non-crew injuries or death. And this is all subject to an aggregate deductable of $50 million that is applied to any occurrence until the aggregate deductable is exhausted.
They also carry $950M in third party liability coverage. Anything over, they say they “retain the risk”.
Extra expense is self insured.
Their drilling fleet is insured for $39 billion in aggregate.
This information came from their 2009 Annual Report. Information released on April 26, 2010 by Transocean stated:
They had coverage in place for wreck removal.
There was insurance in place on the destroyed rig for $560 million. Transocean have now reported that they have received $401 million of this sum from their insurers.
We understand Mathew Daniels were engaged to act on this part of the loss. JLT was the broker.
XL Capital announced on May 5, 2010 that they expect to pay $30 M in direct damage claims for the rig.
• Fingers are now being pointed at Transocean and why their “blowout preventer” did not work in this situation. This is a large valve that sits on top of a well and activating it is supposed to stop the flow of oil. The failure of this valve to operate is the focus of the investigation at the moment. Already allegations about faulty design and operation are surfacing. (see earlier comments)
• It appears that Transocean, as the “owner and operator” of the rig at the time of the event are responsible to responding to the Oil Pollution Act / 1990 claims that might be forthcoming.
• The NY Times, on May 8, 2010 reported the Coast Guard were “holding both BP and Transocean” as the “responsible parties” for the incident.
Haliburton
• Haliburton provided a variety of services on the rig and was involved with cementing on the well to stabilize its walls. Haliburton is the second largest oilfield contractor behind Schlumberger Ltd. They have 50,000 employees operating in 70 countries.
• Hailburton have gone public in stating that the cementing work was completed 20-hours before the accident and that testing done showed it was working properly.
• Plaintiff lawyers are already alleging negligence in press statements. This includes this information in the NY Times on May 5, 2010….
“This explosion happened less than a day after workers finished pumping concrete into the well, a step closer to closing it off temporarily. BP planned to return to the well later to set up a permanent rig and start producing oil. Encasing a well in concrete is one of the most critical aspects of oil drilling, and presents many risks. The concrete involved is highly specialized. It needs to be blended and stirred properly. It also must be pumped down into the well so that it comes out the bottom and oozes back up around the well casing to form a very tight seal.
The concrete work apparently did not achieve a complete seal. This may have resulted in natural gas to start seeping into the well in the late stages. Idling a rig to address this type of problem is expensive. Lawyers allege that when the workers released the last valves that were holding natural gas that had built up inside the well the gas shot up the pipe and sprayed into the drilling rig, igniting a fireball that led to the deaths of the workers in the area.
One quote from a former “cement engineer” said that “Our current theory is that incomplete isolation by the cement allowed a buildup of annular pressure which contributed to a casing collapse.” The BOP (blow out preventer) that was in place (manufactured by Cameron) was unable to seal the well due to an obstruction too thick for the BOP to crush / shear such as a tool joint or a drill pipe. This report seemed to deflect blame away from Haliburton and put more responsibility against Transocean. “
Another bit of speculation was:
“The fact that the BOP was on the wellhead 5,000 ft under water, not at the top of the marine riser or right below Deepwater Horizon's drill floor, contributed to the blow-out disaster in two ways. The doomed drilling crew undoubtedly perceived that they had a well control problem at some point and fired the BOP shear rams to close off the well. It didn't work because [informed speculation] a mechanical test plug or drill string joint got jammed in the shear ram. Next they tried to trigger other sections of the BOP stack.
But the Cameron BOP couldn't do it. If a command to open or close a ram isn't fully completed (jammed), then its 'mux' communication logic wouldn't accept another command. And by that time, it didn't matter. A giant gas bubble was racing up the riser.
A second topside BOP could have saved the drilling crew and rig. But the procedures that the men were following invited disaster, and it happened so fast [informed speculation] that a topside BOP with automatic blow-out sensors was not the solution they needed, although I suppose it will be required by new safety regulations in the future. The best and most urgently needed safety solution offshore is to take control away from the operator, in this case BP, and give drillers an absolute veto over company men. That's all the safety that deepwater rig hands actually need.”
• Haliburton has been accused before of doing a poor cementing job most recently off the coast of Australia where a much shallower well blew out leaking oil for months. A Halliburton employee testified that he “re-pumped” concrete into this well which was an ill-advised procedure but that he was directed to do so by the rig operator, a Thai company.
• Haliburton’s Chief Safety Officer, Tim Probert, is quoted in a May 11th article that the well owner is responsible to confirm the cement integrity. The owner can always elect remedial action by perforating the well’s casing and squeezing cement into the remaining voids to improve the integrity of the original cement.
• Halliburton says it plans to say in its Senate testimony that its workers did not set a cement well plug before the blowout and explosion. This plug is necessary before the well could be temporarily closed as BP had not yet devised a plan for bringing the well into production so the intention was to close the well for a period of time. Prior to the point in the well construction where they would have set in this “plug” the catastrophic incident occurred.
• The 60 Minutes show suggests that there were three concrete “corks” which were being put in by Halliburton. These were positioned at different points in the pipeline. The top two “corks” were in place and working properly but the allegation is that the bottom ‘cork’ had not yet had time to cure and provide a proper seal. And, there were allegations that BP had instructed the drilling crew to pull the ‘mud’ out of the pipe to speed up the process.
• In a news release on April 30, 2010, they confirmed they had 4 employees on the rig at the time of the event. All 4 were returned to shore safely after the explosion.
Halliburton reports that they had completed cementing of the final production casing string in accordance with the well design 20 hours before the incident took place. The cement slurry design was consistent with what had been utilized in other similar applications.
At the time of the incident, they said that the well operations had not yet reached the point requiring the placement of the final cement plug—which would have enabled the planned temporary abandonment of the well. This was all consistent with normal oilfield practice.
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Cameron International
• Cameron International Corporation has been named in some of the law suits as they provided blowout prevention equipment. Cameron is the second largest maker of oilfield equipment behind National Oilwell Vargo Inc.
Cameron reported that they had $500 million in liability insurance in place. Their stock has dropped $1.26 billion in market value after news of them being involved. They now sit at $9.97 billion so they are a significant corporation.
• As of May 5th their shares are trading at $40. Their 52-week range was $24.63-47.44. They were trading at $45.29 on the day of the incident so their stock has not been seriously impacted by the event.
As of May 7, 2010, their stock has dropped 20% in value from April 26 th.
• The more recent information is alleging that:
a) One of the control pods that is part of this equipment did not work and that this was known to BP and Transocean.
b) That the shearing system did not work properly. Was the steel too thick? Or were tools jamming the ability of it to work properly?
c) That there had been a leak in the BOP hydraulic system that had not been fixed.
Anadarko Petroleum
• BP’s shareholdings on the rig are 65%. Anadarko Petroleum is said to have a 25% non-operating interest.
• On May 4th, Anadarko said they had “insurance” which will cover $160 million of costs related to this disaster. This figure is net of their deductibles that total $15 million.
• The “costs” that they see themselves associated with are relating to the efforts to stop the oil leakage, drilling relief wells and other associated costs.
• Anadarko shares are currently trading at around $64. Their 52-week range is $40-75. They were trading around $74 when the incident happened.
• Their CEO confirmed their 25% stake in this project. Their CEO, Jim Hackett said they were not altering their strategic plans because of this hit. They have insurance coverage in place of $178 million less deductibles.
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Mitsui Oil Exploration Co
• They have confirmed a 10% interest in this well.
• BC Johnson Adjusters are acting for both Anadarko Petroleum and Mitsui’s interests on this matter. This is a small boutique adjusting firm with no capacity.
British Petroleum
• The CEO of BP Oil, Tony Hayward responded by saying, “It’s got nothing to do with caps. All legitimate claims….will be honored.” BP’s website says that it is “committed to paying all necessary and appropriate cleanup costs as well as legitimate and objectively verifiable claims for other loss and damage caused by the spill”.
BP is providing $25 million “block grants” to Louisiana, Mississippi, Alabama, and Florida to help them respond to the incident.
• Their 52-week stock price range is $42-62. At the time of the incident they were trading at $60.
• Since the incident took place BP has lost about approx. $30 billion in market value as their stock is currently at $49/share, a drop of 15%. .
• BP has established a 1-800 line and has indicated on their claim form that they are accepting liability for the accident.
We believe ESIS is the liability TPA for BP. They have hired Worley CAT adjusters to assist them. A call center has been set up to begin accepting claim submissions.
Web site set up is—Deepwaterhorizonresponse.com
• One report has BP stating they have $500 M of liability / legal protection through their own insurance company—“Jupiter”.
• Jupiter Insurance Limited is a captive insurer established by BP PLC. This captive does not purchase any reinsurance protection however it limits its exposure to $750M USD per event. This is approximately 13% of the capital and surplus in the company as of Dec. 2009.
Their most recent posted results for 6 month period ending in March 2009 showed an underwriting profit of $414 million. The projections were that for the 9-month period they were tracking to $900 million after three quarters. This all tracks to a very low combined ratio of 20% for year end 2009.
Jupiter is also sitting on $6 billion of capital and surplus at year-end 2009.
• An article on May 10, 2010 states that Jupiter had purchased reinsurance at Lloyds placing coverage for somewhere between £1billion and £1.3 billion.
• The cost of drilling a companion well to mitigate the damage is projected at $100 million.
• BP says they are spending $6 million / day on clean up efforts.
• Florida tourism loss is thought to be $3 B USD.
• Fishery industry loss is estimated at $2.5 B USD.
• One analyst put total damage at $14 billion. Morgan Stanley put it at $3.5 billion while other analysts were still sitting around $1 billion.
• News on May 4, 2010 suggested total costs to insurers could reach $1.5 billion before taking into account $2.5 billion to fishing and $3 billion to area tourism.
• The rating agency Fitch expressed a view that the BP clean up exposure will be in the $2-3 billion range.
• When 15 workers died in an explosion 2005, BP had to pay out $2 billion in compensation.
• As of May 10, 2010 BP announced that they had spent $350 million on this incident. This works out to roughly $16 million / day.
The current cleanup involves 275 vessels and thousands of people on land and sea laying out protective booms. And, costs of drilling a second deep water well with another rig. Many of the vessels being used belong to the Coast Guard and Navy.
• Article on May 11, 2010 says it was BP’s drilling engineers who were directing the work being done on the rig. The BP ceo, Tony Hayward said last week that “The way the industry works is that the operators are in essence the architects. They design the well. And the drilling contractors drill the well. And in terms of the safety and the reliability of equipment on a rig that is absolutely the accountability of the rig contractor, regulated by the Minerals Management Service, a Federal Agency.”
• On May 18, 2010 an article referenced comments from BP Ceo Tony Hayward that its “probably true” that BP did not do enough pre-planning in advance of this type of disaster. Reference was made to a 2003 incident at a BP Gulf rig where a pipe down to an oil well snapped in two resulting in workers battling a toxic spill.
Deepwater drilling has been rife with problems for quite some time now—fires, equipment failures, wells collapsing, and platforms that nearly sank. Drilling at these deep depths involve water pressure that is crushing, and seabed temperatures that is almost freezing and underground conditions explosive. The rapid push to deeper water means that some projects rely on technology that hasn’t been used before. It’s like going into outer space in terms of the complexity of the operation.
• In 2008 Chevron had a number of accidents on a Discoverer Deep Sea Rig in more than 7,000 ft. of water in the Gulf. There was a fire then a leak deep under the sea. Finally the cement and steel casing inside the well collapsed allowing drilling fluid to flow out of control. Workers stopped the flow only by permanently plugging the well. The well was then safely…and permanently abandoned.
• BP’s daily costs on this Deepwater rig were $1 million a day. $500,000 was leasing costs to Transocean. The rest was equipment and machinery.
• Hundreds of pieces of drilling equipment had to be ‘invented’ from scratch in order to do this type of deep drilling. Not all brand new systems work.
• And, reference is made to the need to use higher strength, tougher drill pipe. In some cases this pipe may very well have exceeded the capacity of the BOP sheers to ram successfully through the pipe to do its job.
• Two BP executives had arrived on the rig on the day of the event to attend a ceremony honoring the rig for seven years of service without a serious accident.
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