Early in the morning, troubles began at the well-head and within hours the well was out of control spewing H2S in vast quantities. This blow-out was known as the Lodgepole blow-out and was the worst blow-out in Alberta's long history of oil and gas exploration. On some days, the rotten-egg odour could be smelled as far away as Winnipeg, nearly 1,500 kilometres distant. Needless to say Edmonton and other communities in the vicinity of the blowout were in a state of serious anxiety.
Sour gas flowed at an estimated rate of 150 million cubic feet (4,200,000 m3) per day.
The H2S content of the gas was 28 per cent, and the well also produced 20,000 barrels per day (3,200 m3/d) of sulfur-contaminated, orange-coloured condensate which was emitted into the atmosphere deposited around the well-site. The well was out of control for 68 days, during 23 of which the well was not ignited. During that time H2S from the blow-out took the lives of two blow-out specialists and sent another 16 people to hospital.
In early 1983 I received a call from the Energy Resources Conservation Board, the oil and gas regulatory authority for Alberta, asking me to act as inquiry counsel for an inquiry the Board was convening to investigate the blow-out. The job entailed reviewing the events leading up to and following the blow-out, gathering evidence from Amoco, contractors on site, government departments who were responsible for disaster planning and public protection, municipalities and environmental groups. I had to cross-examine all of the people involved. I accepted and began a task that took my full time for 1 ½ years and continued until early 1984. I learned a lot about blow-outs, the oil industry and government.
I was given a relatively free hand to investigate the causes of the blow-out and the response of Government to it, the environmental damages, and ultimately to assist the Board in determining how the industry should be regulated in the future. It is ironic to note that in 1998 Amoco merged with BP.
This is obviously timely because of the current situation BP is experiencing with the blow-out of their Deepwater Horizon Well in the Gulf of Mexico. A few examples may serve to illustrate how little certain players in the oil industry, have learned about drilling and safety.
There is a lengthy front page article in the Sunday New York Times which outlines the “hodgepodge of oversight agencies that grated exceptions to the rules, allowed risks to accumulate and made a disaster more likely.”
Later in the same article:“As early as June 2009, BP engineers had expressed concerns in internal documents about using certain casings for the well because they violated [BP’s] safety and design guidelines. There were kicks in the well more than 5 weeks before the disaster and a pipe was stuck in the well. The blow-out preventer, when tested on at least three occasions was leaking fluids."
As the headline of the article states, it was not clear who was in charge. BP could make more money by completing its drilling job quickly because it was paying a leasing fee to the rig owner, Transocean, thus creating a natural conflict of interest. The desire to cut corners and save money is not uncommon in industry. Especially when there is a perception of low risk of an event occurring without proper consideration of the consequences if the event actually happens.
"Was Blowout Avoidable - repair equipment for the Amoco well was ordered seven hours before it blew wild...But the equipment did not arrive on time.."
"Foreman battled runaway well alone for 17 hours..."
"Mud study warned Amoco of sour gas dangers..." "Mud used before blowout less than recommended..."
"Safety tests unrecorded..." "Amoco records: vital tests not done..."
"Blowout problems minimized by firm..."
"Amoco production manager...told the inquiry the company was aware some possibility of striking sour gas existed, but reluctantly admitted no probability assessment of hitting the gas was conducted or asked for..."
"Tests not done before blowout...Amoco..records indicate that crucial safety drills and function tests were not performed in the days immediately prior to the blowout..."
"It's our secret: Amoco" - headline in reference to Amoco's refusal to disclose its emergency response plan.
Let's use the blow-out preventer (BOP) as an example in the BP blowout. The BOP is the device which is perched on top of the well head and is supposed to shut down the well if problems are encountered. In the BP case, the BOP was inaccessible, at great depth and subject to tons per square inch of pressure. It could obviously not be inspected visually.
Apart from fluid leaks in the BOP, BP chief operating officer Doug Suttles said interviews with Transocean [the owner of the rig] workers on the rig revealed crewmembers tried to activate the BOP from the rig's bridge before the fire forced them to evacuate, but the BOP did not close off the well.
Suttles also revealed that BP remotely-operated vehicles (ROVs) had hit "subsea access points" that should close the BOP, but that they also failed to trigger the mechanism to shut.
"We don't know why the BOP failed to stop the flow," he said. "Ultimately we will recover the BOP, get it to the surface and find out."
In the Lodgepole situation, the BOP was supposed to close after the drill pipe was removed. [Some undersea BOP’s have a cutting edge which is supposed to cut the pipe when the BOP closes.]
As with BP, Amoco estimated the amount of gas flowing from the well head. As with BP, Amoco’s original estimates were low. This is not surprising as the higher the estimate of the flow, the more dangerous the situation would appear to the public and regulatory authorities. As with BP, it turned out the flow was considerably higher than originally anticipated. This had dramatic consequences for Lodgepole. The Amoco engineers decided they could control the blow-out by opening the BOP, letting the drill stem drop into the drill hole, then close the BOP. They predicted the pipe would drop into the drill hole based on their estimate of upwards pressure from the flow. Needless to say they were astonished that when the BOP was opened, the drill stem shot 100’s of feet in the air, striking the rig and igniting the gas into a fiery inferno which totally destroyed the rig.
The saving grace was that when the blow-out ignited, the H2S was consumed by the fire so there was no further threat to people from breathing it. However, then the threat to the environment from the resulting emissions continued unabated.
The fire destroyed the Nabors 14E rig (worth about $8 million) in nine minutes; it also scorched 400 acres (1.6 km2) of forest. Amoco's direct costs to bring the well under control were approximately $20 million. Huge amounts of natural gas, natural gas liquids and sulfur were wasted through the disaster. Apart from the environmental and health concerns, this meant energy lost to consumers, revenues lost to Amoco, and royalties and taxes lost to government. According to a Panel’s report from the Inquiry, these and other direct costs totalled about $200 million.
In my view in the case of Lodgepole, the government and regulatory authorities acted reasonably competently. From the media reports, that does not appear to be the case before and immediately following the BP blow-out. It is perhaps easy in hindsight to characterize activity around a well-site as without direction or chaotic. There are always many participants - drillers, managers, representatives of the owner (BP), drilling mud specialists, pipe specialists, people taking out and reviewing core samples, etc. But lack of planning for a serious incident, lack of concern as the well began showing signs of trouble, inadequate disaster planning, confusion and lack of direction from management and lack of coordination amongst the various people on and off site all would clearly contribute to a blow-out. The failure to stop the blowout and deal with envirnomental and other problems following the blow-out are another story.
From the editorial questions in the New York Times:
THE RESPONSE The questions about whether BP and the government responded quickly enough, and with the right weapons, could fill a book — and probably will. Both parties seem to have underestimated the size of the spill, and neither had a coherent underwater response plan in place. Though the oil industry had experienced blowouts at shallower depths, BP’s disjointed response suggested it had given little thought to the possibility of a blowout at 5,000 feet.
In my view, the BP blow-out manifests systematic problems permitting the human failures which possibly caused and undoubtedly contributed to the consequences.
Part 1 of the Lodgepole Inquiry dealt with events and responses. Part 2 dealt with what the industry and the Board should do to prevent another disaster. In the case of Lodgepole, the inquiry spawned a generation of safety regulations that require the industry to designate hazardous drilling targets as "critical wells" and to use elaborate safety precautions at the drill site. The new regulations imposed much more stringent drilling procedures at critical wells, required specialized safety features on drilling and other equipment, and forced companies to develop detailed emergency response plans before beginning to drill.
While acting as Inquiry Counsel, I observed the vast resources the Oil and Gas Industry could bring to its operations and to its legal problems. Many commentators recognize that regulatory authorities and industry cooperate and have a “cosy” relationship which can result in compromises and tacit agreements on procedures and safety. Undoubtedly many heads will roll over the BP disaster placing the blame on those supposedly responsible for approving actions which were in accordance with accepted practice and policies and essentially condoned.
There are good players and bad players in every industry. The BP blow-out will obviously result in changes to off-shore drilling. It will cost the industry dearly – and not just the bad players. Let’s hope the changes will make drilling safer rather than merely give us the impression of safety as is the case with many of the measures implemented after 9/11 by Homeland Security.
I also believe that the good players have a corporate culture which engenders prudent, safe practices and honest open dialogue among team members and the bad players emphasize savings and cutting corners, disregard or underestimate risk and stifle dissenting opinions. It would be interesting to be a fly on the wall in the boardrooms of the major oil companies to hear their opinions on the BP blow-out and on the cost to them in the future. It is reminiscent of the Canadian Government and banks opposing the proposed international bank levy, saying why should we pay when we acted properly and in fact already paid by foregoing risky subprime mortgages and hedges.
As a personal aside, the Pembina Institute, one of the leading environmental activist NGO's in Canada was created following the Lodgepole Blowout by Rob McIntosh who was the organizer of the Drayton Valley Community in its participation in the Inquiry. Mark Lowey, a journalist who covered the Blowout, continued his career as an environmental writer and today publishes a respected news journal on environmental issues.
I was usurped by the New York Times Sunday Magazine on another aspect of this story which I was thinking about yesterday. The article entitled “Underestimating Risk – What the oil spill and the financial crisis have in common” discusses the human tendency to underestimate risk and the comparisons between the blow-out and the financial crisis - but that is to be continued.
I look forward to reading further on this "human tendency to underestimate risk." It's a very interesting topic when considering the fiduciary duties of directors and their heavy reliance on "expert advice" in assessing risk.
ReplyDelete-Natalie
Ray, I had the exact same thought the other day sitting on the #22 bus. What better metaphor for the recent financial collapse than an oil rig leak that wasn't foreseen, can't be staunched, and is wreaking havoc on everyone involved.
ReplyDeleteIt seems to me as though, as a species, we continually and collectively expect optimistic outcomes when all signs point to the contrary. To borrow from Aesop, we have far too many Grasshoppers lounging in the summer and not enough Ants preparing for winter.
But whether this failure to account for foreseeable, and often, significant future risk is really just another instance of 20/20 hindsight or a worrisome trend in certain sectors towards "risky" behaviour, a solution is direly needed.
I think at the heart of the issue is the fact that many of us are simply lying to ourselves on a daily basis. We have 2 glasses of wine at dinner and drive home knowing that we might be over the limit; we borrow against the margin (at least we used to); we don't put on our seatbelts; and we accelerate through intersections to catch the yellow.
We partake in these 'risky' behaviours because we've internally weighed the pros and cons of doing the action vs. not doing the action. We assess the likelihood that an undesirable outcome may occur and depending upon the individual and the activity, the math going in to that probability assessment could be very wrong. Simply put, risk prone individuals have a higher risk threshold than risk adverse individuals and therefore ascribe different numeric or probabilistic values to certain actions or events.
The problem, as I see it, is that people are not easily labeled as one or the other. You can have a risk prone individual who internally believes they are risk adverse because they think they have all the necessary data to accurately calculate their risk exposure to a given activity or event.
In fact, the more risk adverse an individual believes themselves, I would argue, the riskier their behaviour becomes due to the confidence they place in their ability to deftly negotiate the various risks they perceive. The more frequently they successfully negotiate a risk, the more confident they become in their probabilistic calculations. This can be fatal as we recently witnessed withy Alan Greenspan as he steered the Fed into an economic iceberg.
We expose ourselves daily to significant risks but have become lulled into a false sense of security by the notion of statistical safety. We never assume that we could be the 1 in 1 million who gets struck by lightning or who gets attacked by a Shark, but the fact is that someone has to be that person, so why not me or you?
Deep down we are hardwired to be optimists. We want tomorrow to be better than today. We want everything to work out. We want a better future for our children. The problem is that we rarely take the necessary steps to ensure that our optimism is realised. The reasons for this are legion, but as you pointed out, the main culprit in the commercial and governmental world is that being proactive with risk management is expensive.
Diligent and thorough self-examination is required of the various rosy outcomes we have deluded ourselves into expecting. We need to collectively re-boot our risk calculators and stop hiding behind risk laden behaviours justified by cost benefit analyses.
If history has taught as anything it is that, to paraphrase O'Toole's corrolary of Finagle's Law, "the perversity of the universe tends towards a maximum."