UK Deepwater Drilling - Implications of the Gulf of Mexico Oil Spill - Energy and Climate Change Contents

Examination of Witnesses (Questions 89-187)

Dr Tony Hayward, Mr Bernard Looney and Mr Mark Bly

Q89 Chair: Good afternoon, and thank you for coming. Welcome to this session of the Energy and Climate Change Committee.

As you know, this Committee's interest in this inquiry is particularly about the adequacy of the safety and environment regime in the UK and particularly as that relates to deepwater drilling in UK waters, for example, west of Shetland. We are also considering the contribution that deepwater oil and gas resources may make to meeting Britain's energy security needs and, indeed, also the extent to which we need to drill in deep water, given the hoped for transition to a low­carbon economy over the next couple of decades. But we have a particular interest naturally in BP because of the Deepwater Horizon disaster. We would like to try and understand better what lessons can be learned from what went wrong there and what changes in practice, procedures, training, possibly even in the regulatory regime here, may be needed in the light of that experience. That is particularly why we would like to talk to you this afternoon. But I think, Dr Hayward, you would like to make a short opening statement?

Tony Hayward: Yes, if I can, Mr Chairman. Mr Chairman, ladies and gentlemen, good afternoon. Thank you for the opportunity to make this short statement to the Committee before answering the questions.

There is much still to learn about the Deepwater Horizon accident and many investigations are ongoing. Throughout this crisis BP has received strong support from the UK Government, for which we are very grateful. We will answer all the questions we can, recognising that there are limitations to what we can say because of the large number of legal proceedings that are underway. To help provide the fullest answers possible, I have brought along Mark Bly, who led our internal investigation into the accident, and Bernard Looney, who is in charge of BP's operations in the North Sea.

Let me begin by saying how much everyone at BP has been devastated by this terrible accident which so tragically cost the lives of 11 people and injured many others. I deeply regret what happened and its effects on the families of those involved as well as its impact on the communities and environment of the Gulf Coast.

From the very beginning BP accepted that as the operator of the lease we were a responsible party and had the obligation to stop the spill, clean up the damage and compensate affected parties. I committed from the beginning that we would do the right thing and we would stay the course, and that has not changed. We also believed it right to make public all that we have learnt from this tragedy by sharing our internal investigation report and lessons we have learnt from spill response. I hope those reports can assist the industry as a whole, to improve both its safety and its ability to respond.

The results of our investigation demonstrate that this was a very complex accident. It arose from an interlinked series of mechanical failures, human judgments, engineering design, operational implementation and team interfaces. No single factor caused the accident and multiple parties including BP, Halliburton and Transocean were involved. The report makes 26 specific recommendations. BP has accepted the recommendations. We've begun a programme to implement them across our worldwide drilling operations. I believe a good number of the recommendations are relevant to the oil industry more generally and would expect some of them to be widely adopted.

It has been easy for some parties to suggest that this is a problem with BP. I emphatically do not believe that that is the case. The need to further mitigate risks associated with offshore drilling is an industry issue and one that I believe we all need to address. It is also tempting to call for universal drilling bans. I do not think that is wise, given the world's demand for oil and gas. It's worth recalling that prior to this accident the industry had drilled for more than 20 years in deep water without a major accident. Instead we should take a calm and rational approach to this, learning from what has happened and ensuring that the lessons are fully implemented across the world.

In the offshore UK there are four strategic actions the Committee could consider: confirm that what we have is working as intended; build on lessons learnt from the Gulf of Mexico, ensuring they are applied across the industry; enhance testing protocols on blowout preventers including the backup systems; and enhance relief well planning.

Ladies and gentlemen, thank you for the opportunity for those few words. We would now be very happy to take your questions.

Q90 Chair: When you were appointed chief executive three years ago you were quoted as saying you were going to focus, I think the term was, "laser­like" on safety. On your watch as chief executive in those three years we've had now perhaps the biggest ever oil spill in US waters—11 deaths on Deepwater Horizon—and this morning's Financial Times says last year four out of five of your North Sea installations failed to comply with emergency regulation on oil spills, that the offshore inspection records seen by the Financial Times said that you've not complied with rules on regular training for offshore operators on how to respond to an incident. That's a failing which may be very relevant to what happened on Deepwater Horizon. It also says in the Financial Times that inspectors from the Department of Energy and Climate Change said you had failed to conduct oil spill exercises adequately. Given those circumstances, why should this Committee conclude that BP is a responsible company to operate deepwater wells in UK waters?

Tony Hayward: Can I address that question in two parts, Mr Chairman? First, in terms of what we've done over the last three and a half years, we have made safe, reliable operations the No. 1 priority at BP. It is the priority of everyone at BP. But of course it's about much more than rhetoric. It's about what you do underneath the banner of safe and reliable operations.

Safety is about three things. It's about plant, people and process. Over the last three years we have invested more than $14 billion into the integrity of our operating plant globally. Over that same period of time we have established a safety and operations integrity group. We have recruited broadly from outside of the industry—from the nuclear industry, from the petrochemicals industry. We have recruited thousands of engineers into our operations and we have established new processes across the company, including a new operating management system designed to ensure that everywhere our operations are safe. And it is undeniably the fact that because of all of that this particular incident is so devastating to me personally, because we have made an enormous amount of progress in that three-year period.

If I can take now the question of the North Sea, we take all safety issues very seriously. I do not believe that the issues that were reported this morning point to any fundamental weakness in our North Sea operations. We have a very strong track record in the North Sea. It is better than the industry average. We have seen major improvements in the course of the last two years. BP's spills, which are a good indicator of safety performance in terms of integrity of plant, have fallen by 20% over the last two years and we now lead the industry in terms of that particular metric in the North Sea.

I will ask Mr Looney to comment on the North Sea, if that would be helpful, but I do think there was some commentary this afternoon from DECC which said that nothing that they identified compromised the overall integrity of the installation or its pollution response provision, and they use the letters as evidence of a robust environmental regulatory system in action.

Bernard Looney: As Tony said, we take any observations like this from the regulators very, very seriously, obviously. We view it as an opportunity to improve our business. Specifically in these two areas that you mentioned, the first being training, it is true that there were a handful of people, less than 10, who had not undergone mostly refresher training, which is a one to two-hour computer­based training exercise. It was an administrative error. Clearly, today, all of our people are compliant with that training requirement and beyond that we have taken action to make sure that that administrative error doesn't recur. So that's the first thing.

The second point you raised was in the matter of drills or how we practise for spill response. We had been carrying out and continue to carry out exercises as to how we would respond if there were a spill or an incident in the North Sea. I think it is fair to say that there was some confusion within industry as to what was exactly required within the drills. I think it is reasonable to say that that confusion was recognised by the regulator, and in August of this year the regulator issued clarification guidance on what exactly should be carried out when those exercises are undertaken. Clearly today we are in full compliance with what is required of us under the law.

Q91 Chair: In the efforts you've been making on safety in the last three years, was your decision to have only one blind shear ram on the Deepwater Horizon, despite reports for the US Minerals Management Service suggesting that rigs needed two some years earlier, taken to save money by reducing the time it took to conduct well tests and therefore allow longer periods for drilling?

Tony Hayward: We have found no evidence in our assessment and investigation of this accident to suggest that cost was any part of how this occurred. The blowout preventer that you are referring to was fully compliant with the regulatory regime and it should have functioned. Clearly the fact that it didn't function is something that the industry needs to understand and ensure that the right actions are taken to ensure that equipment operates as it is designed to. There was nothing wrong with the design basis of the blowout preventer or the use to which it was being put. The fact is that it failed to operate as it was designed to.


Q92 Chair: The question was, was the decision to have only one taken to save money by BP?

Tony Hayward: There was no decision of that sort taken to save money.

Q93 Chair: Just six days before the explosion why did your staff describe the Macondo well as, I quote, "a nightmare well that has everyone all over the place"?

Tony Hayward: There is no doubt that there had been some not unusual drilling challenges in drilling the Macondo well. They had had to deal with a gas influx at a higher elevation. I think the description is unfortunate, made by one of our young drilling engineers, but certainly the well had been challenging - not unusually so in the context of the Gulf of Mexico.

Q94 Chair: You mean the Gulf of Mexico is full of "nightmare wells"?

Tony Hayward: The Gulf of Mexico is a more challenging drilling environment than many other parts of the world.

Q95 Chair: Is it more challenging than the west of Shetlands?

Tony Hayward: Undoubtedly so.

Q96 Sir Robert Smith: I just wanted to follow up on the working of the blowout preventer in terms of performing to standard because my understanding is that it should fail­safe, yet one of the batteries was flat and that didn't seem to fail in a safe mode. It just meant that the thing wouldn't operate. Is that a misunderstanding?

Tony Hayward: Well, there are three modes for operation of the blowout preventer. The first is when the rig is connected to the blowout preventer operated from the surface. If the rig becomes disconnected from the blowout preventer, then the so­called "deadman" function should activate the blowout preventer which requires the control panels on the blowout preventer to activate the blowout preventer. The third mechanism of activating the blowout preventer is through, effectively, in essence, manual intervention—the intervention of the ROV on the blowout preventer itself. In the case of this accident all three mechanisms failed.

Q97 Dan Byles: I would just like to explore a little bit more the concerns some people have that perhaps some operational decisions might have been influenced by financial considerations. On the day of the blowout the well was 43 days late and somewhere in the region of £21 million beyond budget, and there do seem to be a series of decisions. Tim's alluded to the single blind shear ram which was contrary to recommendations by the US Minerals Management Service. I understand that only six centralisers were used rather than the recommended 21 that Halliburton had recommended. There was the decision to install a single long­string casing rather than multiple individual casings, contrary to your own internal plan review in April and the decision not to run a cement bond log. Now, obviously these are all individual operational decisions. But when you start to look at them together, it gives the impression that perhaps corners were being cut. I would like your thoughts on that.

Tony Hayward: Yes. If I can, without going too technical, I'd like to address each one of those issues in turn because I think it is important that we understand what did and did not cause this accident.

Q98 Dan Byles: Well, to a certain extent it doesn't really matter if any of those caused the accident. It's more about the principle that in each of these cases there is a recommended approach and the approach taken by BP appears to fall short of the recommended approach.

Tony Hayward: Let's just take those one at a time, if we can. So, in the matter of the long­string, running a long­string had nothing to do with this accident. The flow was up the production casing; it was not round the side. So the long­string was not a cause of the accident. The decision to run the long­string was actually based on long­term integrity. If you use a liner with a tieback, where the tieback connects to the rest of the casing is subject, over time, to degradation and can leak, and we have lots of examples of exactly that occurring in the Gulf of Mexico. So the practice of the majority of the industry today is to run long­strings to avoid the possibility of degradation between the tieback and the rest of the casing. That is why the decision to run the long­string was taken.

The decision not to run a cement bond log was because they believed that they had demonstrated the cement job had been effective. So the procedure in drilling a well is: run the casing, pump the cement, conduct a positive test. Will flow go into the formation? Then conduct a negative test. Will flow come out of the formation? Now, we know with the benefit of hindsight that the negative test was erroneously interpreted, but they believed that it was good and therefore they had a good cement job and there was no need to run a cement bond log. A cement bond log is used to determine where you have a cement problem rather than whether or not a cement job is good, because it can't determine pinprick holes in the cement. So what would typically happen is that, if they had identified correctly that the negative pressure test was wrong and we didn't have a seal, it's very likely that they would have then run the cement bond log to try and determine where additional cement needed to be placed.

Q99 Dan Byles: So if your quality control systems—the test—erroneously suggested that they were okay but actually the problem was with the cement, could that problem currently exist on any of your other wells without you being aware of it?

Tony Hayward: Well, we clearly have taken a lot of action, as I suspect others in the industry have, to clarify and provide much greater rigour around the assessment of a negative pressure test. At BP we've been very prescriptive about what does and does not constitute a negative pressure test, and we have elevated the authority to say that it is acceptable off the rig to the shore in the event that there is any ambiguity.

Q100 Dan Byles: I shall ask one more focal question, if I may. Do you apply the same safety standards to all of your operations worldwide or do you apply the minimum required by the local regulatory regime?

Tony Hayward: We apply the same standards. They are clearly influenced by variations in regulatory regime.

Q101 Dan Byles: So you would say the standards applied in your current operations in the UK are to the same standard as the standards you were applying in this incident in the Gulf of Mexico?

Tony Hayward: The standards in the UK are very strongly influenced by the safety regulations that exist in the UK, which at some point we may wish to discuss. So the standards in the UK are very much driven by the safety regulations here, which, as you probably appreciate, are very different from those in the US.

Q102 Dan Byles: So would you say therefore that you are operating lower standards in the US than you do in the UK because the local regulatory regime allowed it?

Tony Hayward: I don't think they are lower standards. I think we have the same standards, but there are differences in the regulatory regime, which does not imply a difference in the level of standard but there are different requirements.

Q103 Albert Owen: You have given very detailed technical answers and I understand why. But in your opening remarks you talked about one of the faults being human judgment. We had before us last week the managing director from Transocean, Paul King, who said there was a chain of command within his part of the company and he couldn't comment because the Bly Report hadn't come out then with the details, but he said there was a time­out.  When in any doubt, there's a time­out period. Are you suggesting that there were calls for time­out that had been neglected, when you get a young driller saying it's a nightmare scenario there? I mean, you say he's a young driller, but he's trained. He's aware of the dangers there. Are we led to believe that when a time­out is called it happens on each and every occasion even when you're late, even when those pressures are on, and has the report identified anything different?

Tony Hayward: Categorically the answer to that is yes. When anyone at any level in a drilling operation on a drilling facility calls a time­out, time­out occurs. There is absolutely no evidence from our investigation that anyone at any moment in time called a time­out. In the matter of the negative pressure test, which is one of eight critical factors, the BP well site leader required it to be taken again and it was taken again. The conclusion of the team on the rig was that they had a good test and could therefore proceed.

Q104 Albert Owen: Sure, but I don't understand—when there's been talk about a battery being flat, surely that would have been tested and somebody would have said, "Time­out. We can't go any further"?

Tony Hayward: Well, of course the battery that was flat was in the blowout preventer at 5,000 feet down on the seabed.

Q105 Albert Owen: So there's no way of testing it?

Tony Hayward: Well, the last time it would have been tested was prior to being put on the seabed. Now, what we haven't determined is exactly what was tested at the time that the blowout preventer was last put on the seabed.

Q106 Albert Owen: But you will be having a fuller inquiry into that?

Tony Hayward: Absolutely.

Q107 Chair: So there could be flat batteries all over the place?

Albert Owen: That's the worry.

Tony Hayward: So what we have done—and I am sure everyone in the industry has done the same—as soon as these things came to light, not waiting for the report but as soon as they came to light, is we have implemented across our global drilling operation a programme to ensure that the equipment will do what it is designed to do. In a number of cases that has required us to halt drilling in the middle of a well and bring the blowout preventer to the surface. We have done that a couple of times in the North Sea because we weren't certain. We subsequently confirmed that they were perfectly okay and we continued. So the first thing we've done is confirm absolutely that everything that we have operational today is working as it was designed to.

The second thing we have done, which I believe is something the industry will also do, is significantly enhance the testing protocols of blowout preventers, including ensuring that the backup systems work and are tested in the course of drilling the well. Previous to this they were only tested at the end of each well. We've actually introduced the additional safeguard of ensuring that the backup systems are tested on a regular basis through the course of drilling the well.

Q108 Christopher Pincher: I'd like to come back to the cement item that Dan Byles raised.  Halliburton provides your cement slurry. Halliburton are quoted as saying that they are confident the work was completed on the well meeting BP's specifications, whereas you, I think, have said that it was a bad cement job, though BP, and presumably anybody else in your position, are responsible for signing off on that cement. So I wonder what you are doing new or differently to ensure that what you do sign off on from other providers you are happy with.

Tony Hayward: Well, the first thing I would say is, of course, we know the cement was not good because we had influx into the well. So there is no doubt that this was not a good cement job. Exactly why it wasn't is not clear today. We have not been able to complete the investigation in that area because we haven't had access to samples of the cement. What we have done is as recommended.

Q109 Christopher Pincher: But you've simulated that, haven't you?

Tony Hayward: We have simulated it, but we haven't actually got a sample. So I think we need to be cautious until we can complete that analysis to understand why the cement failed. Notwithstanding that, what we've done is to require that all cement contractors have third-party verification of their standards and procedures, the cement formulas—everything around the cement.

Q110 Christopher Pincher: Is this a new requirement or a requirement you already have?

Tony Hayward: It's an enhancement to our previous procedures.

Q111 Christopher Pincher: So who are the third parties that you're going to employ that can verify that the mixture is correct?

Tony Hayward: They are cement engineers, in essence.

Q112 Sir Robert Smith: I should remind the Committee and the witnesses of my entry in the Register of Members' Interests as a shareholder in Shell and as vice­chair of the all­party group on the offshore oil and gas industry. I just wanted to follow up on your lessons learnt and the recommendations. There's quite a lot about how you need to beef up or change the conditions you apply to those providing services to you—to those who contract to you. I just wondered about that in terms of how the industry has evolved because a lot of things that used to be inhouse for big major oil companies are now provided outside, and as the industry evolves there are a lot of smaller operators buying a lot more services from integrated providers. Are there bigger lessons the industry needs to learn about how to cascade the same safety culture throughout the contracting supply chain?

Tony Hayward: I think it would be surprising, given the nature and gravity of this accident, if many in the industry did not look afresh at the relationships between themselves and their principal contractors. I know BP will. I think it's too early to conclude exactly what the changes will be. In our report we talk about "significantly greater oversight". It is possible it may go beyond that. It's possible that some of the things may come back into BP, but I think we need to be quite thoughtful about doing that. The reason the industry evolved in the way it did—and drilling goes back probably 25 to 30 years—is the idea of creating deep skills and competency in a narrow space. We need to be certain that if we bring things back in we've actually legitimately reduced the risk. So I think the industry will look very hard at the nature of relationships between operators and contractors in a number of dimensions in the light of this tragedy and it will be for participants to determine. All I can tell you is that it's something that BP will be doing.

Q113 Laura Sandys: Just to follow on in some ways from what we have already been discussing, having read the summary and some of the substance of the Bly Report, I was interested in the fact that it was obviously looking very much at the technical side. But a lot of the issues surrounding health and safety and also engineering solutions are really management—and possibly risk assessment—issues. There was very little reference to anything to do with, as Robert said, the management of contractors, common standards and how you manage risk assessment. From your report that you then submitted to this Committee, you are saying that you are now looking at the North Sea in particular with subsea blowout preventers. But are you doing more than that? Are you looking at those management structures? Are you looking at your risk assessment in relation to all your international deepsea drilling activities, because it just struck me that, yes, fine, you can always look at the technology and you can always look at the engineering, but ultimately it's people, companies and, ultimately, shareholders who end up being responsible?

Tony Hayward: I think, in defence of Mark, the investigation was asked to understand what happened and to make recommendations relevant to the immediate course. What BP is clearly looking at is as you have suggested. I think the issue is the management of low-probability, high-impact risk. This risk was identified at the very top of the BP group risk register. It was identified as a principal risk in the exploration and production business. It was the principal risk in the Gulf of Mexico business and yet it still crystallised. So we clearly have to ask ourselves what more can be done in the general question of the management of very low-probability, high-impact risk. We have to keep reminding ourselves that the industry had drilled for 20 years in deepwater without a blowout, and we believe that we mitigated the risk through all of the actions that we'd taken and we clearly hadn't.

Q114 Laura Sandys: Then if we can move the risk assessment to the North Sea, what is your prime risk issue when you are looking at your operations in the North Sea?

Tony Hayward: Can I just make a couple of comments on the North Sea generically? Bernard can clearly go into detail. I do think that it's important that, whilst all of the lessons learnt need to be applied to the North Sea, we do recognise that there are some quite important differences. The first one is that there is nowhere where we are drilling in deepwater and the reservoirs have high pressures and high temperatures. So the high-pressure, high-temperature area of the North Sea occurs in shallow water. It's in the central North Sea offshore from Aberdeen. In the deepwaters of the west of Shetlands there is no high pressure and high temperature, which means it's a very different thing; it's a very different engineering challenge.

I think the second thing is the strength of the regulatory regime here. The North Sea had its own disaster with Piper Alpha 20 years ago and as a consequence of that the safety and regulatory regime was fundamentally changed. The Cullen Report, I believe, has provided the foundation for an extraordinarily good safety performance over the last 20 years. I think those are two quite important differences.

Q115 Laura Sandys: But what is your priority in the North Sea when it comes to risk?

Bernard Looney: The priority in the North Sea is very, very clear. It is the No. 1 thing. If you come into our office you will see it on the walls and screens; you will talk to people; you will hear them talk about it. The No. 1 priority is and has been, certainly in my tenure, the reduction of hydrocarbon releases. The reason for that being the No. 1 priority— not just in risk or in safety or in business; it is the priority in the business—is, as we have seen in the Gulf of Mexico, that the consequences of it going wrong are significant. For that reason we have focused very, very heavily on that priority in the last several years.

The first thing is actually to declare that it is the most important thing. We have done a lot of work on education in this space in helping our workforce. There's a facility in the UK which actually helps people see what happens physically in an explosion at Speedam and it helps people actually understand the strength of what can happen. So we've had people, safety reps, go to that. We've invested in maintenance and inspection in our facilities to improve the integrity of our facilities and I am pleased to say that, while we must never stop in this space, we have made improvement. We've made significant improvement in the last two years and that track record continues this year. So the priority in our business is very clearly, No.1, the reduction of hydrocarbon releases. It is the thing that I frankly worry about first in the morning and last in the evening because it is the thing that when it goes wrong people can lose their lives and that's why we, and I, focus so much on it.

Q116 Gemma Doyle: The report seems to state that the drill pipe pressure was increasing when it should have been decreasing for round about 50 minutes but no action was taken. Can you say how often those readings should have been observed and what should have happened in that situation?

Tony Hayward: Well, let me start, but I'm going to ask Mark to add something. The primary measurement in a drilling operation is two things: it's the pressure on the drill pipe and the volume of mud. Those are the two most important parameters that are monitored and measured on a continuous basis. Is the volume of mud increasing or decreasing? If it's increasing it tells you something is flowing into the well, and if it's decreasing it tells you the mud is flowing into the formation. And, similarly with pressure, if it's going up then there's something happening deep in the well. They are monitored on a continuous basis on a display in the driller's control unit.

Mark Bly: Just to add, in addition to that there is another surge provided on the drilling rig which is called the mud lying service. This service also monitors those parameters to provide a redundant set of eyes on the data. So it was indeed an important finding in the investigation that the influx into this well occurred over several tens of minutes leading up to the explosion and it's just counter to what you expect to see. The fundamental practice in the industry is early detection and early action and for some reason that wasn't accomplished here.

Q117 Gemma Doyle: So do you have concerns that the equipment wasn't functioning correctly?

Mark Bly: What the report really has been able to do is identify that the signs were not caught—that some of the equipment was available to the driller. We can't say that it all was at all times, but we know that some of it was because we captured that with real­time data. There are records of the information that would have been available, so we know that that was there. We can't explain why they didn't see it.

Q118 Christopher Pincher: Can I ask then, given that the data was available but no action was taken for, as you describe it, tens of minutes—I think it was up to 40 minutes—do you have concerns about the training of your resources if they didn't potentially spot what was going on, and what you are doing to rectify that as a possibility?

Mark Bly: The recommendations that we've made are to consider enhanced training. There is industry standard training, and for all of the people that were close to this we confirmed that they were up to date and they had all the appropriate training. The recommendation that we've made to the company is that we should consider superseding that and going further with training competency. Then the other thing we've recommended, and this is almost something that you could take for granted because it's such a common practice in the industry, is we've said, "Let's go back and absolutely define what are our minimum requirements for well monitoring, equipment, equipment redundancy, etc." So while we couldn't get right to the bottom of it, we've sort of stepped back and made a recommendation to go and just seek to make it more robust anyway.

Gemma Doyle: Sorry, I should mention that I have a family member who works for BP, although not in this part of your business. So I need to declare that.

Q119 Dr Lee: You've already mentioned that Mr Bly was told to deal with immediate findings in the immediate period after the accident took place. Looking at your report, Mr Bly, there doesn't appear to be a root cause analysis. I can't see any evidence of that and I wonder why that was the case.

Mark Bly: As Tony said, our objective was to understand, as quickly as we could, the sequence of events, remembering that at the time it was a horrific incident to look at. We were trying to understand what were the chain of events that happened and what were the immediate causes so that we could get to some insights as quickly as possible. That's what we've done. I think it's a good contribution to developing understanding and it's the case that there may be more to do—maybe make it commonplace.

Q120 Dr Lee: Okay, but on the basis of that, though, does BP as a whole have any sort of indicative feelings that there is one thread of causality through all of this or is it a series of threads?

Mark Bly: I think it's important to consider all of the eight things we've identified and recognise that any one of those, had the barrier remained in place, could have prevented or significantly reduced the impact of the incident. So there is a way to think about each of those and how would you strengthen them. The recommendations that we've made are targeted at exactly that—at thinking through what steps would you take. They range from consideration of engineering design, through consideration of improved standards of practices and proceduralisation of the things, to consideration, in cases where we are buying in or acquiring services from contractors, of how we up our game in ensuring that we get absolute quality there. So those are the broad themes that we went after in the recommendations.

Q121 Dr Lee: I guess what I am trying to get at is that Dr Hayward inherited a pretty tough situation with regards to the safety record. When you were appointed you mentioned that straightaway, and we have seen it on the front page of the FT today. Do you think you are still dealing with that legacy of a lax safety culture that the Baker Report of the Texas City Refinery explosion indicated? Do you think that what we are seeing here is that you are still working through that and, dare I say it, is there some sort of institutional issue here? It's interesting to know what you think.

Tony Hayward: I think it's very dangerous to join up dots that it may not be appropriate to join up. I don't think we've got any evidence here of the sort of issues that we were confronted with at Texas City. What we do have, and I think it is very clear, is a lack of rigour and the quality of oversight of a contractor. Now, the contractors we are using here are of world class, world standard, and you may not expect that they would need that quality of oversight. But it is clearly something that was found wanting, it's something that the report makes strong recommendations around and it's something that we've already taken action on. Clearly, we wait for the report to be published to begin taking action around the extent of the oversight that we apply in our drilling operations, be it in the cementing area or in the overall drilling area, and I think that is a legitimate concern. But I don't believe that that ties back to the issues that we had at Texas City.

Q122 Dr Lee: But you do intend to do a root cause analysis at some point in a later report? Is that planned?

Mark Bly: This report satisfied our terms of reference that we were asked to do. I have given it, provided it to the company and it will be thought about.

Q123 Dr Lee: Bringing it closer to home, in view of what happened in Macondo, were detailed plans in place to handle a failure at a subsea wellhead here prior to the incident in the Gulf of Mexico?

Tony Hayward: I think it is evident, and we have certainly acknowledged it, that the industry was not prepared to deal with a subsea blowout in 5,000 feet of water. The reason we were not prepared is that we believed we had effectively mitigated that risk such that it was not going to occur. Now, that probably was not the right conclusion on the part of the industry, with the benefit of hindsight. So over the course of the last four or five months we have built an enormous amount of capability, as you have seen in the Gulf of Mexico, to be able to intervene in the subsea environment through the creation of a whole series of essentially capping mechanisms that would allow you to cut away any debris, put a cap on a blowing out well and contain it. What we are doing for the North Sea is that we are, as we speak, shipping two of those capping structures across to the UK to be based in Southampton at the Oil Spill Response Centre as the beginning of creating the capability to be able to intervene if such a situation did occur. Now, that doesn't mean to say there is no lack of focus on mitigating that risk and ensuring it doesn't occur, but I think, as our industry colleagues described to you last week, the industry in the UK is moving forward to create capability to deal with a subsea blowout. The first step of that is, as I have said, to bring two of the multipurpose capping pieces of equipment to the UK to be based in Southampton with the Oil Spill Response Centre.

Q124 Dr Lee: I have one final question with regards to the sort of day­to­day management of a functioning rig. I am a practising medical doctor, so I speak from a position that, in my profession, whistle­blowing is difficult. It's got a track record in the NHS where there is no particular system in place. So it's something which we are having to address as a profession. It strikes me that most people, if not all people, on the rigs are under contract. It may be directly or indirectly to BP or whichever company it is. Do you think that that is a problem in terms of reporting concerns? There are people who understand that we need to be drilling because of the need for oil etc., but do you think that perhaps for the sake of the industry's reputation there is some sense in having an independent person on the rig who says, "Look, I'm not happy about this"? At the moment potentially there is a conflict of interest—people are under pressure; there are contracts, money etc.

Tony Hayward: I think there are lots of things that could be done, but I do want to stress again that we found no evidence of anyone being under any pressure to do something they didn't want to do. Perhaps more importantly, the offshore installation manager of the Deepwater Horizon testified under oath at the Marine Board. He is the ultimate authority on the rig.  He said that at no time had he felt he was under any pressure to reduce costs or to go quickly. If he had been, he would have told whoever was trying to do it to please desist because as far as he was concerned he was the accountable person and he made certain that those pressures did not apply on his facility. So I think, whilst it's tempting to believe that this was causal somehow in this accident, there is no evidence for that whatsoever.

Q125 Dr Lee: I am not suggesting that it is. I am just suggesting that maybe in terms of management of reputation of the industry and individual companies it might be something worth considering.

Bernard Looney: If I could add just a comment on that, just to help you understand what is in place in the UK today in the North Sea. There are two things, both of which are legislative requirements. The first is the requirement to have a group of people offshore known as safety representatives who are volunteers. It is a legislative requirement. Their job is as much independence as anything else. In fact when I go offshore to a facility, as I do often, I meet with them independent of the management of the facility to understand if they have issues with the management of the facility—if they have issues that they want to bring to my attention. That exists today. The other thing that you'll see when you travel to an offshore installation is that people are encouraged, and there are posters around the place, to have direct access to a hotline in the Health and Safety Executive should they wish to raise concerns, and people do use that facility. So they are the things that are in place today. I am not saying it doesn't need to be enhanced further, but I just wanted to make sure that you understood what was in place in the North Sea today. Maybe it's something we need to do more of, but that is in place today.

Q126 Laura Sandys: It worried me a little bit what you said, Dr Hayward, that you had already assessed that there could not be any deepwater hydrocarbon spillage, i.e. you didn't have a response mechanism or a recovery mechanism in place. What I am concerned about, and I have seen it in operations in the caucuses to do with pipelines etc, is where there is a presumption there isn't a risk because in some ways we haven't had a disaster in relation to that risk. I think it's very, very important that we learn the lessons from Mexico, but that these aren't the only lessons that one learns. It's important that you start opening up a lot more on potential risk and that you revisit some of the risks that you have now declared are totally safe because not only are we talking about a changing globe, but you are operating in different areas. So I would very much urge the industry to look again and not to dismiss something because it's never happened or we believe that we have the technical capacity. These disasters, in my view, could start to increase around the world and not decrease due to all sorts of seismic issues.

Tony Hayward: I agree with you completely. I'm sorry if you interpreted what I said to mean that.

Q127 Laura Sandys: No, but in the past one has said either, "We have a technical solution for this so therefore it's no longer a problem", or "It hasn't happened, so therefore it's not a problem."

Tony Hayward: Like I say, I completely agree with you and I think the occurrence of black swans seems to be more often than not these days. So I think, you know, certainly at BP—I can only talk for BP of course—we are looking very carefully across our company at the low-probability, high-impact risks that we believe we've effectively mitigated to understand not just the extent of the mitigation but what is the quality of the contingency plan should the risk crystallise and you have to deal with it.

Laura Sandys: And that would be particularly interesting, obviously, in relation to the North Sea and any other future projects you have.

Q128 Sir Robert Smith: The capping technology was an impressive emergency response and a major subsea engineering feat. But is it the right lesson? Would the lesson be not to have blowout preventers that really do mitigate the risk and really do operate as a fail­safe so that you don't have to have the capping technology?

Tony Hayward: Of course it's far better to mitigate than to have to deal with it should it arise. That is of course the right approach. You have seen in our report and you've heard what I've said about the actions we've taken on blowout preventers as they exist today. I would expect that further changes will be made to blowout preventers as the industry moves forward to further insure against any failing.

Q129 Chair: Just on the blowout preventer, at page 48 of the report you identified three options as to why the blowout preventer didn't shut the well. The third one, I think, suggests that the bottomhole assembly was parched at the same place as the blowout preventer and that's why it didn't operate. Is that likely?

Tony Hayward: Let me ask Mr Bly to comment on that.

Mark Bly: Yes. This was one explanation for one of the reasons that the blind shears didn't work. What this stems back to, we know, or we strongly believe, is that during the ROV intervention activity they did take an action that managed to close the shear rams, but it did not stop the flow from the well. At the time the report was written, and still today, we could not determine the specific reason for that failure mechanism, and so these three were identified as the most likely possibilities. This is one that we may learn more about, though, as the equipment is taken out and forensically de­constructed. This is one part that there may be more information on.

Q130 Tom Greatrex: I apologise to Dr Hayward and the Committee for my late arrival. I just wanted to go back to the point you were making about people feeling under pressure. In the context of the North Sea, are you confident that health and safety reps and other people aren't experiencing that pressure when they are working for you either directly or as contractors?

Tony Hayward: I don't believe we have any evidence of it at all, but let me ask Bernard to comment.

Bernard Looney: I think people are clear in our priorities in the North Sea. I have spoken about what the priority in our business is. I have seen no evidence of that in my time in the role. It's important, obviously, first that people feel that they can stop a job if pressure happening and, secondly, that they do not feel under any pressure that they can't say something to somebody. As I say, when I go offshore, I test, and the way I test it is that I talk, independent of the management of that facility, to the people who are volunteering their time to be safety representatives. I sit down with them and these are exactly the questions that I ask them because that is at the root of a good safety culture, or the absence of it is, as you suggest, at the root of a not-so-good safety culture. I haven't seen any evidence of that and if I did I would take action because it's unacceptable.

Q131 Tom Greatrex: I suspect that I am sure, even when you are talking to people independently, they would probably have an idea of who you are and maybe perhaps their responses may be slightly different on other occasions. Going back to this point about the safety reps and the consistency—because I read, as other Committee members have read, various bits and I accept there are parts of reports from the HSE and other bodies that get amplified in the media—how do you ensure or how can you ensure that there is consistency of that approach across the whole of the company and for your contractors as well, and that that safety regime is at the heart of everything?

Tony Hayward: Well, I think the first thing is ensuring that the management walk the talk. As we discussed earlier, that is not only saying it but doing it, and that's about investing in safety. So safety has the first call on every dollar that BP invests. Before we invest in anything else, we invest in safety. It's about making certain that we have the right people with the right skills and capabilities, and then, as Bernard says, it is about creating the right environment so that people feel they can speak up and raise their hand if there is something that they are not happy about with respect to safety. We were discussing before you joined us that over the last four years we have implemented across BP a common operating management system which is designed to ensure that all of our operations are conducted to the same high standard and there is the same look and feel to the safety of those operations everywhere in the world.

Q132 Tom Greatrex: Can I just ask finally, because others wish to get in, do you operate NRB on your rigs and your installations in the North Sea—"not required back"?

Bernard Looney: Not required back. We are fully compliant with the agreement that Oil and Gas UK as a trade association has with the unions and the workforce and we have no issues with that policy. We fully support it and it's wholly in place in our operations today.

Q133 Dan Byles: You referred to the fact that you have moved these two structures to the UK, which now gives, presumably, an ad hoc capability effectively to respond should there be an incident in UK waters. How long do you think it would be before we could have confidence that the industry in the UK has a routine robust procedure and plan in place to deal promptly with a blowout in deep water in the UK?

Tony Hayward: The plan is to build that capability over the next six months initially and then to continue to review what might be appropriate over a longer time period.

Q134 Chair: Just coming above ground for a bit and moving away from the technical stuff, looking back over the last five months, are there any aspects of the public relations handling that you regret?

Tony Hayward: I think there are probably many things that I would do differently if I had the opportunity to do them again, but I think it's also important that we all understand that, given the scale of this tragedy and the enormity of the disaster, the emotion and anger in the United States was very high, and quite understandably so. Therefore it made the whole public relations area extraordinarily difficult.

Q135 Chair: Do you consider you were fairly treated by the authorities in the United States?

Tony Hayward: As I said, I think there was an enormous amount of emotion and anger and it was very understandable.

Q136 Chair: That answer suggests you think you were not fairly treated.

Tony Hayward: It was a terrible tragedy that was causing immense stress and distress to many thousands of people.

Q137 Chair: So the reaction from the Administration was proportionate to the incident?

Tony Hayward: I think the reaction was entirely understandable and I would also like to be very clear that BP had an extraordinarily constructive relationship with the Government of the United States across many different branches of government and mounted in co-operation and co-ordination with the US Government the largest spill response ever seen by probably two orders of magnitude. Others in history will be able to determine how effective that was, but it was undoubtedly the largest response of its kind ever seen and that required tremendously close co-operation between ourselves and the various arms of the US Government.

Q138 Chair: Roughly how many countries round the world does BP operate in?

Tony Hayward: In our exploration and production business, around 30.

Q139 Chair: In any of those countries apart from the United States, has the Government attempted to intervene with your dividend policy?

Tony Hayward: I think it's important to be clear that the United States Government didn't interfere with our dividend policy. Our decision to suspend the dividend was a decision taken by the board of BP at a time at the height of the crisis when our financial liabilities were very, very unclear and extreme financial prudence was warranted to preserve long­term shareholder value. It was a very painful decision for all of those who were involved in taking it. It clearly created an enormous amount of pain short term for our shareholders and pensionees, but it was taken by the board of BP in the interests of preserving the financial strength of BP and the long­term interests of the shareholder.

Q140 Chair: And the board of BP was not influenced in any way by the comments of the President or the Congress?

Tony Hayward: It was nothing to do with what the Congress said. It was all to do with looking at the liabilities that we could see coming towards us and ensuring that the company's balance sheet remained strong and robust and we were able to deal with everything that we could see coming.

Q141 Chair: Would you say in the light of that experience that there is now a degree of political risk attached to operating in the United States?

Tony Hayward: I think there is political risk attached to operating in most jurisdictions of one sort or another.

Q142 Chair: But many people would say that—I don't know—Nigeria or somewhere might be riskier than the US.

Tony Hayward: I think that is probably a fair assessment.

Q143 Chair: Even now?

Tony Hayward: Even now.

Q144 Albert Owen: Just on this point, in response to the Chair, you were careful in your response about how you've been treated by the press. Do you think you have been treated by the British press fairly? I will put it to you that only last week, when the Bly Report was produced, most of the headlines were saying that BP was abdicating its responsibility and blaming everybody else but BP. How do you respond to that?

Tony Hayward: I think the Bly Report stands on its face. It's a very factual, thorough and rigorous report. I believe it will provide the foundation for many of the subsequent inquiries, and it is what it is.

Q145 Albert Owen: But how do you respond to the headlines?

Tony Hayward: I think they are not of consequence in the matter of the report. The report stands as it is written.

Q146 Albert Owen: So you take overall responsibility—BP takes overall responsibility—for what happened in the Gulf of Mexico?

Tony Hayward: I think we've been very clear. We were a responsible party. We had an obligation to stop the spill, which we succeeded in doing. We had an obligation to clean up the oil, which we have to a large extent done. We had an obligation to remediate any environmental damage, which we will do. We had an obligation to compensate those who have been affected. But the report was not designed to apportion blame. The report was designed to identify what exactly happened, allow us to learn from it and ensure that those learnings could be rapidly applied across the rest of BP's drilling operations and, I would assert, many other drilling operations around the world.

Q147 Albert Owen: Yes, but I have a final point and I will put it to you again. From that final response I think you're saying that you were unfairly treated by the press and the way it handled it. But can you not understand the anger in the United States, which you referred to? You have drilling operations here. The British public is aghast to see what's happened out there and the fear. So do you not say that the press was fair in its response?

Tony Hayward: I really think it's not a case of fair or unfair. It's just a case of it was what it was.

Q148 Dr Whitehead: Could I take you on to UK deepwater drilling activity? I ought, for the record, to state that a family member of mine is in receipt of a BP pension.

Chair: With not much dividend.

Dr Whitehead: Well, the pension is protected, I think.

When we are talking about deepwater drilling, the popular supposition in the UK is that we are not really talking about deepwater to the same extent as we are talking about in the Gulf of Mexico. But you have experience of reasonably deepwater drilling in the west of Shetland, in the Foinaven, Clair and Schiehallion fields. What experiences have you already learnt from both exploring and drilling in those fields?

Tony Hayward: Well, I think the first thing to observe is that those fields were found in the late '90s. In fact they were found in the early '90s and developed in the late '90s. So we've been active in the west of Shetlands for 20 years with a very good safety track record, with no incidents or major accidents. Whilst the water is deeper than the rest of the North Sea, the reservoir pressures and temperatures are relatively low. So we don't have the juxtaposition of high pressure and high temperature and deep water that we were dealing with in the Macondo incident, and I think our business has been well conducted over a 20-year period there.

Q149 Dr Whitehead: Forgive me, since I'm not a scientist in that sense, but you mentioned that the pressures and the temperatures are relatively low. That, presumably, is from experience of what you have found and developed so far. Is that something you will extrapolate across all fields for the west of Shetland or is it something that is an unknown?

Tony Hayward: I think, undoubtedly, what you don't know, you don't know. So we can extrapolate within a reasonable area of the areas where we drilled. As the industry moves to ever deeper waters, there is the possibility that higher pressures and higher temperatures may be encountered. It's a possibility. It's not necessarily what you would predict from the geology, but it's a possibility.

Q150 Dr Whitehead: So you are intending, I believe, to begin deepwater drilling in the North Uist Prospect later this year. Are you proceeding with that?

Tony Hayward: I think our North Uist Prospect will not be drilled until probably 2011.

Q151 Dr Whitehead: But you will be proceeding?

Tony Hayward: Well, we haven't made a decision on that yet.

Q152 Dr Whitehead: And do you have any evidence prospectively as to the circumstances that you might find there?

Tony Hayward: Well, the water is deeper.

Q153 Dr Whitehead: It is 1,300 metres.

Tony Hayward: I will have to defer to Mr Looney on the projections of pressure and temperature.

Bernard Looney: The projections on pressure in that well are similar to the predictions that we would have for pressure in the environment in that water depth, west of Shetland, and they are about half the pressure that we experienced in a well like Macondo in the deepwater Gulf of Mexico.

Q154 Dr Whitehead: But the depth is roughly equivalent?

Bernard Looney: The depth is very similar, but the pressure is roughly half from what we expect in that well. So, as Tony said, we don't have that combination west of Shetland. The geology is different and we don't have that combination of water depth and pressure that we experience in the Gulf of Mexico.

Q155 Dr Whitehead: Of your existing wells, and indeed on your planning for the North Uist Prospect well, what would be the status of the blowout preventers on those wells? Do you employ one shear cutter or two shear cutters? What is your normal process?

Bernard Looney: We operate at the moment two mobile drilling units in the North Sea. They have one blind shear ram. What we do prior to taking on any new rig is that we go through a very comprehensive audit system where we establish the condition of the rig, the track record of the rig and the competence of the people. As Tony alluded to, we will obviously be looking very closely, as we do in our existing operations today, where we bring in a third-party company who looks at that blowout preventer and will confirm that it works as it is intended to work.

Chair: That is the Division bell. We will suspend the Committee for 10 minutes, and I just inform my colleagues that, as soon as we have a quorum, we will resume.

(Short Adjournment)

Chair: My apologies for the interruption, but we are quorate, so we will resume now and colleagues will join us.

Q156 Dr Whitehead: I think before we were rudely interrupted I was in the process of asking you about the plans for exploration and drilling in the North Uist Prospect, what your plans for shear cutters and blowout preventers were in that instance and what you have in place in existing deepwater fields.

Bernard Looney: As Tony says, we have a prospect in the deeper waters west of Shetland. We are not drilling that prospect this year. We will likely drill it next year. The types of rigs that can operate in that water depth tend to be dynamically positioned, they tend to be the newer rigs and they tend to have more than one blind shear ram. They tend sometimes to have two. But, as yet, we do not have a rig identified that we will use at this time. That is something that we will undertake over the coming weeks and months. In the rest of our operations throughout the North Sea we have standard equipment that is used throughout the industry.

I think Tony alluded to what we now do consequent on the accident in terms of how we look at blowout preventers because I think the report says that, if the blowout preventer had operated as it was designed to, as it was intended to, the consequences could have been very different, and that's why we've taken the steps to give us an additional level of assurance to what we had in place where we bring in a third party. We have done it once for our existing fleet, to say that the existing BOPs operate as intended, and that they will operate as they are designed, and, importantly, going forward, every time a BOP is retrieved, every time maintenance is carried out on that BOP or any modifications are carried out or whatever, we will ensure that there is a third party independent company on that rig at that time who will witness that work and will verify that in no way has the operability of the blowout preventer been compromised through that work or through that maintenance. I think that is a very important thing that we are doing and will do.

As Tony said, the second thing which we are doing which we believe is important is this aspect of physically testing the secondary systems. So one of the things you do in the event of an incident like this is you have a remotely operated vehicle that comes and physically connects itself to the ram to operate it. We will actually simulate that, and we do that today, on surface, with the same type of pump, the same type of pressure, to confirm that if that secondary system is needed, it will operate as we require it to. They are some of the things that Tony alluded to in his opening remarks—things that I think aren't just applicable to BP but may have more impact right across the industry.

Q157 Dr Whitehead: Would you say at least one of the lessons, it would be fair to say, that might arise from the Gulf of Mexico would be to have more than one blind shear ram?

Bernard Looney: It may. It's interesting. What we have to do, I think, and Mark's report makes it clear it is the area where there are some unknowns remaining, because the blowout preventer has just been recovered to surface. But, as I think was mentioned earlier, what is important is that we take action in the near term to ensure that the systems work as intended, because if they do they will operate and do what we expect them to do. Then, as Tony said, longer term there is no doubt, I think, that the industry will look further at the design of the BOP itself and what can be done to it to further enhance its reliability and its redundancy.

Chair: Now that everyone is back, I will just clarify that we will run through until about 5.10. We've been given a little extra time to make up for that loss. I am grateful to our witnesses for that purpose.

Q158 Albert Owen: You have dealt with some of the issues that I wanted to ask about such as the killing of the well and the lessons that you've learnt from it. But can you not understand, for lay people watching this, the sheer timescale involved? In April we have the blowout; then for a long period of time until September it isn't capped. Surely, in a multi-billion dollar industry like this, that has high-risk operations around the world, for the lay person it seems extreme that nothing temporary was done immediately to sort of temporarily to do this. It was spilling out. I know there was early action that was done that capped it for a short while. But do you not understand the frustration and anger, not just of the American Senators and Congressmen but of the people who care about the environment, that this is allowed to happen? You are now proud of the fact that the capping could be done relatively easily. But surely there should have been some foresight that an accident would happen at this depth. Again, two­thirds of the whole spillage has gone, disappeared, dispersed. The lessons to be learned you've talked about, but I find the whole thing outrageous, to be honest with you. How would you comment?

Tony Hayward: I understand why people feel the way they do, and there is no doubt that the inability of BP and the industry to intervene because it wasn't properly prepared was unacceptable. There is no doubt about that. What we did at the time that it occurred was to create a multi­pronged strategy which was around partial containment, complete containment, relief wells, and we pursued those in parallel from the very beginning, and implemented each option as we crystallised the engineering around it and the ability to intervene. The truth is that it took longer than any of us wanted it to and that was undoubtedly a consequence, that the industry was not prepared, because it believed it had mitigated the risk and did not believe that this risk was going to crystallise. That clearly was a very bad assumption, as it turned out.

Q159 Albert Owen: There wasn't any new science involved here in doing it, though, was there? It was just about putting mud down, basically. Again, the lay person would think that you would have this thing certainly within the region—if not on every rig but within the region. We are talking about an experienced area where you've got experienced companies.

Tony Hayward: There was no new science. There was a lot of new engineering, because engineering of this sort in 5,000 feet of water has never been done before. It had never been done before. In doing it, we created an enormous amount of lessons for the industry, which means that if it ever is required again—none of us ever want it to be required again—the industry's ability to intervene would be far quicker and far more effective than it was in this first instance. I don't want to defend the industry because I don't think when something like this happens it is defensible. The complacency came from the fact that we had been doing these operations for 20 years and drilled more than 5,000 wells all over the world and had had a very strong track record of no accidents. That was, in hindsight, wrong.

Q160 Albert Owen: You say you don't want to defend the industry, but the other major companies at the time immediately afterwards certainly put a lot of blame on BP and said it wouldn't have happened to them. How do you respond to that?

Tony Hayward: I think it's perhaps an understandable response given what was going on in the United States. I think the investigation makes it pretty clear that this was not an issue of the well design. It was a whole series of failures that came together to create the accident.

Q161 Laura Sandys: When it comes to BP and the way it structures its financing, you self­insure, don't you?

Tony Hayward: We do.

Q162 Laura Sandys: Picking up from Tim's point about your shareholders, in some ways they became the insurance. They became the names at the end of the day to plug your potential deficit or your potential liability. Do you think that we should be embarking on very large engineering issues without having third party insurance in the sense as a barometer of risk and as the ability to assess where issues and risk lie?

Tony Hayward: Well, the reason that BP moved to self­insure, which occurred about 20 years ago, was that we found the insurance market was not deep enough to provide us cover against some of the risks that we would want to insure. Where it was, the premiums far outweighed—we looked at a 15-year period of premiums paid versus claims made, and the premiums we were paying, because of the nature of the risks that companies like BP undertake, were such that the premiums were far greater than any claim we'd ever made. So I think there were two drivers.

Q163 Laura Sandys: But that insurance issue is a measure of risk. So if the premiums are very expensive, that is a barometer of the risks that you are taking, isn't it?

Tony Hayward: That's of course true. It is one measure of risk. There are many other measures of risk and it is also a measure of the depth of the insurance market.

Q164 Sir Robert Smith: Obviously, there is a dreadful human tragedy, with the loss of life and a devastating environmental incident as well, but also, as has been touched on, it is a great financial incident for those who depend on BP for their investments. But also those who work in BP now have the uncertainty of where BP is going. From a local angle, what are the implications for investment in the North Sea and BP's operations in the North Sea of having to meet this new liability?

Tony Hayward: There are no implications for our investment in the North Sea. We have a very significant investment programme into the North Sea—I think £12 billion over the course of the next five years—and that is not in any way impacted by our need to restore the financial strength of BP.

Q165 Chair: Did it surprise you at all that only two weeks after the explosion the President announced that the Administration took the view that BP was responsible for this?

Tony Hayward: Under the Oil Pollution Act in the United States, as the operator and leaseholder, BP is a responsible party. So it did not surprise us. It is very clear under US legislation that that was the case.

Q166 Chair: Even though your Bly Report says that the responsibility is shared with at least two other companies?

Tony Hayward: Well, we, as the operator and the leaseholder, have the responsibility to deal with the incident, cap the well, clean up the oil, and remediate the environment.

Q167 Chair: But you went on to say that BP would be paying for the costs.

Tony Hayward: As I have said, under the legislation it's very clear.

Q168 Chair: You didn't regard that comment as pre-empting due process in any way?

Tony Hayward: I didn't regard it as pre-empting due process. I think there is lots of legal process still to come which will determine exactly where the costs ultimately fall. But in the first instance it's very clear under US legislation that it was BP's responsibility to respond to this and we responded in, I believe, the most fulsome way we could have done.

Q169 Chair: Can you remember if the British Prime Minister said two weeks after Piper Alpha who would be paying for that?

Tony Hayward: I'm afraid I wasn't in the country at the time. I was working in China for BP when Piper Alpha occurred.

Q170 Dr Lee: Can I move on to the use of dispersant during the spill response. Can I first just quote from a BP document released June 19—the "Dispersant Background and Frequently Asked Questions" document: "Our initial tests show that when we apply dispersants underwater at the well site, we can use much smaller amounts of dispersant than we would need at the surface, and achieve the similar results. They also show we can show dispersants underwater in good or bad weather, day or night, when other methods of containment can't be used." I emphasise: "That kind of information might be helpful to other companies in the future." Would you agree that that statement has got a rather glib quality to it?

Tony Hayward: Well—

Dr Lee: I say that because it just appears to suggest that the Gulf of Mexico is now being treated as a vast laboratory experiment on the environmental impact of a deepsea oil spill.

Tony Hayward: Clearly this is about how you interpret that statement. That was not what was intended. There are some important facts which are facts. What we found through the application of dispersants in the subsea environment was that the volume of dispersant you had to apply was much smaller than you needed to apply at the surface to achieve the same effect. The reason for that was that the oil and dispersant were travelling through a mile of water and mixing very effectively as they went through that water, something rather like a washing machine.

No one knows today the environmental impact of this. There is lots of speculation, but we have a very substantial science programme in place measuring the water column and the marine fauna and flora in an enormous amount of detail to determine what, if any, environmental impact there has been from the application of dispersants. I think it's fair to say that time and science will determine precisely what, if any, environmental impact there has been.

Q171 Dr Lee: Your Oil Spill Response Plan contains a section discussing the permission process for the use of dispersant. Dispersants are specifically designed to work at the interface of air and water and I can't see any reference to it being used at depth in your plan. What was the process whereby you made the decision and you got permission to use the dispersant in that way when, as you have just declared, you had no idea what the environmental impact would be? Ecotoxicology studies were not done, but if you are spraying it at that sort of level, that sort of pressure, you can get a substance formed and you don't know whether that's going to float to the top, float to the middle or stay at the bottom. There are a lot of unknowns here. I am pleased to hear that there is a science operation in play, but where are you going to start looking? It's impossible to predict where this substance is. How are you going to deal with that unknown as to where to look?

Tony Hayward: I think it's very important to recognise that the dispersant was approved by the US Environmental Protection Agency. Every application of it, be it on the surface or in the subsea, was approved by the EPA.

Q172 Dr Lee: But on what basis, because we haven't done it before? If I inject a drug into a patient I  need to have some evidence that I know what it's going to do. Looking at it from a layman's view—I am no expert—you are essentially saying, "We're going to try this but we don't actually know what's going to happen and we don't know what the long­term consequences are" which has issues for BP and other companies with regards to liabilities. I am just wondering how the US authorities made that judgment.

Tony Hayward: I think it was a belief that it was going to be more effective applied at depth. It was a theory. It turned out that, indeed, that was true: that the volume of dispersant applied to create the same effect of physical dispersion was significantly less when applied at the source than applied on the surface.

Q173 Dr Lee: Presumably you couldn't have created those circumstances in the laboratory. So I guess that was just a bit of a punt. Was it a scientific punt?

Tony Hayward: It was a scientific theory which was applied and proven to be accurate actually.

Q174 Dr Lee: All right. Do you have any sense of what the medium/longer term environmental consequences are going to be? I bring that over to the UK continental shelf. It's a totally different environment, but presumably if the same thing happened you would attempt the same thing. In view of the fact that somebody has come up with the science about what it might do at source, do we have any sense as to what it might—

Tony Hayward: I don't want to project or predict the outcome of the science programme. The only thing I can tell you is about the data that has been collected so far. So on the data that has been collected so far, there is no evidence of dispersants or oil entering the food chain. There has been a very extensive programme of sampling of marine fauna and flora and there has been no evidence of it entering the food chain. There has been no evidence since 20 July of any oil or any dispersants being retained in the water column. There was for a period during the spill, but since 20 July all of the sampling that has been taken across the water column at various depths has not identified any residual oil or dispersants in the water column.

Q175 Dr Lee: I have one final question. In view of all this, and it does strike me as an ongoing experiment here, as someone who wants a vibrant successful British oil industry—I declare that—it surprises me that there's no environmental representative from BP here today. Am I to be concerned by that?

Tony Hayward: I don't think so. I think we have a fairly significant environmental capability that, frankly, will be enhanced as a consequence of this, because there are lots of lessons here. There are lessons in this accident across many dimensions. One of them is the area that you are referring to—the application of dispersant, its effectiveness in mitigating an oil spill and its impact on the environment. A lot of good science will come out of it. I believe strongly that we should allow time and science to determine exactly what the consequences are. All I can say is, to date, what I have described to you.

Q176 Chair: Do you think it is inevitable there's going to be much more deepwater drilling now?

Tony Hayward: Today the world produces and consumes about 85 million barrels a day. If you look forward over the next two decades, that number is going to rise to somewhere between 90 and 100 million barrels a day, which doesn't sound like a big increment but of course there is significant natural decline. So if you go out 20 years, the world is required to fill 50 million barrels a day of daily production over the next 20 years and there is no doubt that deepwater will provide an important part of that. Today, global deepwater is 5 million barrels a day and it is projected to rise to 10 million barrels a day by 2020. So 10% of global supply and demand is satisfied by deepwater oil production.

I think if you look at the UK there is perhaps a more interesting and pertinent point. The UK imports close to 30% of its domestic gas from Norway, and 65% of that gas is produced in deep water. So in the UK today we are dependent. Somewhere between 17 and 20% of our domestic gas supplies are from the deep waters of Norway. So I believe that the deepwater provinces of the world will be a very important source of oil and gas supply as the world makes a transition to a more diversified energy mix. But it's a transition that will take, as I think we all appreciate, several decades.

Q177 Chair: How does the energy return on investment for deepwater oil compare with other resources?

Tony Hayward: It depends very much on the fiscal regime that is prevalent in the basin where you are exploring, and, frankly, it's driven more by the fiscal regime than it is by the water depths.

Q178 Chair: But I was referring really to the energy consumed in recovering the oil.

Tony Hayward: The energy consumed in recovering the oil is not materially greater than that consumed in onshore fields, particularly mature oilfields onshore where you have to put a lot more energy in to get the incremental barrel out, whereas in the deep water we are typically producing fresh new fields where there is a lot of energy in the reservoir.

Q179 Chair: Is it the case that under your leadership BP has cut its investment in low­carbon technologies?

Tony Hayward: That's not actually the case. We've increased our investment in low­carbon technology, but we've focused it. So we've focused it into four areas. We've focused it into wind, into solar, into biofuels and carbon capture and sequestration. We've been investing in excess of $1 billion a year for each of the last three years, significantly more than anyone else in the industry and significantly more than we were four years ago.

Q180 Chair: And is that increase likely to continue? Is it going to be sustained?

Tony Hayward: Of course that's not for me to say now, Chairman, but I believe it's very likely that the investment in alternative energy will continue to expand. It's something that BP believes in, but we also believe that it needs to be commercial.

Q181 Sir Robert Smith: I know we have laboured this point. To the layman the idea that if you had a double shear ram, especially if it was more than a joint width apart so that whatever was holding up the one we've mentioned, prompts the question, how easy is it to adapt these blowout preventers to have a different configuration of bands if that does look like being the right thing?

Tony Hayward: I think it's fair to say that adaptation is not terribly easy. It would require fairly significant re-engineering of the entire blowout preventer. I do think it's important to keep coming back to this. If it had functioned as designed, there would not have been the accident.

Q182 Tom Greatrex: If I may turn very briefly to the regulatory regime, I wonder, given your recent experience and your previous experience, do you think it is safer to operate in a regime where the offshore licensing that was with DECC, and the safety regulation that's with HSE, is a better and a safer way to operate than having it under one agency, like the MMS or an equivalent?

Tony Hayward: I think saying one is better than the other is probably not appropriate. They are clearly different. I think the separation of duties between safety oversight and licence granting has clearly been very beneficial in the UK and it is of course something that the United States has now decided to do. It is one of the early changes that was made to the MMS following this accident.

Q183 Tom Greatrex: You have decided to do it because it's safer or because that helps give out added confidence?

Tony Hayward: I think it allows much clearer separation of duty and much greater ability to focus on one specific area.

Q184 Albert Owen: Just going back to the environmental impact and your response to Dr Lee, which I found astonishing really, you say we've got to wait and learn from this. We've got experience with spillages around the world, of tankers in particular, and I know the scale is completely different. We are talking here about some 5 million barrels. But surely we can take something from the previous data. And is it linked to the fact that there is a moratorium in the United States now for deep drilling? The Norwegians haven't issued any new licences. Do you think that they will need to assess the environmental impact in case of a blowout before new licences? Shouldn't the industry now be saying, "We've got these safety mechanisms in place to limit that environmental impact?" I am just astonished that the industry—and I presume you are speaking on behalf of the industry and not just BP there—will learn lessons from this when surely we should have learnt lessons from tanker spillages and the environmental impact that they've had.

Tony Hayward: Of course we have. I wasn't implying that lessons hadn't been learnt. But this was the first spill in 5,000 feet of water. It's the first time we'd had to deal with it.

Q185 Albert Owen: But you know it's going to have a devastating impact on the environment.

Tony Hayward: I would prefer to let time and science determine exactly that. It just isn't clear today. I don't want to make a projection as to what the environmental impact will be.

Q186 Albert Owen: Well, there are dead animals, dead birds and various things as a consequence of this, and the coastline has been impacted. The worry is—and, like Dr Lee, I want to support the British Oil Industry—there are fears of this environmental impact on our coastline.

Tony Hayward: I think I was trying to say that the first thing is to take the lessons learnt to ensure that this risk is mitigated so that it can't recur. Those are the actions that we've talked about around blowout preventers, drilling operations, safety. The second thing is to put in place the ability to respond far more effectively than BP was able to in the Gulf of Mexico because, as you quite rightly observed, we weren't prepared. I think with those two things you can have confidence that, in the event that something like this did happen, the environmental impact would be significantly mitigated.

Q187 Chair: Is there anything else you and your colleagues would like to tell us before we close the session?

Tony Hayward: I think the only thing I would like to say is that I would like to thank the Committee for the discussion this afternoon. I would like to thank, again, the Government for their support throughout this crisis and to say that BP remains very committed to oil and gas exploration, development and production in the North Sea, and we intend to make absolutely certain that all of the lessons that we've learnt from the Gulf of Mexico in all of the dimensions that we've discussed today are fully applied to everything that we do in the UK.

Chair: Thank you very much for your time. We will be producing our Report reasonably quickly and no doubt much of what you have told us will be incorporated in one form or another.

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