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 waters11 deaths on Deepwater Horizonand
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 industryfrom 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 interventionthe
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 systemsthe testerroneously
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 understandwhen 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 doneand I am sure everyone in the industry
has done the sameas 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 formulaseverything 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 youto 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 didand drilling
goes back probably 25 to 30 yearsis 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 managementand possibly
risk assessmentissues. 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 businessis,
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 caughtthat 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 minutesI think
it was up to 40 minutesdo 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 domaybe 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 thatat 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 interestpeople
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 facilityif 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 BPI can
only talk for BP of coursewe 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 consistencybecause 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
mediahow 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 thatI don't knowNigeria
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 responsibilityBP takes overall responsibilityfor
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 remarksthings 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 regionif 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 againnone of us ever
want it to be required againthe 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 outweighedwe
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 SeaI
think £12 billion over the course of the next five yearsand
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
19the "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
viewI am no expertyou 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 industryI declare thatit
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 tothe 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 industryand
I presume you are speaking on behalf of the industry and
not just BP therewill 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 isand, like Dr Lee, I want to support the
British Oil Industrythere 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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