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


Examination of Witnesses (Questions 227-267

Mr Roland Festor, Mr Richard Cohagan, Mr Brent Cheshire

  Chair: Good morning and welcome. Would you like to just introduce yourselves briefly, please?

Mr Festor: Good morning. I'm Roland Festor, the Managing Director of Total. Macondo happened six months ago, but it's never too late to express some sympathy with all the people who had problems because of it. I would just like to start by saying that we will be totally open and ready to help you as much as we can in what you are trying to do. Total has now been working in the UK for more than 40 years. We are one of the big operators here in this country, producing between 10% and 20% of the production in this country. We are mainly gas producers, and I think we have always professionally done our job in this country. Of course, we have to recognise that Macondo happened and we have done all we could to understand what happened, why it happened and we have tried to take all required actions to benefit from the lessons learned. This is what we have tried to do in the past month and we are continuing to improve our operation.

Mr Cohagan: I'm Rick Cohagan with Chevron. I'm pleased to be here today. I think, as most of you know we're currently drilling an exploration well in deep water West of Shetland. It's 160 miles north of Shetland. The well was spudded about four weeks ago and we have gone through a very enhanced level of scrutiny by the regulators. You might be interested to know that we are making good progress on the well. In fact, we're running riser and the BOP as we speak. I also want to let you know that there is quite a bit of technical information that may come out today. If there is some follow-up that we need to do with some of our technical experts to answer more detailed questions we're happy to do that.

Mr Cheshire: My name is Brent Cheshire. I'm the UK Country Chairman for DONG Energy in the UK and Managing Director of their exploration and production operations in the UK.

Q227 Chair: Would you like to tell us what challenges there are in drilling in the West of Shetland?

Mr Festor: Drilling similar exploration wells West of Shetland, we have discovered some gas reservoirs during many years, not big enough to make a project out of them. We have then worked in the frame of a taskforce under the leadership of DECC by grouping all the operators working West of Shetland to try to work out something that could create the conditions to make the project economical both for the companies and for the country. During that process, we made a discovery called Tormore. Laggan plus Tormore was judged big enough under the frame of the conditions prevailing here in this country to make a project.

In March 2010, we got field development approval from DECC and we have decided to develop the first gas production development West of Shetland, which you all know. It is called Laggan-Tormore and is in 600 metres of water. We have now signed most of the contracts and not later than tomorrow we are going to sign the contract for a gas plant to be built on the Shetland area onshore. In the meantime, we continue to undertake exploration. Normally, if everything works well, we hope to start producing gas West of Shetland in 2014.

Q228 Chair: Mr Cohagan, I was really trying to tease out what kind of difficulties might be encountered.

Mr Cohagan: There are quite a number of difficulties, most of it around metocean and weather conditions. There's no question also that West of Shetland is still a relatively unexplored area. There are areas where we have found production and we're currently producing, but there are still large areas where we still have not explored yet. That's one of the things we're doing now with the well we're drilling north of the Shetlands. We do experience weather and bad ocean conditions that make it difficult to get people and supplies out there. Normally, we do get enough break in the weather to do that, but we have to take that into consideration. Also, when we're drilling, we will get conditions in the oceans, heaves and waves, where we will have to shut down drilling because of the operation we're doing at the time. In fact, on the well we're drilling right now, in the last two weeks we've been down for about eight days just waiting on weather. But that's something we expect and take into account and we continue to tell our people who are working offshore on these wells, "If you have any doub, shut it down and make sure it's safe, because we want to make sure that we drill this well right".

Q229 Chair: Have you changed in any way since the Deepwater Horizon incident?

Mr Cohagan: I don't believe that we have fundamentally changed in any way. We have gone back and looked at the design of our well and tested it against the information that came out from the Bly Report, the report that BP did, and the Salazar recommendations that came out. We also went back and looked at our well design, the procedures and the processes against those recommendations. We wanted to make sure that everything we were doing was correct. There were a few things that we strengthened, just to make sure everything was in place that we needed. But we have found, overall, that most of the design and the processes we use are very robust and they fit very well with the recommendations that have been coming out of the Gulf of Mexico.

Q230 Chair: How did the worst case scenario in the environmental statement you submitted in March compare with what happened in Macondo?

Mr Cohagan: We did go back and we looked at the worst oil spill condition we might have. When we went in and we looked at the pour pressures, the pressures down-hole in the well, and we looked at what seismic has shown us might be the producing interval, we calculated what the largest spill rate could be. We came up with a very large spill rate in that condition of about 77,000 barrels a day, which is more than Macondo. We've looked at that to test it and say, "What would we do in those cases?" We tested our spill response plans against that. Again, the one thing I'll point out is that, although that is a worst case, this is an exploration well. So there's a one in 10 chance of it being a success, which means nine out of 10 times it won't be a success. In those times that it is a success, it probably will be smaller than what we have modelled as a worst case, but we do try to look at that to make sure we know what we're getting into.

Q231 Laura Sandys: I just wondered whether you felt that the $250,000 limit for the Offshore Pollution Liability Association programme is going to be adequate when you talk about the spillage that you could predict might happen in West of Shetland?

Mr Cohagan: Obviously, as a very large company, we're going to stand behind whatever happens out there. The $250 million OPOL limit per incident is kind of what the industry has said; that's what we will make sure is that we have as a stopgap. But I think Chevron, like most large companies, understands that if we have a large spill we're going to need to stand behind that. As a large company, we have a global corporate insurance package which covers all of the various issues we might get into around liability. Like most companies, we benchmark that against others. We also look at what self-insurance limits we need to have. Because we are a large company, those are fairly high but we do feel like we have the necessary insurance, the necessary backing, should anything happen.

Q232 Laura Sandys: Just to clarify, you self-insure or you are insured by third parties?

Mr Cohagan: It's a package and there are some parts of it that have self-insurance elements and there are parts of it that have third party.

Q233 Laura Sandys: One of the concerns that we discussed with our last panel members is the fact that if you have multiple operators, you would spend more time, in many ways, creating litigation issues between each other than coming to a settlement with the community or the United Kingdom; depending on who should be the beneficiary.

Mr Cohagan: I think, similar to what you saw in Macondo, you get to a point where what you have to do is take care of your responsibilities, first and foremost, and then try to sort out the various impacts of that between the partners. But we also know, as an industry—and I think that's one reason we're spending so much time as an industry, whether it's through OSPRAG, whether it's through OGP or whether it's the work going on in the US—that the actions of one of us and any problems that one of us might have reflects on all of us. Therefore, we all have to do the right thing and make sure that we're putting the right processes and procedures in place so we don't have these spills in the first place. We're spending a lot of time trying to get it right.

Q234 Sir Robert Smith: One of the earlier witnesses talked about how, when you're managing systems offshore, the profit motive is driving the manager. But, in a sense, isn't the consequence of a safety failure even more expensive than ignoring the safety risk?

Mr Cohagan: Absolutely, and that's one thing that we spend a lot of time on—not only with our own people but with the contractors who work for us. We talk to them all the time about stopping work if they see anything that might be an indication that there's something wrong. I've brought a card that I'll be happy to leave. This is our stop work authority card. When we go out to talk to our crews offshore, when we have turnarounds where we shut down work on our platforms to talk, I go to those meetings where we bring all the contractors in to talk about the work. We hand these cards out—it's got my name, my signature here—it says, "Not only do you have the duty but you have responsibility, if you see anything going wrong, to stop the work." I tell the folks, "If anyone gives you any problems, you call me because this is what I want you to do and this is why we're giving it to you". You are absolutely right, if we have any issue offshore and we have a problem, the impact of that is normally far worse than any kind of lost productivity from slowing down a little bit.

Mr Festor: I would like to comment a little bit on what Rick said. When I was a young engineer, my first job was working in the North Sea 30 years ago. I never heard my boss talking one day about safety. It was not a concern. I came back 30 years after and I discovered that here in the UKCS—before Piper Alpha and after Piper Alpha—it's another world. And also in the meantime I have been working on all the continents in several subsidiaries of Total. I've never seen one place where the safety is of priority as it is here. In all that we do with the work force, in the communication with the work force, in our procedures I can guarantee you that safety here is concern number one.

Mr Walker from HSE was here before. He is not always making our life easy, but he is my big support because I am the Managing Director of Total here in the North Sea and, okay, when they come and they inspect and tell us, "You should do this, this, this and this", for me as Managing Director it's a major help.

Q235 Dr Whitehead: All operators are required to have an OPEP—oil pollution emergency plan. What changes have you made in your OPEPs since the Deepwater incident and its gravity became apparent?

Mr Cohagan: With our OPEP, as I mentioned earlier, we went back and we first looked do we have the right size spill model, because we saw from Macondo what could happen in a large spill. We then went back and said what are the resources that we have to call upon. I think, based on what we saw in the Gulf of Mexico, we saw that there were cases where sometimes OPEPs or different plans that were being used in response to spills weren't as strong as they needed to be. We tried to make them strong, but we found some gaps after Macondo and we said, "We'd better make sure we have the necessary facts and figures and that we have thoroughly looked at it", and that's what we've done with the OPEP. We've gone back and we've looked at it in terms of those situations that we've seen in the US, as well as our own situation here, and we've tried to make sure that they were modelled correctly and that we had the right information in them and that we could use them in the case of the response to take care of any size spill that we might have.

Q236 Dr Whitehead: Is it fair to say, however, that the fact that you have revisited OPEPs and had a look at worst-case scenarios indicates that the industry as a whole had not placed those worst-case scenarios into its OPEPs before Deepwater Horizon? Why do you think that was?

Mr Cohagan: I think Deepwater Horizon gave us a new perspective on how bad things could be. I think any time you have an incident, whether it's something like the Deepwater Horizon—Roland referred earlier to Piper Alpha—you get a new perspective and you think, "How bad could some of these things be if we actually had them?" I think that always causes us to think about it and adjust our thinking and that's what we need to be doing. We need to take all these learnings and make sure we get them implemented into the things we're doing. It's not unlike what's going on with OSPRAG right now or some of the work that OGP is doing. As we're getting information in, whether it's the Bly Report or any other reports that will be coming to us in the near future from the Gulf of Mexico, we're going to take that information and we're going to say, "What do we need to modify or change? What can we learn from this and how do we implement it?" So I think it is back to the situation we have with the regulatory regime in the UK. It is goal-setting; it is non-prescriptive, which means we have to continually demonstrate that we're doing everything we can to keep our risk as low as reasonably practical and make sure we're working that new information and any new best practices and learnings that we get into our plans.

Q237 Dr Whitehead: Has part of that learning process been looking at the question of the power and availability of remote operating vehicles? One of the issues in Macondo was that those vehicles were either not available and, when they were, they didn't appear to sufficiently powered for the tasks that faced them. Is that an issue West of Shetland or is it something that you think is already well covered?

Mr Cohagan: I can tell you from the work that we've done on the well that we're currently drilling, we've taken all the lessons from Macondo and we've looked at what we need to do to modify it. When we were getting ready to run our BOP yesterday, we had the ROV operators as well as the BOP manufacturer, Cameron, on site talking about if there is a problem what do we need to do with the ROVs to make sure they can access the BOP subsea if there was an issue like they had at Macondo. So we feel like we've tested everything. We've looked at everything on the ROV as well as the other equipment to ensure that we won't see those kind of issues.

Q238 Dr Whitehead: Mr Cohagan, you've given, I think, an impression that, as it were, all bases are covered. That might be a description of what you have said this morning. Is that the view of everybody on the panel?

Mr Cheshire: I think from our point of view you produce an OPEP when you're operating a well or about to drill a well. At the moment, we're not operating a well, so that is not something that we're working on at the moment. But through the OSPRAG analysis that's been done on this, that will be accommodated when we do drill our next well. Also we're revisiting the last operated well that we drilled, Glenlivet, last year. We will take that information and rerun our OPEP in the light of that and see what we could have done differently, what will be done differently next time. So we're fully aware of that.

In terms of all bases being covered, I agree with the other comment that was made earlier about the risks of not doing that being so high that we are, as an industry, checking things through extremely thoroughly, more vigorously than ever. Every eventuality—can we imagine what that might be? Possibly not, but we're modelling every scenario and we, as a partner of both Chevron and Total, are also, with extreme rigour now watching what they're doing to make sure that our interests are covered as well and we've been very satisfied to date.

Q239 Sir Robert Smith: If you're drilling a gas well, what kind of pollution concerns would you have compared with drilling a mixed well or an oil well?

Mr Festor: Laggan-Tormore is going to be gas production. So the problem of having a blowout is not very much different than what you have when you drill an oil well. But in case you have one, the treatment is completely different because you would not have a spill of the type you had on Macondo. You would have gas bubbling through the seawater and you would have, of course, what we do not like: greenhouse gas emissions. But the problem of treating a spill would not exist because these kinds of wells are producing very little liquid, very light liquids, which would evaporate very quickly in the conditions of West of Shetland. So for Laggan-Tormore, it's not so much a concern. The concern would be: how can we close the well. To come back to the fundamentals, Macondo has fundamentally nothing to do with Deepwater. The real problem is a problem of well control, so somewhere the operator has lost the control of the well. This can happen on an onshore well. On any well you drill, if you are not careful, this can happen. The best we can do is prevention. And prevention is the capability to be sure you have barriers avoiding what happened in Macondo. You come back to the fundamentals of drilling. You have two barriers, one is mud and one is the BOP, and I think the big lesson for all of us is to come back to fundamentals: make sure at any moment we have the two barriers; make sure we have the competent people understanding what is happening with your well; make sure your BOP is working. It's something we all know in our industry but, okay, we have been reminded how important it is to permanently have two barriers working. If one is not working you are in a downgraded situation and you have to find a second barrier. Whatever the type of wells, for me these are the fundamentals and we are completely mobilised—and I am sure my colleagues are also—in our procedures, in our operation. Everywhere we have a well, we have those two barriers.

Q240 Dr Lee: Moving on to the prevention is better than cure line, Mr Cohagan, you mentioned the Bly report. Were you surprised that a proper root cause analysis was omitted from that report?

Mr Cohagan: I think the Bly report is the first report that we're going to be seeing. There's going to be a number of other reports that are going to be coming out from the incident in the Gulf of Mexico. I think that the Bly report has given us some information that we didn't have before that we can now take and look at and say, "Do we have all the proper actions that we can learn from that report, implemented into the wells and the way we do things?" I think you will eventually get to the point where you will see more information around what happened, different perspectives. You may eventually get a root cause analysis type of report coming out.

Q241 Dr Lee: Do you think it's already taking place?

Mr Cohagan: I'm sorry?

Dr Lee: Do you think they've already done it, just not published it?

Mr Cohagan: I haven't heard specifically that it will be done. I know that was a question that was asked of BP and I think that they were trying to get information out on this and sometimes the root cause analysis can take quite a bit of time to make sure you get to the bottom line. If you really want to do a thorough root cause analysis, it is a very time-consuming process.

Q242 Dr Lee: It has been suggested to me that there was an absence of anybody on the well who had the responsibility to switch it off. With regards to your own, does that person exist on every well 24 hours a day, 365 days of the year?

Mr Cohagan: When we drill a well, we—

Dr Lee: You have your card. What I mean is, is there somebody who can say, "Right, we're stopping now"? Is there someone present on the spot in West of Shetland now who has the authority to switch it off?

Mr Cohagan: We have people on the well at all times that have that ability. We have our drill site manager and the ones that we have drilling on our well right now have over 25 years' experience. They know that their fundamental job/duty is to monitor that well and, if anything looks like it could go wrong, to shut it down. So we do have that on all the wells that we drill.

Q243 Dr Lee: Moving on to the response plans, it is well known and I've asked many questions about it. I've had access to the one at Macondo. May I ask a question about how you go about getting a response plan? Is this a third party company? Is this a company that Chevron or Total or BP pays somebody to provide them with a plan? Is that what happens or is it in-house?

Mr Cohagan: I guess I would say it's a mutual working that goes on. We do have people from the outside that help us. We also have our own internal people that are involved with it. So we work it both ways.

Q244 Dr Lee: So in terms of liability, if there are errors in those plans that then contribute towards a poor response, shall we say; where does the liability rest?

Mr Cohagan: We feel that the responsibility rests with us.

Q245 Dr Lee: Specifically with regards to dispersant usage, infamously being used subsea in Macondo without any apparent evidence for its efficacy—certainly not in the public domain—would you countenance doing the same thing yourself if you had a spill?

Mr Cohagan: I think if we had a severe spill that was of the magnitude that the Macondo spill was, we would bring to bear everything we could and, if we thought subsea dispersant would be something that would be a positive attribute to help disperse it, we would bring that forward. I will say though—and it has probably already been pointed out—in West of Shetland, with the wave and the wind action, there is a much more physical break­up of any oil spill that would occur, relative to a place like the Gulf of Mexico. That would have a positive effect. You have the negative effect of colder water but the positive of more aggressive wave action.

Q246 Dr Lee: Have you had discussions with relevant authorities here that that would be your intention? Have you said that to the agencies we've just spoken to?

Mr Cohagan: I think that in our oil spill emergency plan, we've identified that as a possibility. I don't think we have actually said that's what we would do. I think we would be looking at it on a case-by-case basis. I will say that with the work being done by OSPRAG with looking at a capping stack if there's a problem, the work that BP has done in bringing over two containment caps in case there's a problem, there will be the ability to apply dispersant down-hole if that is something that people decide is the right response to it.

Q247 Dr Lee: Just one final question on a broader issue. Is there anybody on the boards of Chevron and Total who have an environmental consultancy background?

Mr Festor: In Shetland, we are drilling gas wells fundamentally. So we have not had so much concern in respect of the consequences of big oil spills because, with what we have to manage today, as I said before, we would not be in the situation where we could have to face this kind of spill.

Q248 Dr Lee: So that's a "no", yes?

Mr Festor: Sorry?

  Dr Lee: That's a "no", is it?

Mr Cohagan: I will say, from the Chevron side that I'm not aware of anyone on the board but I'd have to check that.

Q249 Dr Lee: Because it's interesting that we have Chevron, Total, BP—most of the oil industry, the big ones—and not one board member has an environmental consultancy background. I just wonder whether, in view of the facts—you have made reference to the huge costs of a spill—that might be something that the oil industry reflects upon.

Mr Festor: I think from the OSPRAG process, the industry has really mobilised all together to implement solutions in case something happened. As Rick said, we have been working a lot on the capping system. We are also working a lot on the response in case there is a spill. Clearly, we have to recognise we were not as ready as maybe we should have been for all these kinds of questions. But I must say—and this is really something I discovered in this country—the industry has strongly mobilised, very quickly, less than a few weeks after Macondo happened. We were all together—all the operators, the coastguards, the OSV teams, the Department of Energy and Climate Change—and we have worked out a work programme. We are working on it. Of course, we are not able to give answers a few weeks or even a few months after, but what I can guarantee is that we do all we can to get the adequate knowledge to minimise consequences in case something like this happens. Again, for me, as I said before, prevention is the attitude No. 1 we have to demonstrate.

Q250 Christopher Pincher: I think you've all mentioned the Bly report and that you've read it carefully. The Bly report says that the responsibility for the disaster lies with multiple companies and work teams and indeed, when Mr Hayward came before this Committee I think last month, he said, "I think the investigation makes it pretty clear that this was not an issue of well design; it was a whole series of failures that came together". I think Transocean would take a somewhat contra view and probably Halliburton as well. I wonder, given that there seems to be some disagreement about the conclusions of the Bly report, do you think it is appropriate that the Department for Energy and Climate Change uses that report as a basis for assessing new licences, particularly licences for deepwater drilling West of Shetland?

Mr Cohagan: I think the Department of Energy and Climate Change should use all reports that come out and look at the information contained in all of it because I think there's always information from those reports that can be helpful. We have taken the Bly report and we've looked at each of the recommendations and we've compared that to what we're doing on the well that we're currently drilling—in fact, I brought a copy of that report, if the Committee would like to have it; we can leave it—and how it addresses it. I think we all have read through it. We probably all have opinions on whether everything in the report really gets to the root cause of the accident but I think we're going to continue to need to look at other reports that come out.   Building on what Roland said, I will say that we are also of the opinion that if you have the right processes, the right procedures and the right well design and you do those things, you should never get to the point where you're having an issue with a spill. I think that's something that has been reinforced with the work that we've done in comparing what the recommendations were in the Bly report with what we're doing on the well that we're currently drilling.

Q251 Christopher Pincher: What is your analysis of the Bly report? Do you think that the design of the well played a part in the blowout at Macondo?

Mr Cohagan: I will say this. BP was designing the well so that they could use it as a producing well and that's one reason that they had a long string in the well. Most exploration wells that we drill—in fact all the recent exploration wells that I'm familiar with—we drill them as wells that will not be used. We will drill them, get the information and then plug them. Because of that, we use a different design in these wells. We tend to use more liners where we have larger physical barriers and multiple physical barriers from the producing formation to the surface.

  The design that BP had has been used successfully in a lot of wells worldwide. So I'm not saying that the design was at fault. All I'm saying is that the way we design wells, it is different. They used nitrified cement on it. We would not use that when we get into wells of this depth because of fear that the nitrogen might break out and you wouldn't have a good cement job. I think this is part of the technical issues around it that—

Q252 Christopher Pincher: Can I ask why there are technical differences between what you would do and what BP does? Surely there must be one view based upon geological formations, depth of well, that should be followed rather than different companies taking their own view of what's appropriate.

Mr Cohagan: I think what all companies do when they get ready to drill a well, they look at the conditions that they're drilling in, they look at what do they have—as far as whether it's water depth or the geologic formation—and, depending on what the conditions dictate, they try to design the right well for their conditions. In the case here, I think BP was trying to design the right well for their conditions. It's back when we look at it, we've said our design would be different.

Q253 Albert Owen: Can I push you on that? What Dr Hayward said to this Committee was that there was a whole series of failures that came together and what was alarming—and I paraphrase—is that the industry wasn't prepared for this at that time. Mr Festor, you said basically, it's all down to how we prepare for it and then you go on to contradict yourself and say, "But we learn from disasters." Is this a disaster then or is it prevention? I'm a little confused. With regards to the Gulf of Mexico, you're saying Chevron would have done things differently. Isn't the flip side to that BP did it wrong?

Mr Cohagan: Let me say we've seen one report that has come out from BP; the Bly report, and we've looked at that and we've tried to analyse that and we've tried to look at how we're drilling our well versus that report. There are going to be other reports that will be coming out that will have other information, so it's very difficult right now to guess at all the things that might be surrounding the reasons for the accident.

Q254 Albert Owen: I understand the sensitivity of different reports but my understanding is—correct me if I'm wrong—that your company and other companies, when they went in front of the American Senate and Congress, basically said it wouldn't happen to them. That was what we took from that. Therefore, did the industry have serious faults that are now being rectified when it comes to deep drilling?

Mr Cohagan: I believe what our company said is we would have designed the well differently and, with the design that we have for our well, we don't think we would have seen the problems that Macondo saw.

Mr Festor: I can just confirm what Rick said. The Macondo well, if it has to go through the technical references of Total, the design would have been different. It's a high-pressure well. We would have drilled top of the reservoir, set the casing and then set the liner for the reservoir. Secondly, we would not have used the type of cement BP has used, which was quite a very big surprise for us when we saw the type of cement used. I do not know what the organisation of BP is but cement has always been a top technical, important point in our organisation. In Aberdeen, I have three cement engineers and I have one cement specialist on each of our platforms. I do not know if that is the case of BP, but it has been quite a surprise for us that they used this kind of nitrogen form cement in front of a high pressure reservoir.

  The next point is that we would never have considered that the cement in the shoe trap of a well is a barrier. So there are several points that we do not know why but that should not have been in the design if we had had to design this well with our organisation. Now, I have worked with BP several times in my life. It is a reasonable and good company but, okay, this happened. Why, I do not know, and we are also waiting. We saw the Bly report. We would like to see the Transocean report and we would like to see the Halliburton report before having a final comment on why Macondo happened.

Q255 Chair: Do you have a comment, Mr Cheshire?

Mr Cheshire: We don't operate outside of Europe, so familiarity with the Gulf of Mexico is not something, from a company point of view, that we have. In terms of our procedures and design, given where we operate, that would not be the way that we would design a well. But that's driven largely by the geological conditions and the subsurface pressures and temperatures that we encounter particularly in the West of Shetland. What I would also say—and I think it's very important—is that when we design a well, we also have the independent well examiner; we have our own procedures; we have an independent peer review within our own company of specialist drilling engineers to check our design by the people who've done it; we have the independent well examiner and then we have the HSE. I'm confident that that well design would not have got through that procedure in the UK system.

Q256 Albert Owen: One final point, if I may, Chair. Do you think the whole licence regime will now change as a consequence of what happened in the Gulf of Mexico?

Mr Cohagan: The licence regime here or in the Gulf of Mexico?

Albert Owen: Both. Will we learn from that and will it change there and will we learn from it here?

Mr Cohagan: Based on what I'm hearing, it sounds like there is a high probability that the regime is changing in the US and will continue to change as they try to learn from this and implement. I think the fact that the UK regulatory and licensing system is being referenced over there to a great degree is, "Here is where you have had success of not having issues", and I think they are looking at that to say, "How much do we want to follow along with what places like the UK and Europe are doing?" As far as here is concerned, I think—again, it has been alluded to earlier—that the regulatory agencies here are always looking to what they can learn from it and if they think they need to modify and change, I think they will. Having said that, it is a very robust regime here that has worked extremely well and I think most of what we are seeing is other people trying to copy what is going on here. So I think if there are changes, I hope everyone will be able to have that discussion and make sure the changes are for the benefit of the industry and the public to make sure that we do the right thing there.

Q257 Albert Owen: Do you agree, Mr Festor?

Mr Festor: I fully agree with what Rick said. The approach we have in this country, which is a risk-based approach, requires us to concentrate on what we do. So if we are doing something, we have to demonstrate that what is being done brings the risk to a minimum, so you concentrate on what you do. When you have a regulation—very prescriptive, telling you that you have to do this—you have a tendency just to do this, but you are not completely sure that it is the best for the problem that you have. This is the big difference here between what I have seen anywhere else. Again what I said at the beginning, HSE is not making our life easy every day but they are of great help and each time they go offshore they bring confidence to me as managing director.

Q258 Sir Robert Smith: Can I just ask on the well design—it has come up before in other evidence sessions, I mean obviously you should have batteries that work in a blowout preventer and you should test your blowout preventer—would there have been any benefit in having a second set of line shear rams or is that something that you ever do in your designs?

Mr Festor: What you need is to have shear rams which shear and which work. If you have one or two what you need is to be sure that you have a system that works, and here in the UK it is mandatory to test your BOP every two weeks. So we test the BOP every two weeks. Function: does it open-close, open-close and then under pressure. So we put pressure from the kill line and we check all our rams every two weeks. Of course we do not shear every two weeks because this is just almost noticeable, but we check if the BOP we use is able to shear before we use it. So there are two ways to do that. You have document certifications giving you the guarantee that the BOP is able to shear or, if not—it is one of the lessons learned for us from Macondo—before we start drilling we will shear.

Mr Cohagan: We also are looking at this whole issue around the BOP and redundancy, through not only OSPRAG but also OGP and the work they're doing as well as what's going on in the States. I think the thing that we are going to have to look at when we start asking those questions—the BOPs are very large pieces of iron. Some of the BOPs that we are using offshore are three storeys in height. So adding an additional line shear is not something that you do quickly. You have to look at it and make sure you understand exactly what it would be doing. The BOPs that were used at Macondo, as well as the ones that are used here, they've served the industry well for thousands and thousands of wells. We have successfully drilled them with the BOPs, but that's not to say we can't learn and we can't also improve on it and I think that's something that's going to be looked at. We just need to do it in a way that takes into account the risk and whether there is anything that you're doing that might hurt you if you add redundancy to it.

Mr Cheshire: I think that's our analysis as well. Realistically, you have to plan for the wells on a well-by-well basis what is the most appropriate risk. As Rick has just said, if you make something ever bigger it imposes extra loads on the subsurface when you're putting the casing in, when you're actually running these things. These huge pieces of equipment have to be handled on the rigs and so on. So it is possible, if it's not the appropriate piece of equipment for the specific well and it's just an extra comfort level in fact, that you are taking more risks with individuals handling these at the surface and the HSE impact of that. So it is something that needs to be thought through very carefully and, as an industry, this is exactly what we're looking at, at the moment.

Q259 Sir Robert Smith: But testing and making sure it actually works is the fairly obvious thing that goes on here that should be going on.

Mr Cheshire: Yes.

Mr Cohagan: And we do. We spend quite a bit of time trying to do exactly that. We were bringing the Stena Carron, the drill ship that's currently drilling our exploration well—it had drilled here in West of Shetland for three wells. We then sent it to Canada to drill two wells. When it was coming back, the BOP was tested before we ran it. We pressure tested it again. We're function testing every seven days on this well and we're pressure testing every 14 to 21 days trying to make sure. Then, in addition, we've gone back to the BOP manufacturer and we've done bench tests to make sure that it can shear when it's required to. But you're right, all those things have to be checked and checked thoroughly because they are complicated pieces of equipment.

Q260 Dan Byles: I'm fascinated by this discussion about the difference in well design and I'm particularly interested to know how the local regulatory regime impacts on well design. We're familiar with the differences between the UK regulatory regime and the US regulatory regime. Mr Cheshire, I'm very interested in your suggestion that the Macondo well design would not have passed UK muster. I'm curious to know whether the rest of the panel agree with that analysis. Do you think that the Macondo well design would have been approved here in the UK under our regulatory regime?

Mr Cohagan: Again, I don't know if I know enough about all the details. I've seen the one report, the Bly report, so it's a little bit difficult for me to respond. Probably some of our technical experts would be in a better place to respond to that. I will say that with the technical reviews that go on, not only similar to probably Total and DONG, Chevron also has a complex well group in Houston that does nothing but look at these wells that are very complicated to say, "Is the design the correct design for the area?"

Q261 Dan Byles: I am particularly interested in the impact of the local regulatory regime on the well design, because we seem to be coming up with a picture here of different companies having a different approach to well design, but only Mr Cheshire has mentioned the impact of the regulatory regime on that well design.

Mr Cheshire: Just to clarify what I actually said was that, given the geological conditions that we have and the areas that we work in, this sort of well design would not be appropriate for what has been done in the West of Shetland. But I think and what I understand from the Bly report is that there were changes to the programme and so on that would have been addressed by the well examiner and things may have been done in a slightly different way. So, as I understand it, our process—the different levels of control before you can change things or make changes to design—that is something that our system would address.

Q262 Dan Byles: We have had more than one witness tell us it probably couldn't have happened here, that our regulatory regime is different. People have suggested it is better. I am just really curious about this, because most of your companies operate all around the world and I am very curious to know just how much well design varies from regulatory regime to regulatory regime; not necessarily as a result of the geographical differences but as a result of what you are and are not allowed to do. Would you say that you apply higher standards in countries where the regulatory regime demands it than you do in countries where it doesn't, for example?

Mr Festor: Thanks to the help of my drilling manager sitting behind me, he is just giving me the answer to it. The standards of designing a well are much tighter here in the UK than in the US. One very fundamental difference is that when you design the casing programme of a well in the UK, you have to assume that the well is closed at the top and is full of gas, which means that the pressure that is just below the well head is much higher than what is used in the US where you consider that half of the well is full of liquid and that the remainder is full of gas. So it is a little bit technical but when you have a column of gas the remaining pressure at the top is much higher than when it is liquid, because the weight of liquid is compensating. So in the case of the UK, it is a well full of gas which is taken in consideration to define the load that is applied on the casings. So it is a part answer to what you are asking. The standards are much more difficult here in the UK than in the US.

Mr Cohagan: May I just add that Chevron, as a company, does not have a different standard depending on where we're operating? Now, there are regulatory requirements that sometimes necessitate doing things different but what we do when we look at a well, whether we drill it here or whether we drill it anywhere else in the world, we apply the same standards to that well to make sure it is drilled properly.

Mr Festor: Which is also the case for Total, used worldwide.

Mr Cheshire: And indeed DONG Energy. We have a standard well design which is driven from our experts in Copenhagen and that approach is taken throughout so we have one standard across all our operations. First and foremost, our well design has to pass our own internal examination and peer review process and every well we design as a project, that has five clear stages where we have independent examiners from our own company who come in and check that design and make sure it meets those standards that have been set across the company.

Q263 Albert Owen: You have touched on most of the questions that I wanted to ask, but I will just ask a general question. We hear that Norway has suspended licences. What would the implication and the impact be on the UK if there was a ban, a moratorium, on licences?

Mr Cheshire: Can I answer that first of all? I have spoken to my Norwegian colleagues and Norway is one of the main areas that we operate. In fact, there was no moratorium. What was stated by the Norwegian energy minister was that when he came to announce the licensing round, he wanted to fully understand the implications from the Deepwater Horizon incident, but that round was announced almost exactly on time as it would have been without that, and also the drilling has continued. I believe there are a number of wells that are going on at the moment that are being drilled.

Q264 Albert Owen: Are there any new ones that have been given a licence at this moment in time?

Mr Cheshire: The licensing process is ongoing at the moment. So, as we do, there is a routine time when they will be issued and that is the process that is continuing. That process has not been stopped. From DONG Energy's point of view, I think we focus entirely on the West of Shetland in the UK. If there was a moratorium, what we have seen and I think my colleagues have mentioned it, is that there is only a limited amount of equipment available that is of sufficient quality and standards to operate in this area. In addition, we try and operate at the best time of the year. When we don't and it is in the winter, things take a lot longer. What we would see is there would be a very significant delay on the ability to deliver projects—that has a very significant financial impact—and also on the ability to get the information. The knock-on effect would be quite dramatic and I think, from our point of view, it would certainly make some of the projects that we were looking at look a lot less attractive than if we lost one or two years because of that ability to have the equipment available and to be able to drill in the right weather window.

Mr Cohagan: The same answer for us. I think that, when you look at the remaining resource in the UK, there are still 20 billion barrels possibly to find. A large part of that will be West of Shetland and if you did get to the point where you said there was going to be a moratorium for a period of time, I think that would have very much of an effect on the industry. When we are drilling the well that we are currently drilling, we have to contract for drill ships years in advance. We have to pay for the drill ships whether they are working or not. We have to find places for them to work. If we can't drill here it would be necessary for us to find some place in the world where they could be used.

Mr Festor: Economic problems, of course, but we have to be coherent and say that safety comes before economics. But for me where it would really be counterproductive is the risk of losing the competent people because what we need is competent people and here in the UK we have very good people. But if we stopped drilling, there are plenty of places in the world where they would be welcome and if they went, to bring them back would be a very big challenge. I think it would be really very counterproductive if there was a moratorium on drilling. Honestly, I do not understand the moratorium on licences, because, okay, you don't give new licences but you continue drilling on existing licences. I do not really understand it. For me, the important thing is to keep the know-how in the country—the people who know the North Sea, who know how our operation is being run—and make sure that they do not go for somewhere else.

Q265 Dan Byles: It is interesting you touching on that. Would you say that there would be an impact on UK's energy security? You referred to 20 billion more barrels potentially out there to be found. If we were to say that UK deepwater oil and gas drilling is too difficult, too dangerous or too expensive and we are not sure we want to be doing it, what sort of impact do you think that would have on energy security for the UK? Is that the sort of thing that you, as commercial companies, look at or is that the politicians' problem?

Mr Cheshire: I think, if I can answer that, from a DONG Energy point of view, we are in the full energy chain. We're a power generator, power from coal and from gas. We're also the world's largest offshore wind farm installer and operator, so we've got a lot of experience about the energy balance. What I would say is our analysis, on a European basis, leads us to believe—and this is why we are focused on gas in the West of Shetland—that that gas from the West of Shetland is incredibly important, and not only for the UK's energy security. Our major shareholder is the Danish Government. The Danish Government's view is that energy security is extremely important as well and that indigenous-sourced gas is an extremely important part of that, not least because the more windmills you build, the more gas fired power stations we need to cope with the intermittency of supply. When the wind doesn't blow, we need to be able to generate the electricity from flexible, modern, relatively green power stations—much greener than coal-fired power stations—which means new gas-fired power plants. So our own company point of view is that it is very important to have that indigenous supply to be able to literally support the move towards the green energy from wind power.

Q266 Dan Byles: Obviously you are commercial companies and you don't necessarily have to worry about UK energy security. Is it a consideration that your board will ever look at, the energy security of the countries you operate in?

Mr Cohagan: We look at it all the time and we like to have a balance. If you get to the point where some areas of the world are closed off it makes it more difficult to achieve that balance. So it is extremely important to us and that's one reason we have such a large operation, not only in the UK but also in Europe, and we have a lot of people working on trying to increase the supply here in the UK for that very reason.

Q267 Dan Byles: Do you think there is an opportunity cost of chasing ever-deeper oil and gas when perhaps that money could have been used to invest in research in alternative energy sources?

Mr Cohagan: I think there is a place for both. I can speak for Chevron. We're looking over the next three years in investing $2.3 billion in renewables and energy efficiency. So for us it's not either/or, it's that we have got to have both. It's important. Even for the foreseeable future, oil and gas are going to continue to be an important part of the energy mix, even as more and more renewables come on. I think it's something where you have to have all sources of the energy in order to get us to where we need to be to supply the world with energy.

Mr Festor: We are totally in line with what my colleague from Chevron said. But you must have realised that I am French and, being French, we look at the UK and we are very jealous of the fossil oil and gas you have in your country. When you look as an engineer at numbers: yes, we need oil, gas and renewables. We need, very strongly, oil, gas and renewables. In your country, if you look at the numbers, we have already produced 40 billion equivalent barrels of oil and gas and we see remaining potential—numbers can change a lot if you are pessimistic or optimistic, but there remains 20, 25 maybe 30. So it is a huge asset you have in this country, a fantastic asset, and I think we cannot avoid continuing exploring in this country and we at Total think it is an interesting country to work. There is a strong supply chain, there is a strong and competent workforce. And so that is the reason we are here and we have never invested as much as these days in this country.

Chair: We do not often hear such praise from a Frenchman, and we are very grateful to you, Mr Festor. I think we are running out of time now. Thank you very much. It has been a very helpful session from our point of view and I am very grateful to all three of you. If we have any further points obviously we will come back to you as well.



 
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