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Commentary By Robert Bryce

The Top Kill: "It will surprise no one if it doesn't work"

BP and many other people watching the blowout in the Gulf of Mexico are desperately hoping that the company’s current effort to kill the well by pumping heavy mud into it will finally stanch the flow of oil.

But late Wednesday, an executive with decades of experience in the deepwater offshore told me "It will surprise no one if it doesn’t work." The executive, who asked that his name and that of his company not be used, said the entire Deepwater Horizon disaster could easily have been prevented. The blowout, he said was caused by “very poor operating practices.” He went on, saying that criticisms of the offshore industry, and in particular claims that the industry doesn’t have the right technologies to operate in such water depths, are simply not true. The blowout, he said was caused by “a combination of poor operating practices, and they all came together on a bad day, and BP will pay dearly for that.”

The executive said that a series of mistakes by the drilling crew and BP’s company man on the rig led to a situation where they did not maintain a positive pressure barrier on the well. That failure to maintain pressure led directly to the blowout.

Looking to the future, the executive believes that drilling will eventually be allowed to continue in the Gulf of Mexico because the US simply cannot ignore the vast hydrocarbon resources that are available in the region. In fact, the executive expects some positive outcomes from the disaster. The most important thing said the executive is that the offshore industry “will be safer. The operating practices that caused this to happen shouldn’t have been allowed to happen and they will never happen again.”

While the offshore industry will be made safer, he says that it will also have to contend with dramatically higher costs, particularly when it comes to insurance. “It will cost more money,” to drill in the Gulf. But remember, he said “these are already $150 million or $200 million wells�Insurance costs will go up from $2 million to $5million per well. That’s not fatal. The regulatory hurdles will be increased.” But he said, “We can live with that.”

Getting insurance coverage will be particularly important going forward. Given the acrimony among the three companies involved in the Deepwater Horizon disaster — BP, Transocean, and Halliburton — the executive said that insurers will no longer provide insurance on a given well that covers all the entities involved in the project. Instead, each company working on a given well will be forced to get its own coverage. “More people are going to the insurance market to get coverage. And at same time the insurance industry is saying there’s not as much capacity available.”

The executive said that available coverage limits are unlikely to exceed $1 billion. And thus, any regulatory efforts that could seek to require insurance in excess of that would, in effect, restrict the ability to drill offshore to a handful of supermajors, like Exxon Mobil, Shell, and BP, as those would be the only companies that could, in effect, provide self-insurance in the case of a major accident like the one that hit the Deepwater Horizon.

But insurance discussions are for another day. Right now, everyone is hoping the top kill works.

This piece originally appeared in Energy Tribune

This piece originally appeared in Energy Tribune