Wall Street Journal
October 29, 2010
http://online.wsj.com/article/SB10001424052702304879604575582623355582234.html
29, 2010, 5:11 P.M. ET.
Cement Mixture Used for BP Well Never Had Final Test
By BEN CASSELMAN
Halliburton Co. never fully tested the cement that was supposed to seal explosive natural gas out of the doomed oil well in the Gulf of Mexico, the company said late Thursday.
But the company continued to blame the well’s owner, BP PLC, for causing the explosion that killed 11 workers aboard the Deepwater Horizon drilling rig, and said for the first time that BP had changed the cement formula shortly before it was used at the well. BP declined to comment Friday.
Federal investigators believe the failure of the cement was a key cause of the April 20 explosion aboard the rig, which set off the worst offshore oil spill in U.S. history.
On Thursday, investigators said Halliburton, the biggest cement contractor in the world, went ahead with the cement job despite tests indicating it might fail.
The investigators, working on behalf of the presidential commission probing the Gulf disaster, said the cement failed three of Halliburton’s own tests and only passed the fourth after Halliburton changed the testing procedure.
In response, Halliburton, in a statement issued late Thursday evening, said its first two tests, performed in February, were irrelevant because they used a different cement formula and were done before the conditions at the bottom of the well were known.
The third test, from April, was performed incorrectly, Halliburton said, and BP was informed of the problem. The fourth test, which followed the proper procedure, indicated that the cement would form a good seal, the company said.
But Halliburton’s statement introduced a new twist: After the fourth test, Halliburton said, BP ordered further changes to the cement mixture. Halliburton never tested the final formula to see if it would be stable.
Halliburton wouldn’t comment on why a final test wasn’t performed.
In its internal investigation into the disaster, BP criticized Halliburton for not performing “all relevant lab tests on the final cement” formula before it was used, but also conceded that BP’s own engineers apparently never confirmed the tests had been done.
Halliburton said its contract with BP protects it from liability. Halliburton also criticized BP for not running tests after pumping the cement to make sure it had formed a good seal.
Stephen Power contributed to this article.
Write to Ben Casselman at ben.casselman@wsj.com
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OCTOBER 29, 2010, 2:03 P.M. ET.
Contractor Accused Of Flawed Job on Rig
Halliburton Shares Hit by Panel Report.
By BEN CASSELMAN And SIOBHAN HUGHES
Halliburton Co. found repeated problems with the cement it was planning to install in BP PLC’s doomed oil well but used it anywayperhaps without alerting BPaccording to federal investigators studying the Gulf of Mexico disaster.
The cement was supposed to seal the well and prevent explosive natural gas from flowing in. Why the seal failed has been a central question in the April 20 explosion of the Deepwater Horizon drilling rig, which killed 11 workers and set off the worst offshore oil spill in U.S. history.
The investigators’ findings brought new scrutiny to Halliburton, which until now has escaped most of the blame for the disaster. Halliburton’s stock price tumbled 8% on the news, closing at $31.68 on the New York Stock Exchange, despite the company’s assurance that it was indemnified by BP for damages. Friday afternoon, the shares rose 16 cents to $31.84.
BP declined to comment Thursday.
Halliburton late Thursday questioned the investigators’ cement tests, saying discrepancies between those results and the company’s “may be due to differences in the cement materials tested.”
The company said in a statement that the federal commission tested off-the-shelf cement and additives, whereas Halliburton tested the unique blend of cement and additives that existed on the rig at the time its tests were conducted. It added it has been unable to provide the commission with cement, additives and water from the rig because it is subject to a federal court preservation order, although the materials will soon be released to the Marine Board of Investigation.
Halliburton previously blamed BP for failing to heed its advice on the design of the well and failing to do all the necessary tests, while BP has said that Halliburton’s cement mixture itself was to blame.
Investigators cautioned that their findings don’t let BP off the hook, noting that cement failures are relatively common. It is up to the well’s ownerBP, in the case of this well, called Macondoto test the cement and fix any problems, they noted.
“The story of the blowout does not turn solely on the quality of the Macondo cement job,” investigators wrote in a letter to members of the presidential commission probing the disaster.
Other seals and valves higher up the well also should have stopped the flow of explosive natural gas. Workers from BP and Transocean Ltd., which owned the rig, failed to detect gas entering the well, and misinterpreted a key test that should have revealed problems. Another important test was never done.
By the time the workers realized something had gone wrong, gas had already risen past the blowout preventer, the huge stack of valves meant to shut down a well in an emergency. And the valves didn’t work after the initial explosion, allowing oil to pour into the Gulf.
The investigators’ letter provided new evidence that the cement, which included additives and nitrogen, may have been faulty. Halliburton performed four tests on the cement mixture it planned to use in the months before the blowout. The cement failed the first three tests, and only passed the fourth after engineers changed the testing procedure, commission staff members wrote. Halliburton made minor changes to the cement formula after the second failed test, investigators said. They also said the third test may have been performed incorrectly.
It isn’t clear what BP knew about the tests. Halliburton provided the results of an early test, along with other information, in a March 8 email to BP.
But according to the commission, “There is no indication that Halliburton highlighted to BP the significance” of the results. The results of the other three tests were apparently never reported to BP. The commission also asked engineers from Chevron Corp. to try to recreate the cement mixture used on the well. When they did so, they couldn’t get a good seal.
Those results “strongly suggest” that the cement mixture was unstable, the investigators wrote. Halliburton and perhaps BP “should have considered redesigning the [cement mixture] before pumping it at the Macondo well,” investigators wrote.
Robert Mackenzie, an energy analyst with FBR Capital Markets and a former oil industry cementing engineer, noted that Halliburton’s final test apparently showed that the cement would work. He said it isn’t unusual for engineers to tweak a formula several times to find one that satisfies them.
In September, Halliburton’s vice president of cementing, Thomas Roth, told a National Academy of Engineering panel that “all of the design work, all of the testing work that was done by Halliburton in advance of this job indicated that the foam system was stable.”
Halliburton’s contract makes it unlikely that Halliburton will face much liability for the disaster, said Matthew Conlan, an analyst for Wells Fargo Securities. But the latest revelations could hurt Halliburton’s reputation, he added. “The integrity of their product is being questioned and the integrity of their advice is being questioned.”
BP could benefit if investigators determine that Halliburton’s cement design was faulty, experts said.
Under federal pollution laws, BP will face much higher penalties if it is found to have been “grossly negligent” in the spill. Such a finding is less likely if several different companies share the blame.
Halliburton has long denied responsibility, saying BP ignored its warnings that the cement job would likely fail if BP didn’t use more “centralizers,” devices that keep steel pipe centered in the hole to ensure the even distribution of cement. Halliburton also said BP broke with industry best practices by failing to clean out the well fully before pumping cement and by failing to test the cement after the job was completed.
As the investigation has developed, however, Halliburton’s version of events has drawn more scrutiny. In testimony before a different federal panel, Halliburton engineers acknowledged that they never warned the well could blow out if the centralizers weren’t used and that they never explicitly recommended that the cement test be run.
Write to Ben Casselman at ben.casselman@wsj.com and Siobhan Hughes at siobhan.hughes@dowjones.com
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http://blogs.wsj.com/deals/2010/10/29/is-tony-hayward-temasek-bound/
October 29, 2010, 1:06 PM ET
.Does BP’s Tony Hayward Have a New Job?.
Mark Cobley, of Financial News, reports:
Tony Hayward, the former chief executive of BP, has received a fair share of brickbats over his response to the oil-spill disaster in the Gulf of Mexico.
So, is he still in demand? Well, according to Mark Kleinman, City editor of Sky News, Hayward is “in talks” to join Temasek, the Singaporean sovereign-wealth fund, in an advisory role.
Kleinman has written on his blog that the move would be to the advisory panel of Temasek. Kleinman, citing people close to the talks, cautioned that it isn’t a done deal and that talks are at a “delicate stage.” Sky News is part-owned by News Corp., the parent company of Financial News and The Wall Street Journal, publisher of this blog.
Temasek declined to comment this morning. BP, where Hayward remains a board member, also declined to comment.
If the move does go ahead, it would be the latest step in the internationalization of the organization. Hayward wouldn’t be the only individual on Temasek’s panel who could advise the $137.4 billion fund on a bit of crisis management. Other familiar faces on the panel include:
* Chuck Prince, the former chief executive of Citigroup and early casualty of the credit crisis after stepping down in late 2007 following CDO-related losses at the bank;
* William McDonough, the respected former New York Fed governor and chairman of the Public Company Accounting Oversight Board, the US’ “auditors’ auditor”;
* David Bonderman, the billionaire chairman of TPG Capital.
As for the organization itself, its day-to-day staff are increasingly international. According to its latest annual report, 36% of its 380 employees come from overseas. In 2005 that was just 18%.
One of these new international employees is Greg Curl, who retired from Bank of America in March. He was brought in over the summer to oversee “Temasek’s interests in financial services and supporting its engagement in the Americas”.
The internationalization has had its bumps. Chip Goodyear, the former chief executive of mining group BHP Billiton, was installed as Temasek’s first-ever foreign-born chief, and successor to Ho Ching, wife of the country’s prime minister, in February, but by July, he and Temasek management had come to a “mutual agreement” not to proceed with the succession.
Special thanks to Richard Charter