Spill Panel says Management Culture to Blame

Associated Press

It wasn't just the botched technical decisions. BP and other companies' management, communication and overconfidence in dealing with risk led to the Gulf of Mexico oil spill, investigators for the presidential commission said Tuesday.

The commission's chief engineer, Richard Sears, outlined seven managerial findings, including muddled lines of authority and a compounding cascade of small problems that ultimately caused 11 people to die and millions of gallons of oil to spill.

"This is something that built over hours if not days, weeks, months. The companies involved each had data. They were each responsible for operations, and if data had been shared differently and operations had been carried out differently, I believe this disaster could have been prevented," Sears said. "And for whatever reason...it didn't happen that way, and it's sad."

Investigators, experts and panel members said Tuesday BP too often operated on the fly in the closing days of work on its doomed Gulf oil well, adding needless risk of a blowout.

They said the company was hurried and made confusing, last-minute changes to plans that were unusual in the complex environment of deep water. They said BP could have operated more safely if the company took the time to get the necessary equipment and materials.

"We are aware of what appeared to be a rush to completion," commission co-chairman William K. Reilly said. What is unclear, he said, is what drove people to determine they could not wait for equipment and materials to perform operations more safely.

Lawyers investigating the April 20 disaster for the commission said they would examine a series of steps where decisions saved time or money and could have increased risks. But the panel's chief counsel, Fred H. Bartlit Jr. repeated that there was no evidence that anyone involved in drilling the well consciously chose cost cutting over safety.

The panel's leaders made clear Tuesday that the findings in sum exposed a lack of safety culture on the rig, with Reilly blasting all three companies — BP, Halliburton Co. and Transocean — as "laggards" in the industry and in "need of top-to-bottom reform."

The reforms suggested by the commission included improving communication between the operating company, in this case BP, and its contractors.

"It was confusing to us as to where responsibilities lay," Sears said.

The panel's investigative team also said there needed to be clearer procedures for closing a well.

"There didn't seem to be a lot of rigor as to how these end-of-well operations were managed," said Sears, a 30-year veteran of Shell who led the technical aspects of the investigation. "This is fundamentally dangerous."

Much of the scrutiny focused on the BP's plan to temporarily plug the well, which investigators with the presidential commission say added to the risk of a blowout. Plugging the well is a procedure used to seal it off until the company comes back to produce oil and gas. BP says its actions are common throughout the industry, but numerous experts suggested otherwise Tuesday.

Several questioned BP's use of a single plug in the process. Charlie Williams, a chief scientist with Shell Energy Resources Inc., said the company used a minimum of three plugs in its deep water wells.

BP also chose to fill the well with seawater, rather than heavy drilling mud, leaving it vulnerable to an upsurge of oil and gas — a condition that is not allowed for exploratory wells drilled in other places, experts said. The company also chose not to use mechanical plugs, devices put inside the pipe that also can block oil and gas.

Many of the decisions would have required additional time and materials, said Steve Lewis, an advanced drilling technology engineer with Seldovia Marine Services who reviewed BP's drilling plans, federal permits and communications on behalf of the commission.

"I know there was pressure on these people to get done and move on," Lewis said. "The apparent shuffling and scrambling was not really necessary."

Halliburton: Panel Says Firms Knew of Cement Flaws Before Spill

NY Times

Halliburton officials knew weeks before the fatal explosion of the BP well in the Gulf of Mexico that the cement mixture they planned to use to seal the bottom of the well was unstable but still went ahead with the job, the presidential commission investigating the accident said on Thursday.

In the first official finding of responsibility for the blowout, which killed 11 workers and led to the biggest offshore oil spill in American history, the commission staff determined that Halliburton had conducted three laboratory tests that indicated that the cement mixture did not meet industry standards.

The result of at least one of those tests was given on March 8 to BP, which failed to act upon it, the panel’s lead investigator, Fred H. Bartlit Jr., said in a letter delivered to the commissioners on Thursday. “There is no indication that Halliburton highlighted to BP the significance of the foam stability data or that BP personnel raised any questions about it,” Mr. Bartlit said in his report.

Another Halliburton cement test, carried out about a week before the blowout of the well on April 20, also found the mixture to be unstable, meaning it was unlikely to set properly in the well, but those findings were never sent to BP, Mr. Bartlit found after reviewing previously undisclosed documents.

Although Mr. Bartlit did not specifically identify the cement failure as the sole or even primary cause of the blowout, he made clear in his letter that if the cement had done its job and kept the highly pressurized oil and gas out of the well bore, there would have been no accident.

“We have known for some time that the cement used to secure the production casing and isolate the hydrocarbon zone at the bottom of the Macondo well must have failed in some manner,” he said in his letter to the seven members of the presidential commission. “The cement should have prevented hydrocarbons from entering the well.”

The failure of the cement set off a complex and ultimately deadly cascade of events as oil and gas exploded upward from the 18,000-foot-deep well. The blowout preventer, which sits on the ocean floor atop a well and is supposed to contain a well bore breach, also failed.

In an internal investigation, BP identified the faulty cement job as one of the main factors contributing to the accident and blamed Halliburton, the cementing contractor on the Macondo well, as the responsible party. Halliburton has said repeatedly in public testimony that it tested and used a proper cement formula and that BP’s flawed well design and poor operations caused the disaster.

Jesse Gagliano, a Halliburton technical adviser, told federal investigators in Houston in August that the company was confident of the cement job and said that BP’s decision to use six well-stabilizing devices known as centralizers contributed to the failure of the cement work.

Another Halliburton official, Thomas Roth, told a National Academy of Engineering panel last month that Halliburton’s cement met industry standards and that it had been successfully used at more than 1,000 other wells. Mr. Roth said BP ignored “multiple red flags” in the drilling and completion of the well.

The Deepwater Horizon drilling rig was operated by a third company, Transocean.

Cathy Mann, a Halliburton spokeswoman, said the company was reviewing the panel’s findings. A BP spokesman said the company would have no comment.

Halliburton, a major oil field services company and one of the nation’s largest defense contractors, was once led by former Vice President Dick Cheney. Mr. Bartlit’s law firm, Bartlit Beck Herman Palenchar & Scott, has done legal work for Halliburton in the past but has not represented the company since 2005, the firm said.

The commission obtained from Halliburton samples of the same cement recipe used on the failed well, including the same proportion of nitrogen used as a leavening agent and a number of chemicals used to stabilize the mixture. The slurry was sent to a laboratory owned by Chevron for independent testing.

Chevron conducted nine separate stability tests intended to reproduce conditions at the BP well and the cement failed them all, the staff report said.

“Although laboratory foam stability tests cannot replicate field conditions perfectly,” Mr. Bartlit’s letter said, “these data strongly suggest that the foam cement used at Macondo was unstable.”

One and a half gallons of the actual mixture used on the doomed BP well survived and are being held as evidence in criminal and civil investigations.

Shortly before technicians began pumping cement slurry down the well on April 19, Halliburton conducted one last test of the mixture. The Texas concrete contractors changed some of the conditions of the test and appeared satisfied with the result, although those findings were not communicated to BP until after the well explosion, the commission found.

The commission concluded, “Halliburton may not have had — and BP did not have — the results of that test before the evening of April 19, meaning that the cement job may have been pumped without any lab results indicating that the foam cement slurry would be stable.”

Further, the panel found, “Halliburton and BP both had results in March showing that a very similar foam slurry design to the one actually pumped at the Macondo well would be unstable, but neither acted upon that data.”

The commission, appointed by President Obama in May, is led by Bob Graham, the former senator and governor of Florida, and William K. Reilly, a former administrator of the Environmental Protection Agency. The commission is scheduled to present its interim findings on Nov. 8-9 and its final report to the president in mid-January. It released this report early, it said, because other wells may be planning to use similarly flawed cement.

Mr. Bartlit, who conducted a much-praised investigation of the 1988 Piper Alpha blowout in the North Sea off Britain that killed 167 workers, said the flawed cement was not the whole story. Many human and mechanical failures combined to create the disaster, he said, and backup procedures were skipped or ignored.

“Because it may be anticipated that a particular cement job may be faulty, the oil industry has developed tests, such as the negative pressure test and cement evaluation logs, to identify cementing failures,” he wrote. “It has also developed methods to remedy deficient cement jobs. BP and/or Transocean personnel misinterpreted or chose not to conduct such tests at the Macondo well.”

In its investigation, BP said that on the morning of April 20, its concrete construction team decided not to conduct a cement evaluation log. It said that in relying on other types of assessments, the team ignored BP’s own guidelines.

BP CEO Shakes Up Management

The Wall Street Journal

 

Acting to restore BP PLC's reputation in the wake of the Gulf of Mexico oil spill, incoming Chief Executive Robert Dudley unveiled big changes designed to improve safety and announced the departure of the senior executive who oversaw drilling operations.

Two days before officially taking over as CEO, Mr. Dudley also said Wednesday that he will split BP's exploration-and-production division into three parts and order a review of how the company manages third-party contractors.

The overhaul creates a safety unit that will have sweeping powers to challenge management decisions if it considers them too risky. It will be headed by Mark Bly, currently BP's top safety executive and author of the company's inquiry into the Deepwater Horizon disaster.

BP also will review how it rewards its managers, following criticism that employees have incentives to increase earnings and boost production but not to improve safety. Some U.S. legislators have said the gulf spill happened because BP cut corners on safety, which BP denies.

The moves show how Mr. Dudley plans to resuscitate BP after it plunged into the worst crisis in its 102-year history. The London-based company has lost more than a third of its stock-market value since April 20, when one of its gulf wells blew out, destroying the Deepwater Horizon drilling rig, killing 11 men and triggering the worst offshore oil spill in U.S. history. BP finally killed the well earlier this month.

The restructuring moves mark the "first and most urgent steps" in a plan to rebuild trust in BP, Mr. Dudley said in a written statement. The changes are in areas "where I believe we most clearly need to act, with safety and risk management our most urgent priority."

"BP realizes it has to change," said Peter Hitchens, an oil analyst at Panmure Gordon. "Another disaster like this and it will be stripped of its U.S. operations and may even go bankrupt."

The restructuring is one of the most far-reaching in BP's recent history. But BP critics on the Gulf Coast and Capitol Hill have pointed to similar promises to improve safety after the blast at its Texas City refinery in 2005, which killed 15 people and injured 170. Departing CEO Tony Hayward took charge two years later promising to focus "like a laser" on safety. Yet the new procedures he put in place failed to prevent the Deepwater Horizon disaster.

The main casualty of the latest restructuring is Andy Inglis, head of BP's exploration-and-production arm and essentially the company's No. 2 executive. He was close to Mr. Hayward, who announced in July he was stepping down in the wake of criticism over BP's handling of the spill.

Mr. Inglis's departure was seen as inevitable by people in the industry, since he oversaw drilling operations in the gulf. BP said that "by mutual agreement," he would step down from the board Oct. 31 and quit the company at year-end.

The restructuring creates a division on safety and operational risk that will embed its staff in BP's operating units. Directly accountable to Mr. Bly, the division's staff will be responsible for ensuring that BP's activities are executed to common standards.

"If they find something that's not in line with those standards, they can go straight to Mark Bly who has the operational authority to stop it," a spokesman said. BP says such procedures would have prevented the Deepwater Horizon accident because safety specialists would have been able to veto the decisions taken on the rig that combined to cause the disaster.

"This has to be a positive development, but it needs to be properly supported in terms of management focus, manpower and the allocation of resources," said Nigel Bowker, a former BP safety manager who now runs Blackhall Consulting, which advises the oil industry.

BP's exploration-and-production, or upstream, division will be split into exploration, development and production, with each function run by a senior executive reporting directly to Mr. Dudley. BP's upstream operations until now have had a single boss, currently Mr. Inglis, who was a member of the board, had wide powers and was often seen as the heir apparent to the CEO. Both Mr. Hayward and his predecessor, John Browne, were former upstream chiefs.

"E&P was just too large to be managed by one person," the BP spokesman said. "The changes give the CEO a much clearer line of sight across the piece."

BP's review of third-party contractors follows Mr. Bly's report into the gulf accident. The company accepted some responsibility but also laid substantial blame on its contractors: Halliburton Co., which did the cement job on the well, and Transocean Ltd., which owned and operated the Deepwater Horizon rig.

Station Owners Divided over Scrapping the BP Brand

USA Today

 

BP gas station owners across America are divided over whether the oil giant stained by its handling of the Gulf spill should rebrand U.S. outlets as Amoco or another name as part of its effort to repair the company's badly damaged reputation.

Some who have seen their sales plunge because of protests say BP (BP) has already sought a fresh start by naming an American to replace its gaffe-prone British CEO, so why not change the name on gas station marquees as a further symbol of that culture shift.

Others worry that a name change is a big deal and risky given all the marketing dollars already spent building up the BP brand. They also believe a successful turnaround with the existing brand will have a bigger payoff.

In the aftermath of the oil spill, some BP-branded gas stations reported sales declines of 10% to 40% from Florida to Illinois. BP later responded by offering distributors of BP gasoline cash in their pockets, reductions in credit card fees and help with more national advertising.

The BP name and green-and-yellow sunflower logo took over after BP merged with Amoco in the late 1990s, replacing the Amoco name and its blue-and-red torch inside an oval logo.

There is precedent for such a drastic move to return to the Amoco name or to go with a new name. Think AirTran after the ValuJet crash and Xe Services after the killing of civilians by Blackwater Worldwide guards in Iraq.

John Kleine, who heads a trade group that represents distributors of BP gasoline in the U.S., told the Associated Press that interest in changing names has not reached a fever pitch by any means, but it has supporters and is percolating among station owners ahead of their annual convention with BP executives in October.

"Is it on the minds of people? Sure," Kleine said. "It would not be a topic of conversation if not for the oil spill."

Kleine noted that many distributors would still like BP to try to rebuild its existing brand, but if that cannot be done, then to consider alternatives.

Distributors in many cases also own and operate stations.

Two BP officials said in e-mails that the company is not considering rebranding U.S. gas stations.

BP owns just a fraction of the more than 11,000 stations across the U.S. that sell its fuel mostly under the BP banner. ARCO, a BP affiliate, is predominant in the West. Kleine said the Amoco name is no longer supposed to be used, but acknowledged in rare cases it may still exist in a few locations. Most BP-branded stations are owned by local people whose primary connection to the oil company is the logo and a contract to buy gasoline.

Bob Juckniess, who owns 10 BP-branded stations in the Chicago area, is in the camp that wants BP to consider rebranding to Amoco at U.S. outlets.

"The BP brand is very tarnished right now, not just the brand but the reputation as a company is tarnished," said Juckniess. He added, "Amoco was very well known and had a great reputation as a name and a brand."

Juckniess said he feels so strongly about the issue that he would "urge BP to look at the ramifications of such a change."

It is noteworthy that Bob Dudley, the American who will replace Tony Hayward as CEO on Oct. 1, worked for 20 years at Amoco.

On the other side of the debate is Jeff Miller, whose company owns, operates and supplies roughly 56 BP-branded stations primarily in southeastern Virginia.

He said that if BP does the job right and invests back in its brand and customer base, it stands to gain more by not changing the name at U.S. stations.

"When you look at all the case histories of all that have done it well, whether it is Toyota, Tylenol or Exxon, they have all reinvested in their brand and done a better job," Miller said. "If you just change the name and don't change the behavior, have you really gained anything?"

Miller said he has heard from a number of station owners who have suggested BP rebrand U.S. stations as Amoco, but he describes that as a "knee-jerk reaction."

"I think you get a better return by working on repairing your reputation than starting fresh," he said.

Jim Donnini, whose company owns, operates and supplies roughly 75 gas stations in Florida that fly under brands including Chevron, Exxon, Shell, Sunoco and Valero, said Amoco was a very strong brand in Florida.

"Everybody thought they missed their opportunity to keep it that way," Donnini said of BP, referring to the aftermath of the Amoco merger.

Donnini, who doesn't own any BP stations, said he has heard from owners of BP-branded stations in Florida who would like BP to consider a name change at U.S. stations.

"It's really a shame the independent businessmen that fly that BP flag are being victimized," Donnini said.

BP's Dudley Faces Daunting To-Do List

The Wall Street Journal

 

As BP PLC's board approved Robert Dudley as the troubled oil giant's new chief executive, his to-do list includes overhauling a U.S. operation badly tainted by the Gulf of Mexico oil spill; mending fences with perturbed U.S. government officials; and possibly making further executive changes at the top of his own company.

BP's board met Monday and approved a plan for Mr. Dudley to succeed current Chief Executive Tony Hayward, according to a person familiar with the matter. The embattled BP chief has been lambasted for his handling of the crisis that unfolded following an April 20 explosion and fire on the Deepwater Horizon drilling rig that killed 11 people and unleashed the worst offshore oil spill in U.S. history.

BP worked Monday to reconnect a drilling ship to a relief well that is supposed to end the leaks permanently, a process U.S. officials said should begin next month. Another effort to kill the broken well, by pumping drilling mud through the top, could start by Aug. 2.

Mr. Hayward will not completely sever his ties with the company. He will be nominated for as a non-executive director of TNK-BP Ltd., BP's Russian joint venture, which he was instrumental in creating, according to a person familiar with the matter.

Investors, meanwhile, hoped Mr. Dudley's appointment would reduce the political heat on BP and help it on the path to restoring its

"An American CEO will clearly be better able to improve BP's political relationship with the U.S. government," said Will Riley, a fund manager at Guinness Atkinson Asset Management.

BP is expected to report second-quarter earnings Tuesday. Excluding spill-related costs, an average of analysts' estimates forecasts a $4.9 billion profit for the second quarter—up 60% from year-earlier levels. But analysts have issued a wide range of projections for spill-related costs, so the company's actual profit for the quarter remains hard to pin down.

Mr. Dudley had previously garnered attention as chief executive of TNK-BP, which he ran for five years from its creation in 2003 and which quickly became one of BP's most lucrative businesses.

Now, in addition to mending political fences and his company's bruised image, many are calling for a root-and-branch overhaul of BP's U.S. business, another duty that would likely fall to Mr. Dudley.

The U.S. operations account for 40% of the company's asset base but has also suffered three calamities in the space of five years—a fatal blast at a Texas refinery in 2005, an oil spill in Alaska in 2006 and now the Deepwater Horizon incident.

There is also an expectation that some executives in the company's exploration and production, or E&P, division, could see a change in status, according to a person familiar with the matter. They could include Andy Inglis, the current head of E&P, who was once widely viewed as a likely successor to Mr. Hayward, and Doug Suttles, chief operating officer of E&P and one of the public faces of BP's cleanup effort.

Both men are closely associated with BP's Gulf of Mexico strategy, and have been hurt by allegations that, in its drilling operations, the company might have cut corners on safety, something the company has denied.

In addition, the two have frequently fought with the Obama administration. Mr. Inglis, who heads the campaign to contain the spill and cap the leaking well, has had heated arguments with Energy Secretary Steven Chu in BP's Houston crisis center.

The White House stopped holding joint news conferences with BP after disagreeing with some of Mr. Suttles's comments, according to a White House official.

BP declined to comment on Messrs. Inglis or Suttles or to make them available for an interview.

"This is the battle for the survival of BP [and] Dudley has to be a little bit ruthless," said Fadel Gheit, an oil analyst at Oppenheimer & Co. "Regardless of the people who have to be fired, he must prevent any such accident from happening in the future."

Mr. Dudley is expected to call White House chief of staff Rahm Emanuel, White House energy and climate adviser Carol Browner and cabinet secretaries to assure them that he is "not abandoning the Gulf," said one person familiar with the matter.

"He will reinforce [the point] that the Gulf is more front and center" for BP now that he is taking over as CEO, the person said.

Mr. Dudley will be succeeded as head of the standalone unit BP created to deal with the long-term consequences of the spill and restore the Gulf by Lamar McKay, according to a person familiar with the situation. Mr. McKay is the chairman of BP America Inc. and has often represented BP in Congressional hearings into the Deepwater Horizon.

As well as a formal announcement on Mr. Dudley's new role, investors are also hoping BP will provide more concrete numbers for the costs of the Gulf oil spill. Together with its second-quarter results, BP is expected to give guidance Tuesday on total cleanup costs and provisions for future liabilities and fines. Analysts' estimates have ranged from $15 billion to $60 billion-plus, but so far the company itself hasn't presented a final bill.

"The range is enormous, and if they can do anything to narrow it, that would be extremely useful," said Stephen Thornber, global equity fund manager at Threadneedle Investments in London. "We need to get some figures that we can work with."

BP Preparing to Replace Hayward

Bloomberg News

Dudley 

BP Plc plans to appoint Robert Dudley to succeed Tony Hayward as chief executive officer as the board looks to recover the company’s position in the U.S., two people with knowledge of the matter said.

Dudley, the director of BP’s oil spill response unit, is ready to be announced as the company’s first American chief on July 27 and to take the helm Oct. 1, one of the people said, asking not to be identified because a final decision hasn’t yet been made. The decision was reached in discussions with board members about how best to take BP forward and rebuild its U.S. position, the person said. The BP board meets tomorrow to “rubber stamp” the plan, the second person said.

“The fact he is American should help to keep things a little more straightforward in his dealings with the U.S. administration,” Ted Harper, who helps manage $6.8 billion at Frost Investment Advisors in Houston, said today. He doesn’t hold BP stock. “Dudley’s most important task will continue to be making sure that the well is capped.”

Hayward has faced public anger in the U.S. and criticism from lawmakers over his handling of the spill that was triggered by an April 20 explosion on the Deepwater Horizon rig, which killed 11 people. Dudley, 54, was born in New York and grew up in Mississippi, part of the Gulf Coast region suffering environmental and economic damage from the spill. BP on June 23 appointed him to manage its response to the leak.

BP is preparing an announcement for tomorrow that will note press speculation, confirming a board meeting will be held and announcements to be made as needed.

Lost Value

The company, which announces second-quarter earnings on July 27, has seen its market value fall by about 50 billion pounds ($77 billion) as it battled to stop the spill. The well has now been sealed, and BP plans to permanently plug it with cement next month.

Hayward “has the support of the board,” BP spokesman Mark Salt said by mobile phone today in London.

Dudley spent about 30 years in the oil industry, including a stint as CEO of BP’s Russian joint venture, TNK-BP, starting in 2003. That job ended after disputes with Russian partners led to Dudley fleeing Russia in 2008, citing “sustained harassment” amid court battles and labor and tax inspections.

While seeking to contain public outrage over the environmental damage, Hayward made several gaffes, including saying he wanted his “life back” and calling the spill “relatively tiny” in a “very big ocean.” The well spewed 35,000 to 60,000 barrels of oil a day from a mile deep in the water, according to a U.S. government-led panel of scientists.

‘Most Hated’

The New York Daily News said he was “the most hated -- and clueless -- man in America.” U.S. President Barack Obama said he would have fired Hayward, while White House Chief of Staff Rahm Emanuel said on ABC in June that “Tony Hayward isn’t going to have a second career in PR consulting,” while criticizing the CEO for taking a yachting trip.

“Hayward turned the heat up on himself, and some of his misstatements served to boost the move for him to be replaced,” Harper said.

“The new leaders of BP will have an uphill climb to correct the legacy left by Hayward,” U.S. Representative Edward Markey of Massachusetts said in a statement today. Markey, a Democrat, is chairman of the Select Committee on Energy Independence and Global Warming.

The company’s success capping the runaway well after three months will keep its final liability for the spill to $33 billion, according to analysts.

Well Cap

The 40-foot stack of valves halted the flow a week before Tropical Storm Bonnie blew through and forced a temporary halt to drilling of a relief well that will seal the leak for good. Worst-case forecasts for the crisis had pegged the bill as high as $100 billion.

“The doomsday scenarios are looking very remote,” said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh, who expects BP’s final bill to reach $28 billion. “The biggest estimates were based on massive criminal negligence and the worst-case of the well not being stopped at all.”

BP will probably say net income before extraordinary items rose to $5 billion from $4.4 billion a year earlier because of higher oil prices and better refinery earnings, according to the median of 12 estimates in a Bloomberg News survey. The $4 billion the company has spent on the spill so far won’t be included in that figure. The increase in underlying profit will help BP in its campaign to bolster its financial position.

Second-Quarter Results

“In terms of second-quarter performance, they’ll be quite strong aside from the spill,” said Alastair Syme, an analyst at Nomura Holdings Inc. in London who predicts the bill will rise to about $17 billion. “The market will try to press them on future costs.”

The median estimate of the total costs is $33 billion, a Bloomberg News survey of 11 analysts shows, with predictions ranging from $17 billion to $60 billion. Louisiana Treasurer John Kennedy has said the total cost of the spill may reach $100 billion.

Tropical storm Bonnie stopped BP’s drilling operation near the Macondo well, setting back a permanent solution by about two weeks. Without the week-old cap holding back the flow, the spill would have worsened.

Exxon Mobil Corp., the biggest publicly traded oil company, and Royal Dutch Shell Group Plc, Europe’s largest, will report earnings July 29.

Stock Plunges

The spill has wiped about 40 percent of BP’s market value since the Deepwater Horizon blowout. That’s more than double the median estimate among analysts for the cost of the spill, suggesting investors are taking a dimmer view of BP’s future. The stock dropped 2.1 percent last week.

Before the spill, Hayward led BP to become the biggest non- state producer of oil and gas last year and aimed to increase output by as much as 2 percent a year through 2015. The company now plans to sell assets, reduce investments and suspend the $10 billion annual dividend for three quarters to pay for the spill.

BP Chairman Carl-Henric Svanberg agreed with president Obama last month to set aside $20 billion for spill victims and cleanup. The payments into the fund will take place over several quarters, starting with $3 billion in the third quarter and $2 billion in the fourth.

BP said last week that it sold $7 billion of assets in the U.S., Canada and Egypt to Apache Corp. It has also said it plans to sell holdings in Pakistan and Vietnam. BP may revive the sale of fields in Alaska after they failed to make it into the Apache deal, two people with knowledge of the matter said last week.

Refining Margins

The 61 percent increase in oil prices since the beginning of 2009 may bolster BP’s revenue across the world. In the first quarter, BP profit more than doubled from a year earlier. In March, BP agreed to buy $7 billion of assets from Devon Energy Corp. in the Gulf of Mexico, Brazil and Azerbaijan.

Refining margins are also picking up after averaging $5.49 a barrel in the second quarter from $3.08 in the first three months of the year, according to BP.

BP’s own survey of analysts showed a mean estimate of $5 billion for so-called replacement cost profit, with a range of $4.83 billion to $5.29 billion. Chief Financial Officer Byron Grote told investors on June 4 that the company will treat spill costs as a non-operating, identified item and that it will create a separate area on the income statement for it.

None of the analysts in the Bloomberg Survey had changed their cost estimates since BP stopped the flow of oil from the Macondo well this month. Politics will determine BP’s eventual bill, and the U.S. will ultimately want to keep BP alive, said Gudmund Halle Isfeldt, an analyst at DnB NOR ASA in Oslo.

“There has to be some limitation on the costs,” said Isfeldt. “If BP can go bankrupt, who will want to drill in the U.S. anymore?”

BP Mulling Apache Deal

The Wall Street Journal

 

BP PLC is in talks with U.S. independent oil and gas producer Apache Corp. on a deal worth as much as $10 billion that could include stakes in BP's vast Alaska operations, according to people familiar with the matter.

A deal, which would go a long way to helping BP cope with the financial stress of paying for the clean-up of the Gulf oil spill, could be reached in the coming weeks, though there is no guarantee it will succeed, one of these people said.

BP and Apache declined to comment.

The Apache deal is one of a number of options the U.K. oil major is exploring to raise cash as it struggles to clean up a spill that has fouled huge sections of the Gulf coast.

BP has already suspended its dividend and trimmed capital spending.

The talks come amid BP's efforts over the weekend to remove a containment device located over the gushing Macondo well and replace it with a much tighter cap that should collect all the leaking oil and gas. The operation, which began Saturday, will take between four and seven days, BP says.

To prepare for the new cap, engineers early Saturday afternoon had to remove the more loosely fitting cap that had funneled as much as 15,000 barrels a day to a ship on the surface, which has been moved off location. This means oil is now flowing freely, though some crude continues to be siphoned via a separate system and flared off from a ship, the Q4000.

BP noted that such a sealing cap has never been used at such depths and warned "there can be no assurance" that it is going to be successfully installed within the hoped-for time frame.

White House adviser David Axelrod, who appeared on several network television shows Sunday, said the new cap installation could take up to 10 days—longer than BP officials have estimated.

Timing is crucial, as the Gulf region is expected to face an active hurricane season. Over the next several days, forecasts call for favorable weather.

BP has consistently said it will complete a relief well in August to intercept its runaway Macondo well and plug the leak.

As of a week ago, BP said it had made 47,000 payments on compensation claims totaling almost $147 million. But it is expected to face much larger claims for damages, as well as potential criminal and civil penalties.

Despite the mounting cost of the spill, BP's share price has risen about 20% over the past two weeks, in part due to progress on the relief well and expectations that Middle Eastern sovereign wealth funds might buy into the stock to prop up the oil major and help preserve its independence. After hitting a 14-year low of 302.9 pence ($4.59) on June 29, BP shares closed Friday in London at 364.8 pence.

The asset sales represent one element in a broad capital-raising effort. BP has also secured new credit lines, and could also sell bonds, according to people familiar with the situation.

These people say BP could announce the deal with Apache, or other asset sales, on July 27—the same day it unveils its second-quarter earnings.

People familiar with the matter say that with its asset sales, BP is moving along two tracks: It is in talks with a number of companies regarding a wide spectrum of assets and is also in "material" discussions with a single company—Apache—on a package deal worth $10 billion. If BP can pull off that transaction, that could ease pressure on the company to divest other assets. The Apache talks were first reported in London by the Sunday Times.

BP opened its first office in Alaska in 1959 and has a 26% stake in the Prudhoe Bay oil field—which after 33 years of production remains the largest in North America. It operates 14 other oil fields on the North Slope, and has minority interests in six others. It also operates four pipelines there and has a big stake in the 800-mile Trans Alaska Pipeline System, which brings oil from Prudhoe Bay in the north to the port of Valdez.

But its Alaskan assets are mature, and output there has been gradually declining. Last year, BP's net production in Alaska was 181,000 barrels a day of oil and gas, down from 197,000 barrels a day in 2008.

As its output has fallen, BP has also been beset by operational problems in Alaska. In 2006, a pipeline leak led to a 200,000 barrel oil spill—the worst on the North Slope in Alaska's history. Under a criminal settlement the following year, BP pleaded guilty to a violation of the federal Clean Water Act and paid $20 million in fines and restitution. The company has suffered a number of other spills and pipeline ruptures in Alaska since then.

BP has a history of big deals with Apache. In 2003 it sold to the U.S. independent oil exploration and production company its Forties field in the North Sea and a package of shallow-water assets in the Gulf of Mexico for $1.3 billion.

Apache has a reputation for snapping up the majors' mature assets and applying cutting-edge technology to squeeze more oil out of them—a strategy it has successfully applied in the North Sea and the Gulf of Mexico.

Spill Fund might not Pay Tourism-Related Claims

USA Today

 

The director who'll disperse $20 billion to victims of BP's oil spill warned Wednesday that companies hurt because tourists have stayed away from the Gulf region may not be eligible for reimbursement.

Kenneth Feinberg, whom President Obama appointed to handle claims, told the House Small Business Committee in Washington that determining whether to pay businesses and individuals that didn't suffer direct damage is among the most difficult issues he faces.

Indirect claims — such as those made by companies that lost revenue because wary tourists stayed home thinking a beach would be damaged — may not be "compensatory," he said.

Feinberg, however, told committee members that the compensation fund would make initial payments equal to six months of reimbursement. Elected officials in the region have said month-to-month payments to small business are insufficient to help companies stay in business.

Calculating the payments may be complicated as long as the leak continues, he said.

"It sure would help if the oil would stop," Feinberg said in his first congressional testimony since being named to run the independent claims operation. "It's very hard to come up with lump-sum payments in total satisfaction of your loss when you don't know if the oil is going to continue to spread and reach your business."

Tourism officials and those who make their living from tourism have complained that the spill is driving away visitors and costing businesses billions of dollars.

Rep. Vern Buchanan, R-Fla., said tourists are staying away from beaches near Sarasota even though oil hasn't washed ashore.

Feinberg acknowledged that businesses or property owners along the Gulf Coast may be harmed by public misperceptions of the spill, and a decision on resolving such claims remains to be made. But they may be left out.

"Property value has diminished as a result of the spill," Feinberg said. "Let's assume that's right. That doesn't mean that every property is entitled to compensation."

"It's a thorny issue," he told reporters after the hearing.

After the Sept. 11 attacks, Feinberg said the victims' fund that he also administered established "small, geographic areas" near the World Trade Center within which individuals could be compensated for health ailments.

Feinberg said his Gulf Coast claims facility may set zones of eligibility for certain claims when the damage suffered isn't physical.

BP has said it has paid more than $128 million in claims as of the end of last week.

BP Denies Russian Report of Hayward Stepping Down

Associated Press

Admiral Allen heads back to Gulf Coast

 

MOSCOW — Russia's state RIA Novosti news agency is quoting a senior Russian Cabinet official as saying that BP Chief Executive Tony Hayward is expected to resign, a report BP denied.

It quoted Deputy Prime Minister Igor Sechin as saying that Hayward "is leaving his post." Sechin, who is set to meet with Hayward on Monday, said the BP chief would introduce his successor.

BP spokeswoman Carolyn Copland in London said the report "is definitely not correct."

Hayward was to assure officials of BP's viability and discuss issues related to Russian joint venture TNK-BP, which accounts for about a quarter of BP's reserves and production.

NEW ORLEANS (AP) — The admiral in charge of the spill response was headed back to the Gulf Coast a day after Mississippi's governor said he would press BP and the federal government for more help because oil started washing up on the shoreline of his state.

Meanwhile, a tropical storm farther south in the Gulf threatened to push oil from the spill farther inland.

Tropical Storm Alex's center wasn't expected to approach the area of the oil spill off Louisiana's coast, said Stacy Stewart, senior hurricane specialist at the National Hurricane Center in Miami. But Alex's outer wind field could push oil from the spill farther inland and hinder operations in the area, Stewart said early Monday.

Forecasters also said Alex could become a hurricane later Monday or Tuesday.

On Sunday, oil was found in at least two areas of Jackson County in Mississippi, and emergency management director Donald Langham said tar balls and a patch of oil were spotted at the St. Andrews beach and at the Lake Mars pier in Gulf Park Estates. The state had been mostly spared the oily mess from the a blown-out undersea well that has spewed anywhere between 69 million and 131 million gallons of crude into the Gulf of Mexico the past 10 weeks.

"While command and control of on-water resources has improved, it must get much better and the amount of resources to attack the oil offshore must be greatly increased," Mississippi Gov. Haley Barbour said in an e-mailed statement Sunday. BP said it would work with officials to get the necessary help in place.

So far, deadly Tropical Storm Alex that moved into the Gulf on Sunday after dumping rains across Belize and Mexico's Yucatan Peninsula was not expected to cross the oil spill.

Still, Florida Department of Emergency Management meteorologist Amy Godsey said rough waves churned by the storm would disrupt efforts to corral and burn surface oil and will likely push more oil and tar onto Panhandle beaches throughout the week.

Adm. Thad Allen was expected to be in New Orleans on Monday and talk to the media about the latest on the spill. Allen has received some criticism from local officials who feel he might not be the right man to head the team. He has not responded to the criticism.

For some, the relentless spill is bringing back feelings that are far too familiar still dealing with the physical and emotional toll wrought by Hurricane Katrina five years ago. Shrimper Ricky Robin haunted by memories of riding out the hurricane on his trawler and of his father's suicide in the storm's aftermath.

"I can't sleep at night. I find myself crying sometimes," said Robin, of Violet, a blue-collar community on the southeastern edge of the New Orleans suburbs, along the highway that hugs the levee on the Mississippi River's east bank nearly all the way to the Gulf.

Psychiatrists who treated people after Katrina and have held group sessions in oil spill-stricken areas say the symptoms showing up are much the same: Anger. Anxiety. Drinking. Depression. Suicidal thoughts.

"Everybody's acting strange," said Robin, 56. "Real angry, frustrated, stressed out, fighting brothers and sisters and mamas and family."

Fishing families, the backbone of the coastal economy, are especially hard-pressed as the waters that make up their livelihood are sporadically closed because of fears the oil will taint fish, oysters and shrimp.

Oil field workers, whose salaries are among the best the region can offer, worry about their industry's long-term future.

And there is still the rebuilding after Katrina, which in August 2005 devastated a swath from Louisiana to Alabama — almost as big as the area affected by the oil — killing more than 1,600 and forever changing the region's relationship with the water.

The helplessness, coupled with the uncertainty about what's going to happen with the spill and when the next check from BP PLC will arrive, leaves boat captain George Pfeiffer angry all the time.

"Our families want to know what's going on," said Pfeiffer, 55, who keeps two charter boats at Zeke's Landing. "When we get home, we're stressed out and tired, and they want answers and we don't have any."

His wife cries, a lot.

"I haven't slept. I've lost weight," said Yvonne Pfeiffer, 53. "My shoulders are in knots. The stress level has my shoulders up to my ears."

Mental health professionals say it is too early to have reliable data to understand the full severity of stress issues spawned by the spill.

However, their work so far indicates the problem is taking root, and the backdrop of Katrina means it is likely to get worse. Tropical systems such as the one that swirling back into the Gulf won't help matters, even though it was forecast to bypass the spill.

"This is a second round of major trauma for children and families still recovering from Katrina. It represents uncharted territory," said Dr. Irwin Redlener, director of the National Center for Disaster Preparedness at Columbia University and a member of the National Commission on Children and Disasters who has worked with Katrina survivors.

The spill — and the prospect of a hurricane whipping oily water into bayous and coastal communities — is also complicating the already complex hurricane planning that takes place each summer. After all, this is a region that's no stranger to big storms

BP, the Coast Guard and the state of Louisiana have already been talking about how to coordinate evacuations so workers and equipment involved in the oil spill response don't clog highway escape routes.

Thousands of families that lost jobs because of the spill may have fewer resources for a storm evacuation, said Mark Cooper, director of the Louisiana governor's Office of Homeland Security and Emergency Preparedness.

Pete Gerica says fishermen like him who typically ride out storms in their boats also might have second thoughts this year. Oily water carried by the storm surge could be difficult to clean.

"You will have to clean up mud and oil. Can you clean that out of the walls? Who knows," he said.

No matter what happens with Alex, it's likely just the beginning. Forecasters are predicting a busy hurricane season with powerful storms.

Frustrated Franchise Owners want Help from BP

Yahoo News

Tension is mounting between BP and the neighborhood retailers that sell its gasoline. As more Americans shun BP gasoline as a form of protest over the Gulf oil spill, station owners are insisting BP do more to help them convince motorists that such boycotts mostly hurt independently owned businesses, not the British oil giant.

To win back customers, they'd like the company's help in reducing the price at the pump.

BP owns just a fraction of the more than 11,000 stations across the U.S. that sell its fuel under the BP, Amoco and ARCO banners. Most are owned by local businessmen whose primary connection to the oil company is the logo and a contract to buy gasoline.

In recent weeks, some station owners from Georgia to Illinois say sales have declined as much as 10 percent to 40 percent.

Station owners and BP gas distributors told BP officials last week they need a break on the cost of the gas they buy, and they want help paying for more advertising aimed at motorists, according to John Kleine, executive director of the independent BP Amoco Marketers Association. The station owners, who earn more from sales of soda and snacks than on gasoline, also want more frequent meetings with BP officials.

"They have got to be more competitive on their fuel costs to the retailers so we can be competitive on the street ... and bring back customers that we've lost," says Bob Juckniess, who has seen sales drop 20 percent at some of his 10 BP-branded stations in the Chicago area.

Owners and distributors put forth their demands at a meeting in Chicago with BP marketing officials. BP's reply could come as early as this week, says Kleine, whose group represents hundreds of distributors.

Station owners are locked into contracts that can last seven to 10 years in some cases. So, switching to a competing brand if BP refuses to help may not be an option.

BP spokesman Scott Dean declined to offer specifics about the discussions when contacted by The Associated Press.

"BP is in daily contact with its independent distributors and franchisees and helping them manage the impacts the oil spill is having on their businesses," he said.

Gasoline retailing trade groups say the boycott's impact isn't only evident in southern states such as Florida, Georgia and Tennessee, but also in places further from the spill like southern Pennsylvania. Jim Smith, president and CEO of the Florida Petroleum Marketers & Convenience Store Association, said BP has given some station owners a one-cent-per-gallon discount, which "doesn't amount to much." Kleine told AP the discount appears limited to Florida. He declined to give the size of the discount that was requested at the Chicago meeting.

Websites and Facebook pages advocating a BP boycott popped up soon after oil started spewing into the Gulf in late April. Drivers only heeded the call when the spill's full impact became apparent.

Paola Soldevilla, manager of a BP station in Pembroke Pines, Fla., said it was only when images of oil-soaked birds appeared in newspapers that sales fell off. So sharply, in fact, that she won't be getting her usual one-week paid vacation.

Kevin Dalton can empathize. He owned a Citgo station when President Hugo Chavez made anti-American statements in 2006, leading to a boycott of the Venezuelan-owned gas company. Sales of gas and in-store items dropped more than 50 percent. Sales at his Shell station in Palm Beach Gardens, Fla., have increased 15 percent since the spill started in late April, but he says it's hard to directly tie that to a BP station less than a mile away.

Last week, Vincent Connolly's GPS guided him to a BP station off Interstate 480 in Cleveland. But he had second thoughts after filling up for $2.75 a gallon.

"You don't want to support anyone that's killing the environment," he said.

That connection to the destruction on the Gulf Coast concerns Juckniess, the Chicago station owner. He's been running his own promos — free coffee and $2 off a car wash — but he wants BP to step up support of both the stations and the BP brand.

"We're their branded marketers," he says. "It would be foolish for BP to not support its branded marketers when clearly we can document that some of the loss that we've experienced is due to the incidents in the Gulf."

The biggest hit comes not from lost gas sales but from lost convenience store business. Owners like Juckniess make just pennies on a gallon of gas. But they might make up to 55 cents on a $1 cup of coffee. The margins on candy and chips are about 48 percent and 37 percent, respectively, Jeff Lenard of the National Association of Convenience Stores.

The boycott's impact on BP is limited. The company makes most of its money exploring and producing oil in places such as Angola, Egypt, the North Sea and the Gulf of Mexico.

"The corner store is the face of BP, but by no means how BP gets its money," Lenard said.

And even if drivers opt to fill up at an Exxon or 7-Eleven, they still may buy BP gasoline. Because of the way gas is refined and marketed, BP fuel gets supplied to stations other than those with BP brands.

The boycott's impact is felt less in rural areas, where people know the owners personally. And it helps to sell other necessities.

Dacia Radabaugh, who manages a BP station owned by her parents in Williamstown, W.Va., thinks the station is as popular as ever because it sells liquor and cigarettes to a regular crowd.

And of course some drivers are just more pragmatic.

"Gas is gas, buddy," said Danny Sullivan, making no apologies for filling up at a Little General BP station in Charleston, W.Va. "It don't matter where it comes from."

BP is Buying Kevin Costner-Backed Oil Clean-up Machines

cNet

Go ahead, make your "Waterworld" jokes. BP has placed an order to purchase machines to separate spilled oil and Gulf of Mexico water from Ocean Therapy Solutions, a company backed by actor and environmentalist Kevin Costner, according to reports.

Ocean Therapy Solutions has been testing the centrifugal oil-water separator but has not yet received payment from BP, which is under growing pressure to stem the massive flow of oil from the remains of the Deepwater Horizon rig and clean up the spill.

"Kevin has spent 15 years and $24 million of his own money on this technology, and we have spent over $1 million more than that on adjusting the machines and preparing them for testing," Costner's business partner, Louisiana attorney John Houghtaling, told the Los Angeles Times. "We haven't gotten a check yet from BP. The sooner it comes, the sooner we can act."

The technology for the portable liquid separators was originally developed by national laboratories for defense purposes. Costner and his business partner purchased the patent for the technology in 1990 and have been working on commercial product since then. Costner began working on ways to clean oil from water, according to the LA Times, while working on his 1995 film "Waterworld," a post-apocalyptic tale in which most of the Earth has been covered by ocean and the remaining people live on boats and other floating structures.

The machine, designed specifically for oil and chemical clean-up, works by pumping liquid into a centrifuge, which mechanically separates the water from oil or other liquid with a different density than water. If used in the Gulf, water would be pumped out of the top of the device, with only 1 percent oil remaining in it.

During testimony to the House Committee on Science and Technology (click for PDF) last week, Costner said that the machine was designed as a first environmental response in a chemical or oil spill.

Costner said he was originally motivated to pursue commercialization of the technology by the Valdez Exxon oil spill in 1989 when he saw images of people using buckets and shovels to remove oil.

One of the important features of the machine is that it can process large volumes of water, with the largest able to handle 200 gallons of liquid per minute, or about 288,000 gallons per day. BP has ordered 32 of the machines.

"This machine's incredibly effective. It can actually spit out water at a 99.9 percent purity," Costner told ABC News. "The great thing about the machine is it can operate where there's no dispersants. There's no need to pollute ... we don't need chemicals to operate that machine in blue water. It was taken into the ground water. It was taken in close to the marsh, where it got very, very thick."

In a statement last week, Ocean Therapy said that it had successfully tested the separator in shallow water and had plans to try it in deeper water.

BP Oil Spill Costs Reach $2B with no End in Sight

Associated Press

 

BP has spent $2 billion in two months of fighting its Gulf of Mexico oil spill and compensating victims, with no end in sight to the disaster or the price tag.

The British oil giant released it's latest tally of response costs Monday, including $105 million paid out so far to 32,000 claimants. The figure does not include a $20 billion fund that BP PLC last week agreed to set up to continue compensating Gulf residents and businesses. There are also scores of lawsuits piling up against BP for the April 20 rig explosion that killed 11 workers and ensuing oil spill that has yet to be capped.

Also Monday, the man President Barack Obama picked to run the $20 billion damage fund said many people are in "desperate financial straits" and need immediate relief.

"Do not underestimate the emotionalism and the frustration and the anger of people in the Gulf uncertain of their financial future," Kenneth Feinberg told interviewers. "It's very pronounced. I witnessed it firsthand last week."

Feinberg, who ran the victims claim fund set up in the wake of the Sept. 11, 2001, terrorist attacks, said he is determined to speed up payment of claims.

Shares of BP, which have lost about half their value since the rig Deepwater Horizon burned and sank off the Louisiana coast, were down nearly 5 percent Monday in London trading at $5.06. The rig was owned by Transocean Ltd. but run by BP.

BP also argued that its partners in the oil well project must share responsibility for the disaster costs. BP owned 65 percent of the well, while Anadarko Petroleum Corp. had 25 percent stake and a subsidiary of Mitsui & Co. Ltd. of Japan had a 10 percent stake.

Anadarko said Friday the joint operating agreement made BP responsible for any damage due to gross negligence or willful misconduct. BP shot back Monday that all the partners shared in liability for oil spill damages.

The best hope of ending the diasaster rests on teams drilling two relief wells meant to stop the seafloor oil gusher, a daunting task: Their drills have to hit a target roughly the size of a salad plate about three miles below the water's surface.

If the workers aboard Transocean's Development Driller II or its sister rig DDIII miss or move too slowly, oil will keep pouring into the sea. As much as 125 million gallons of oil has gushed into the Gulf.

No one on the rig has done this before because these deep sea interventions are so rare. But rig workers brushed off worries and the pressure to succeed.

"It's really not a tough thing to do," says Mickey Fruge, the wellsite leader aboard the DDII for BP, which was leasing the rig that blew up and is responsible for stopping the oil.

The relief wells are slowly grinding their drill bits 13,000 feet below the seafloor until they intersect the damaged well left by the Deepwater Horizon. A group of reporters that included The Associated Press had a rare chance to tour the rig Saturday.

Reporters flew by helicopter above the patchy wetlands along the Mississippi River Delta and past the floating boom and skimmers that have failed to protect the Gulf Coast.

About 40 miles from the coast, a fleet of ships becomes visible. They look like toys packed in a two-mile-square patch of dull water. The approaching drill rig is easy to spot with its 200-foot derrick.

After the Sikorsky chopper settles on its landing pad, the thwack of the rotors quiets down, and a rig worker steps into the helicopter cabin.

"OK, welcome to the DDII," he says.

Out in the distance, another drilling rig is siphoning off oil and natural gas from the undersea well and burning it in a multi-nozzled flare. It looks like the flames are radiating from an oversized showerhead. Other ships hose off that rig's deck to keep the heat from building.

Meanwhile, a boom attached to a drill ship called the Discoverer Enterprise flares off natural gas taken from a containment cap that is sucking up oil from the well head. The distant flames are a constant reminder that crude and gas are leaking beneath the feet of those aboard the DDII as they walk across the see-through grating on its floor.

The Enterprise sits where the Deepwater Horizon rig exploded. Some of the DDII crew knew Transocean workers on that rig.

It's "always, always on our mind," said Wendell Guidry, Transocean's drilling superintendent on the rig.

BP has said a relief well should be ready by August, and the DDIII is farther along, having reached a depth of nearly 11,000 feet below the seafloor. Still, Guidry said, it's unclear which rig will hit the target first.

"Never know what will happen," he said. "You never know."

Work goes on around-the-clock on the DDII, which can hold 176 people. Eight thrusters on the rig keep it precisely positioned over the well it's drilling. The ship is so large that those aboard cannot feel it move on the water most of the time.

Once one of the two relief wells intersects the damaged line, BP plans to pump heavy drilling mud in to stop the oil flow and plug the blown-out well with cement.

It's a tricky task and not guaranteed to work. A pair of relief wells took months to stop an undersea gusher in Mexico that started in the summer of 1979.

Coast Guard Adm. Thad Allen, the top federal official in the spill response, has said construction on the relief wells remains ahead of schedule. But setbacks are routine on a drilling rig.

"It's business as usual, man," said Eric Jackson, a rig worker. "Everybody tells us to be, 'Hey, don't let the pressure get to you.' This is what we do for a living, man. We drill wells. It's the same as any other day."

Oil Sightings, Beach Closings Edge East into Florida Panhandle

Miami Herald

Pie-sized tar patties washed up on Okaloosa County shores, some of the most pristine in Florida, beaching swimmers in some spots as splotches of BP's weathered oil spill edged east along the Florida Panhandle Thursday.

Okaloosa County's health department advised swimmers on Wednesday afternoon to keep out of the water off Okaloosa Island, a stretch of beaches on the outskirts of Destin.

But Thursday morning a dozen tourists were wading the warm waters along Okaloosa Island's Beasley Park, despite a lifeguard shouting a warning as they approached the shore.

``I've worked around oil in the past as a mechanic and far more worse stuff has stuck to me than this,'' said Randy Morris, 53, of Adams, Tenn., who was on a family vacation.

Morris pointed to visible black tar balls below the clear ankle-deep water and declared, ``Except for little black specks it seems safe to me.''

Nearby, a Fort Walton Beach family of five likewise defied warnings to leave the oil pollution to trained workers with father James Williams, 32, declaring, ``Until it gets worse we'll keep coming back.''

His daughter scooped up tar balls with a pink plastic shovel and put them in a plastic bag.

Santa Rosa County officials reported air reconnaissance spotted a trail of oil sheen and patties five miles south of Fort Walton. But beaches remained open for swimming and fishing on Thursday morning.

BP crews were instructed to start cleanup efforts along Santa Rosa's Navarre Beach, according to a county update. In Escambia County, closest to Mississippi, night-time cleaning began on Wednesday and workers were expanding their patch on Thursday.

Conditions are better for night cleaning. The sweltering summer sun melts tar balls, making them harder to collect, and is harder on workers in plastic jumpsuits and gloves.

In other developments Thursday:

• Coast Guard Adm. Thad Allen said officials were monitoring a tropical depression west of the Gulf of Mexico in the Pacific, as well as weather off the coast of Africa. In the event of a hurricane, workers would have to stop spill recovery efforts days before -- letting the crude spill freely into the Gulf, spread by the winds -- and it would take days to resume the cleanup once hurricane winds dissipated.

Just before noon, the National Hurricane Center in Miami declared the depression Tropical Storm Blas, and said it was slow moving.

• The federal government said the NOAA Ship Pisces on Tuesday spotted a dead young sperm whale floating 77 miles south of the Deepwater Horizon spill site. It was not found in oily waters, and the location and cause of death were not known. But it was the first dead whale reported since the BP rig exploded on April 20. An analysis was planned on carcass samples stored on the ship once the boat comes to port in two weeks, a Deepwater Horizon response release said.

• Allen said at a morning news briefing that there have been days during the 59-day environmental crisis when crews collected more oil than was spewed from the well on that given day. He could not quantify it, and said part of the problem in measuring progress is there is still no agreement on the discharge rate.

• In Washington, Congress convened its first hearing with BP CEO Tony Hayward -- an event being carried live on cable news channels juxtaposed with images of burning oil atop the Gulf and underwater views of the still spewing well. A grim-faced Hayward, who earlier in the crisis had complained ``I want my life back,'' issued an apology for the spill and declared himself ``personally devastated'' by it.

 A week ago, globs of oil reached Pensacola's Perdido Pass, and cleanup efforts have been concentrated on the western end of the Panhandle.

But sightings increased over the weekend from Santa Rosa County east to Bay County, home to spring break mecca Panama City Beach.

With more oil expected throughout the weekend, Okaloosa's public safety director, Dino Villani, said the county has a plan in place to line up barges across Destin's East Pass waterway to close off the area to boaters and secure boom to capture the oil slicks.

Villani said the past two days have brought some of the largest sightings to date, describing some of the tar patties washing ashore as the size of ``pies.''

Saturday, two metal marine holding tanks, weighing 5,000 pounds each, washed ashore in Walton County and farther east into Bay County. The two tanks had placards with the BP logo and the words ``HORIZ'' written on the side. They are believed to remnants of the Deep Water Horizon oil rig, some 300 miles from Bay County. They have since been shipped to New Orleans, where the oil rig explosion is being investigated.

Then Wednesday, nearly 100 tar balls washed ashore on Okaloosa Island, the biggest sighting to date, and Santa Rosa County officials also reported seeing tar patties larger than the dime and quarter-size pieces that had been previously scooped up.

As tourists and locals fished from atop the Okaloosa Island Fishing Pier Wednesday afternoon, streams of oil sheen speckled by floating tar patties floated along the emerald green waters. Some fishermen complained that kingfish,often caught in the area, were just not biting.

BP Protests Threaten Independent Dealers

The Wall Street Journal

 

Protests and boycotts of the BP brand generated by the Gulf spill aren't likely to have a big immediate impact on BP PLC, but could threaten the thousands of entrepreneurs who have staked their livelihoods on the company's name.

Nearly all the 10,000 service stations around the U.S. flying the BP flag are owned by independent dealers that are obligated under long-term contracts to sell BP-branded fuel. Some worry that mounting anger over the spill's environmental and economic toll could turn the once-highly coveted brand into a liability.

But the actual gasoline the stations sell is a mixture of fuel from multiple refiners or importers, so the direct impact of any slowdown at BP-branded stations is minimal for the oil giant, which can sell excess supplies as private-label fuels to other retailers. Maintaining a brand presence is important to BP, but the marketing segment only represents a sliver of profit for the company.

BP stations in Florida immediately saw consumers turning away after the leak began in late April. Total sales at BP stations there declined 8%-10% in May compared with last year, while competitors benefited from additional traffic, said Jim Smith, president of the Florida Petroleum Marketers and Convenience Stores Association. The magnitude of the sales declines "means that we are going to have a lot of small business owners going out of business," he said.

Hundreds of Facebook pages and Twitter accounts have sprung up dedicated to the spill coverage, and some have organized protests. Some BP station owners are hearing complaints from customers about the spill or motorists yelling as they drive by. But station owners and independent distributors, who bring fuel to the stations, say it is more difficult to quantify the silent protesters who simply drive to other stations to fill up.

"People are kind of melting away," said Jay Ricker, chairman of Ricker Oil, noting that same-store sales across the company's 35 BP stations in Indiana fell 5.4% last week, the first decline seen this year.

Independent fuel distributors, known in the industry as jobbers, are worried about the reduced demand for BP-branded fuel. Station owners are concerned that a drop in motorists filling up their tanks will clip purchases for items such as chips and sodas at attached convenience stores, which account for less than a third of sales but two-thirds of profits.

"The distributor and retailer communities have really become the lightning rod of the consumer backlash, easy targets," said John Phelps, president of Carroll Independent Fuel Co., which supplies 110 BP stores in the Baltimore area. Carroll acquired most of them in the past five years in an effort to bank on BP's strong brand name and its push toward an environmentally friendly image, he said.

Some BP-branded fuel retailers say there has been a noticeable change in consumers' attitudes since the start of June, when images of oil-blackened wildlife and tar balls on beaches heightened the public's anger about the spill.

"It really coincided with the oil coming ashore," said Jeff Miller, president of Miller Oil Co., a family-owned distributor based in Virginia Beach, Va., that supplies about 50 million gallons of BP gasoline annually and owns 16 stations. He has seen gasoline sales fall 2%-3% this month at four BP stations in tourist areas.

BP employees are working with local fuel retailers to launch grass-roots marketing campaigns and are visiting sites to talk to concerned consumers, said John Kleine, executive director of the BP Amoco Marketers Association, an independent organization representing independent distributors. The company's support includes full reimbursement for advertising costs normally split with jobbers. The money frequently goes to on-site promotions at service stations.

"BP looks at what they are doing now as a long-term investment for the brand and knowing that investment will play out over time if you are doing the right thing," Mr. Kleine said.

So far, jobbers and retail stations are largely sticking with BP rather than switching to other brand names, which could require buying out expensive contracts, said Dan Gilligan, president of the Petroleum Marketers Association of America, an industry group.

PR Failures add to Technical Failures for BP

USA Today

HOUSTON (AP) — BP is already fighting an oil gusher it can't contain and watching its mighty market value wither away. Its own bumbling public-relations efforts are making a big mess worse.

Not only has it made a series of gaffes — none greater than the CEO's complaint that "I'd like my life back" — the company hasn't even followed its own internal guidelines for damage control after a spill.

Executives have quibbled about the existence of undersea plumes of oil, downplayed the potential damage early in the crisis and made far-too-optimistic predictions for when the spill could be stopped. BP's steadiest public presence has been the ever-present live TV shot of the untamed gusher.

What BP has lacked, crisis management experts say, has been much of a show of human compassion.

"All crises are personal," said Richard Levick, who runs a public relations firm, Levick Strategic Communications, that advises companies. "Action and sacrifice is absolutely critical."

The best move for BP's image, of course, would be to stop the leak. That has proved difficult enough, with one fix after another failing and estimates of the severity of the spill growing by the week.

Failing a solution, Daniel Keeney, president of a Dallas-based PR firm, suggested putting CEO Tony Hayward in a hard hat and life vest, helping crews contain and clean up the spill.

"You want to get him right in the thick of things, even if he looks somewhat uncomfortable doing it," Keeney said.

Levick suggested BP could have cut gas prices at its stations along the Gulf Coast — a show of financial solidarity.

BP has taken a stab at soothing angry Americans, airing a slick, multimillion-dollar national TV spot this week in which Hayward pledges: "We will make this right." Hayward also promised BP would clean up every drop of oil and "restore the shoreline to its original state." President Obama said the money spent on the ads should have gone to cleanup and compensating devastated fisherman and small business owners.

And even those efforts violate the company's own prescription for damage control. Its own spill plan, filed last year with the federal government, says of public relations: "No statement shall be made containing any of the following: promises that property, ecology or anything else will be restored to normal."

On top of everything else, BP can't figure out what to say about its dividend. Lawmakers in the U.S. insist the company must look after the devastated people of the Gulf before paying its shareholders. But in Britain, legions of retirees count on the steady payouts.

And earlier this week when Wall Street freaked out over the prospect of billions of dollars in BP liabilities and sent its stock to its lowest point since the mid-1990s, the company response was positively tone-deaf.

"The company is not aware of any reason which justifies this share price movement," the company said early Thursday, after its stock was hammered on New York and European exchanges.

Almost from the beginning, BP has been as unable to control its public message as it has the spill itself.

Hayward was ridiculed for telling reporters "I'd like my life back" earlier in the crisis, remarks the families of some of the 11 men killed in the explosion of the Deepwater Horizon rig felt were insensitive. He also suggested that the environmental impact of the spill would be "very, very modest."

Former Shell chairman John Hofmeister said it might have been more appropriate for senior U.S. executives of the company to take the heat. Hayward is an Englishman, and BP is based in Britain.

"I think it was a mistake for Tony Hayward to come and put his physical presence in the U.S.," Hofmeister said. "The U.S. has its own culture and traditions. Foreign companies can come and do business there, but they are not necessarily welcomed."

BP's chief operating officer, Doug Suttles, an American, was rolled out for interviews, but his aides grumbled Hayward was stealing the spotlight. Hayward's decision to present a video explaining BP's "top kill" attempt took the company's Louisiana command by surprise.

As for Suttles himself, he insisted this week that there were no massive underwater oil plumes in "large concentrations" from the spill. To NBC, he offered that it "may be down to how you define what a plume is here."

The government had said three tests confirmed oil as far as three-fifths of a mile below the surface of the Gulf, at least 40 miles away from the site of the gushing well.

Suttles also predicted the spill would be reduced to a "relative trickle" by early next week. BP later sought to walk the comments back, saying the company was optimistic but that getting the spill to a trickle would take more time.

By late this week, the government had reported that the spill was spewing the equivalent of the Exxon Valdez disaster into the Gulf every two weeks or less, with the catastrophe nearing the end of its second month.

Since the April 20 explosion, BP has parachuted its own staff, plus staff from at least two independent public-relations firms, to deal with the deluge of round-the-clock media inquiries.

Early on in the crisis, BP and government officials held daily in-person briefings with media, allowing questions. In recent days and weeks, officials have increasingly resorted to teleconferences with reporters and have limited the ability to ask questions and the number of questions that could be asked.

In Houston, where BP has set up a U.S. command center, company PR officials have grown weary of reporters going directly to engineers and other higher-ups for information, at times trying to insist media go through them first.

Spokesman Robert Wine said in an e-mail to the Associated Press that media visits to the Houston center are "very carefully controlled and sparingly arranged" by design.

"The rooms that are shown are full of the teams who WILL make a difference on the result of this crisis," Wine wrote. "Every second they are not helping with media visits is time they are not doing the 'day job.'"

In the meantime, BP has been buying up spill-related search terms on Google and Yahoo, so that links to its own oil-response sites pop up first. BP says the idea is to help people on the Gulf find the right forms and people quickly and effectively.

Others suggest it's a move to steer searchers away from bad press for BP.

"It is clearly trying to protect its brand image," said Matthew Whiteway, director of campaign management at London consulting firm Greenlight, which says 95% of BP's search listings are rated very negative.

Crisis management experts say the only reliable way to repair BP's badly tarnished image is the obvious one — to plug the hole.

"Crisis management is about fixing the problem. It's not about looking good," said Tony Jaques, a crisis management consultant in Melbourne, Australia. "BP has done some things that have not been smart, but really, what would they have done to look good in this kind of situation anyway?"s to sprinkler life; Drain check valve for up to 10 feet elevation change.

In Gulf, It Was Unclear Who Was in Charge of Rig

NY Times

NEW ORLEANS — Over six days in May, far from the familiar choreography of Washington hearings, federal investigators grilled workers involved in the Deepwater Horizon disaster in a chilly, sterile conference room at a hotel near the airport here.

The six-member panel of Coast Guard and Minerals Management Service officials pressed for answers about what occurred on the rig on April 20 before it exploded. They wanted to know who was in charge, and heard conflicting answers.

They pushed for more insight into an argument on the rig that day between a manager for BP, the well’s owner, and one for Transocean, the rig’s owner, and asked Curt R. Kuchta, the rig’s captain, how the crew knew who was in charge.

“It’s pretty well understood amongst the crew who’s in charge,” he said.

“How do they know that?” a Coast Guard investigator asked.

“I guess, I don’t know,” Captain Kuchta said. “But it’s pretty well — everyone knows.”

Looking annoyed, Capt. Hung Nguyen of the Coast Guard, one of the chief federal investigators, shook his head. The exchange confirmed an observation he had made earlier in the day at the hearing.

“A lot of activities seem not very tightly coordinated in the way that would make me comfortable,” he said. “Maybe that’s just the way of business out there.”

Investigators have focused on the minute-to-minute decisions and breakdowns to understand what led to the explosion of the Deepwater Horizon, killing 11 people and setting off the largest oil spill in United States history and an environmental disaster. But the lack of coordination was not limited to the day of the explosion.

New government and BP documents, interviews with experts and testimony by witnesses provide the clearest indication to date that a hodgepodge of oversight agencies granted exceptions to rules, allowed risks to accumulate and made a disaster more likely on the rig, particularly with a mix of different companies operating on the Deepwater whose interests were not always in sync.

And in the aftermath, arguments about who is in charge of the cleanup — often a signal that no one is in charge — have led to delays, distractions and disagreements over how to cap the well and defend the coastline. As a result, with oil continuing to gush a mile below the surface in the Gulf of Mexico, the laws of physics are largely in control, creating the daunting challenge of trying to plug a hole at depths where equipment is straining under more than a ton of pressure per square inch.

Tad W. Patzek, chairman of the Petroleum and Geosystems Engineering Department at the University of Texas, Austin, has analyzed reports of what led to the explosion. “It’s a very complex operation in which the human element has not been aligned with the complexity of the system,” he said in an interview last week.

His conclusion could also apply to what occurred long before the disaster.


Exceptions Are the Rule

Deepwater oil production in the gulf, which started in 1979 but expanded much faster in the mid-1990s with new technology and federal incentives, is governed as much by exceptions to rules as by the rules themselves.

Under a process called “alternative compliance,” much of the technology used on deepwater rigs has been approved piecemeal, with regulators cooperating with industry groups to make small adjustments to guidelines that were drawn up decades ago for shallow-water drilling.

Of roughly 3,500 drilling rigs and production platforms in the gulf, fewer than 50 are in waters deeper than 1,000 feet. But the risks and challenges associated with this deeper water are much greater.

“The pace of technology has definitely outrun the regulations,” Lt. Cmdr. Michael Odom of the Coast Guard, who inspects the rigs, said last month at a hearing.

As a result, deepwater rigs operate under an ad hoc system of exceptions. The deeper the water, the further the exceptions stretch, not just from federal guidelines but also often from company policy.

So, for example, when BP officials first set their sights on extracting the oily riches under what is known as Mississippi Canyon Block 252 in the Gulf of Mexico, they asked for and received permission from federal regulators to exempt the drilling project from federal law that requires a rigorous type of environmental review, internal documents and federal records indicate.

As BP engineers planned to set certain pipes and casings for lining the well in place in the ocean floor, they had to get permission from company managers to use riskier equipment because that equipment deviated from the company’s own design and safety policies, according to internal BP documents obtained by The New York Times.

And when company officials wanted to test the blowout preventer, a crucial fail-safe mechanism on the pipe near the ocean floor, at a lower pressure than was federally required, regulators granted an exception, documents released last week show.

Regulators granted yet another exception when BP sought to delay mandatory testing of that blowout preventer because they had lost “well control,” weeks before the rig exploded, BP e-mail messages show.

The Minerals Management Service, which regulates offshore drilling, went along with these requests partly because the agency has for years had a dual role of both fostering and policing the industry — collecting royalty payments from the drilling companies while also levying fines on them for violations of law.

Its safety inspections usually consist of helicopter visits to offshore rigs to sift through company reports of self-administered tests.

Even Ken Salazar, the interior secretary, who oversees the minerals agency, has said that oil companies have a history of “running the show” at the agency, a problem he has vowed to correct.

The minerals agency shares responsibility for oversight of drilling in the gulf with many others. The Environmental Protection Agency and others review offshore drilling for potential damage to wildlife and the environment. The Coast Guard inspects vessels for seaworthiness and licenses crew members to work on the rigs. The National Oceanic and Atmospheric Administration monitors dangerous weather conditions over deep seas.

And regulatory duties extend even past the federal government. Foreign countries, or “flag states,” where many oil rigs are registered, have their own sets of safety requirements and inspections.

Regulations have not kept up with the risks that deepwater drilling poses.

On the Deepwater Horizon, for example, the minerals agency approved a drilling plan for BP that cited the “worst case” for a blowout as one that might produce 250,000 barrels of oil per day, federal records show. But the agency did not require the rig to create a response plan for such a situation.

If a blowout were to occur, BP said in its plan, the first choice would be to use a containment dome to capture the leaking oil. But regulators did not require that a containment dome be kept on the rig to speed the response to a spill. After the rig explosion, BP took two weeks to build one on shore and three days to ship it out to sea before it was lowered over the gushing pipe on May 7. It did not work.

(The rig’s “spill response plan,” provided to The Times, includes a Web link for a contractor that goes to an Asian shopping Web site and also mentions the importance of protecting walruses, seals and sea lions, none of which inhabit the area of drilling. The agency approved the plan.)

More broadly, regulators have not required technology and strategies for dealing with deepwater spills to be improved.

Engineers trying to control the blowout are using the same tactics they used in 1979 when the Ixtoc I well blew up in the Bay of Campeche off the coast of Mexico. In the earlier blowout, they first tried lowering a containment dome over the leak. When that failed, they unsuccessfully tried to inject golf balls and other material in a move called a junk shot, which was also tried and abandoned for the Deepwater Horizon.

Questions of oversight also came up in the New Orleans hearings last month. For example, Michael J. Saucier, an official with the Minerals Management Service, said that his agency “highly encouraged” — but did not require — companies to have backup systems to trigger blowout preventers in case of an emergency.

“Highly encourage?” Captain Nguyen of the Coast Guard asked. “How does that translate to enforcement?”

“There is no enforcement,” Mr. Saucier answered.

Problems Early On

In some ways it was jinxed from the start.

As early as June 2009, BP engineers had expressed concerns in internal documents about using certain casings for the well because they violated the company’s safety and design guidelines. But they proceeded with those casings.

Mechanical problems started in March with the Deepwater, setting the stage for the April 20 explosion.

More than five weeks before disaster, the rig was hit by several sudden pulsations of gas called “kicks” and a pipe had become stuck in the well. The blowout preventer, designed to seal the well in an emergency, had been discovered to be leaking fluids at least three times.

Dealing with these problems required teamwork, a challenge to the throng of different companies with responsibilities on the rig. Of the 126 people present on the day of the explosion, only eight were employees of BP. The interests of the workers did not always align.

In testimony to government investigators, rig workers repeatedly described a “natural conflict” between BP, which can make more money by completing drilling jobs quickly, and Transocean, which receives a leasing fee from BP every day that it continues drilling.

Halliburton was also on hand to provide cementing services, while a subsidiary monitored various drilling fluids. A different company provided drilling fluid systems, another provided technicians to operate the remote-control vehicles that are they eyes of the rig crew deep underwater, and yet another provided the well casing.

Amid this tangle of overlapping authority and competing interests, no one was solely responsible for ensuring the rig’s safety, and communication was a constant challenge.

“I don’t have a feeling that there is somebody who has a handle on the coordination of all the activities on this vessel, going from routine to crisis,” Captain Nguyen said during one hearing. “BP is in charge of certain things, Transocean is in charge of certain things.”

Financial concerns added pressures on the rig.

BP had fallen behind schedule and over budget, paying roughly $500,000 a day to lease the rig from Transocean. The rig was 43 days late for starting a new drilling job for BP by the day of the explosion, a delay that had already cost the company more than $21 million.

With the clock ticking, bad decisions went unchecked, warning signs went unheeded and small lapses compounded.

On April 1, a job log written by a Halliburton employee, Marvin Volek, warns that BP’s use of cement “was against our best practices.”

An April 18 internal Halliburton memorandum indicates that Halliburton again warned BP about its practices, this time saying that a “severe” gas flow problem would occur if the casings were not centered more carefully.

Around that same time, a BP document shows, company officials chose a type of casing with a greater risk of collapsing.

Despite noticing cementing problems, BP skipped a quality test of the cement around the pipe. Federal regulators also gave the rig a pass at several critical moments. After the rig encountered several problems, including the gas kicks and the pipe stuck in the well, the regulators did not demand a halt to the operation. Instead, they gave permission for a delay in a safety test of the blowout preventer.

An initial investigation by BP points to a range of missteps.

Tests shortly before the well blew out found a buildup of pressure that was an “indicator of a very large abnormality,” BP concluded and disclosed to Congress in a preliminary report last month. Yet, the rig team was satisfied after another test was deemed successful, and it proceeded.

About 10 hours before the explosion, the challenges of trying to keep the pressure in the well under control led to an argument among the workers about how best to finish the well and move the rig to the next site.

Douglas Brown, a Transocean mechanic on the rig, told investigators that an unnamed BP official whom he called “the company man” had instructed rig workers to execute a new plan for removing the riser and sealing the well. Mr. Brown testified that workers thought the plan was too risky. But he could not hear details of the argument that ensued.

“The company man was basically saying, ‘Well, this is how it’s going to be,’ ” Mr. Brown told investigators at a hearing on May 26 near New Orleans, adding that the Transocean rig workers “reluctantly agreed.”

When the explosion occurred around 9:50 p.m. on April 20, there was pandemonium on the rig. Most workers headed for lifeboats. Others rescued shipmates trapped under equipment. On the bridge, Captain Kuchta gathered with at least eight other managers and crew members to decide on an emergency plan.

Steve Bertone, the chief engineer for Transocean, wrote in his witness statement that he ran up to the bridge where he heard Captain Kuchta screaming at a worker, Andrea Fleytas, because she had pressed the distress button without authorization.

Mr. Bertone turned to another worker and asked him if he had called to shore for help but was told he did not have permission to do so. Another manager tried to give the go-ahead, the testimony said, but someone else said the order needed to come from the rig’s offshore installation manager.

A Strained Partnership

After the spill, the government and BP were supposed to cooperate, partly a consequence of laws written after the 1989 Exxon Valdez spill that were intended to make polluters more accountable for cleaning up their own messes.

One example of what was supposed to be a unified front was the Joint Information Center. Housed in a Shell-owned training and conference center in Robert, La., the center includes roughly 65 employees, 10 of whom work for BP. Together, they write and issue news releases and coordinate posts on a Web site, Facebook and Twitter.

But the partnership between BP and the government has strained along with the failure of efforts to plug the well. Mr. Salazar, for example, assured the public on May 2 that the administration was keeping its “boot on the neck” of BP. Next he was being publicly chastised by President Obama for using antagonistic language.

BP’s chief executive, Tony Hayward, told reporters at one point that the spill was “relatively tiny.” Federal officials soon released estimates indicating that the spill had far outpaced the Exxon Valdez disaster.

Under intense media scrutiny, at least a dozen federal agencies have taken part in the spill response, making decision-making slow, conflicted and confused, as they sought to apply numerous federal statutes.

In one stark example of government disputes, internal e-mail messages from the minerals agency obtained by The Times reveal a heated debate over whether to ignore some federal environmental laws about gas emissions in an effort to speed the drilling of relief wells.

One agency official, Michael Tolbert, warned colleagues on April 24 that emissions of nitrous oxide from the well were “pretty far over the exemption level,” an issue that his colleague Tommy Broussard said could result in “BP wasting time” on environmental safeguards in a way that would be “completely stupid.”

But a third colleague, Elizabeth Peuler, intervened to demand that the agency take “no shortcuts.”

“Not even for this one,” she said. “Perhaps even especially for this one.”

Debates over the speed — or lack thereof — of the government response have also played out in Louisiana, where state officials spent much of May repeatedly seeking permission from the federal government to construct up to 90 miles of sand barriers to prevent oil from reaching the wetlands.

For three weeks, as the giant slick crept closer to shore, officials from the White House, Coast Guard, Army Corps of Engineers, Fish and Wildlife Service, National Oceanic and Atmospheric Administration and Environmental Protection Agency debated the best approach.

They ultimately approved the use of only one barrier, called a berm, to be paid for by BP.

Comparing the federal government’s response to “telling a drowning man to wait,” Gov. Bobby Jindal of Louisiana asked: If one berm is safe, then why not the 23 others that he had requested? Slowly, the federal government approved more berms.

From the start, BP had played down the extent of the problem in miscalculating the rate of the leak and in denying the existence of underwater oil plumes. By deferring to the company, federal officials underestimated the problem they were facing and thus what was needed to respond to it.

It took more than a week after the explosion for the homeland security secretary, Janet Napolitano, to declare, on April 29, “a spill of national significance” a legal categorization that was needed before certain federal assistance could be authorized.

Because of such delays, critics have charged, more coastline will be hit, more animals will die, more habitats will be ruined and more money will be lost in tourism, fishing and real estate.

And yet, the administration is limited in its ability to divorce itself from BP, because federal officials rely on the company for technology, personnel and financing for the cleanup. The relationship reached a turning point last week when the administration said the national incident commander, Adm. Thad W. Allen of the Coast Guard, would start giving solo briefings. He will no longer share a podium with BP, which will offer its own briefings.

That move, however, does not resolve the matter of who is actually in charge in the gulf — of ensuring safety and regulating the dangerous extraction of vast riches under the deepest waters there, as well as of handling the continuing emergency.

The question is proving equally vexing as investigators try to place blame for events on the rig the day of the explosion— as was clear on Tuesday when Attorney General Eric H. Holder Jr. announced that he had begun a criminal investigation.

Citing “a wide range of possible violations,” Mr. Holder declined to specify the target of the investigation, because, he said, the authorities were still not clear on “who should ultimately be held liable.”