~ First You Laugh, Then You Cry

Yesterday oil industry executives from BP, Halliburton, and Transocean were on Capital Hill to give Senate testimony on what happened to cause the explosion and spill at Deepwater Horizon. As you might imagine the execs did a lot of finger pointing, but provided almost no information. So Jimmy Kimmel put Judge Judy in charge.
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It seems the fail safe blowout preventer on the Deepwater Horizon drilling rig, wasn’t so fail safe.  From USA Today:

Rep. Bart Stupak, D-Mich., chairman of the House Oversight and Investigations Subcommittee, said evidence gathered in the investigation of the spill showed that the blowout preventer apparently had been compromised by poor maintenance and other modifications.

“The safety of its entire operations rested on the performance of a leaking, modified, defective blowout preventer,” Stupak said.

When crews operating underwater robots attempted to activate the blowout preventers in the days after the spill, they discovered that there was a “significant leak” of the hydraulic fluid that activated the critical device designed to shut off oil in an emergency, Stupak said.

Crews working for Cameron, which manufactured the blowout preventer, discovered the leak coming from a loose connection, Stupak said. Cameron told the committee that it did not believe that the blowout caused the leak because other connections were tight.

Another shut-off system on the device had also been modified and did not work.

“An entire day’s worth of precious time had been spent engaging rams that closed the wrong way because it was wired wrong,” Stupak said.

A host of other problems may have interferred with the emergency shut-off system, Stupak said.

At least one battery located on the device, which was on the sea floor 5,000 feet beneath the surface, was dead. That could have prevented the device from operating in an emergency.

More on the failure from McClatchy.

BP’s newly released video of the spill:

Three bills related to the spill were introduced in the Senate on Tuesday .  The first to establish a commission to investigate the spill.  The second to lift limits on punitive damages against big oil companies.  And the third to raise civil and criminal penalties associated with violating provisions of the Outer Continental Shelf Lands Act. From the LA Times:

…the BP Deepwater Horizon Inquiry Commission Act of 2010, cosponsored by Sens. Boxer, Sheldon Whitehouse (D-R.I.) and Robert Menendez (D-N.J.), would establish an independent, non-partisan commission to investigate the oil spill in the Gulf of Mexico and provide recommendations to avoid future disasters.

… “The Big Oil Pollutant Pays Act,” cosponsored by Sens. Whitehouse, Menendez and Patrick Leahy (D-Vt.), would overturn the 2008 Supreme Court case Exxon Shipping Co. vs. Baker, which slashed Exxon Mobil Corp.’s punitive damages for its 1989 tanker spill. In that case, the Supreme Court held that unless Congress acted, punitive damages under maritime law had to be limited to the amount of compensatory damages assessed in a case (the damages assessed to make victims whole). The proposed bill would allow punitive damages based on all facts in a case, without regard to the amount of other damages owed.

The Outer Continental Shelf Lands Act Amendments Act, cosponsored by Menendez and Whitehouse would raise the civil and criminal penalties associated with violating provisions of the Outer Continental Shelf Lands Act, as well as federal Minerals Management Service and Coast Guard safety and environmental regulations promulgated under the act.

Currently, the civil penalties in the statute are capped at $20,000 per day. This bill would raise the daily civil penalty maximum to $75,000 ($150,000 per day in case of a threat of serious or irreparable harm to life or the environment). The criminal penalties in the statute are capped at $100,000 and imprisonment of not more than 10 years. The bill would raise the criminal penalty maximum to $10,000,000.

Just to give a bit of perspective on the numbers, from the Washington Post:

On Monday, BP said it spent $350 million in the first 20 days of the spill response, about $17.5 million a day. It has paid 295 of the 4,700 claims received, for a total of $3.5 million. By contrast, in the first quarter of the year, the London-based oil giant’s profits averaged $93 million a day.

The amount of oil leaking into the Gulf of Mexico has been estimated at 5,000 to 25,000 barrels a day. In the first quarter, BP produced 2.5 million barrels of crude oil a day worldwide — and it received $71.86 for every barrel.

BP has strong borrowing capacity, too. Analysts say it could get as much as $20 billion without exceeding its debt targets. “Even a pretty large digging into the pockets would be within our capacity to handle,” said Andrew Gowers, a BP spokesman.

And for a little historical perspective, more Washington Post:

punitive damages against Exxon for the 1989 Exxon Valdez oil-tanker spill were originally set at $5 billion in 1994 but were reduced on appeal. The company agreed last year to pay less than $1 billion, including interest.

Yep. That’s all folks. Punitive damages.

*Update*

On Thursday Transocean took steps to contain its financial exposure from the rig explosion and collapse, which killed 11 workers.  From The New York Times:

Transocean, based in Switzerland, filed a petition in federal court in Houston to limit its liability to $26.7 million under an 1851 liability law that was devised to protect American ship owners facing competition from foreign-flagged vessels.

In a statement, the company said it “believes this step is necessary to protect the interests of its employees, its shareholders and the company.” Transocean also said it wanted to consolidate all the lawsuits it is facing in one court, and establish a single fund from which “legitimate claims may be paid.”

Is anyone surprised?
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[Cross posted at No Quarter]

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