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Geoffrey Styles

Geoffrey Styles

Geoffrey Styles is Managing Director of GSW Strategy Group, LLC, an energy and environmental strategy consulting firm. Since 2002 he has served as a consultant,…

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Oil company Chiefs Push for Lifting of Drilling Freezes

I watched Tuesday's hearing on offshore drilling operations and safety by the Energy and Environment Subcommittee of the House Energy & Commerce Committee, which featured the CEOs of ExxonMobil, Chevron, and ConocoPhillips and the US heads of Shell and BP. Rather than giving in to the temptation to deliver a rant on the current level of dysfunction in Congress, I want to highlight a few things that stood out in the testimony of the assembled chiefs of the largest oil companies in the US, and then focus on the central dilemma that was explored in the hearing.

1. Although couched in careful language referring to the importance of completing the full investigation of the circumstances involved, the heads of the other companies came as close as anyone could reasonably expect to saying that BP's well design for Macondo and the processes for drilling it would not have passed muster in their companies.

2. A series of very interesting questions focused on the prevalence and effectiveness of "stop-work" policies, in which any employee or contractor on a rig can call a halt to drilling if he or she sees something that looks dangerous. BP indicated it had such a policy in place on Deepwater Horizon. However, John Watson, the CEO of Chevron (in which I own stock) pointed out that in order for such policies to be credible, employees who exercise that initiative must be recognized and rewarded. After all that we've learned about the warning signs on this well, I suspect I'm not alone in having difficulty imagining a "stop-work" call having been welcomed in this case. Corporate culture matters.

3. In one sentence, ExxonMobil CEO Rex Tillerson calmly demolished the half-baked notion that every deepwater well be required to have a relief well drilled in parallel, just in case it would be needed. (This was done in such a low-key way that the questioner didn't seem to grasp what had been said.) Instead of mentioning the doubling of cost involved, Tillerson pointed out that this strategy would double the risk of every project. The risks of a parallel relief well would be the same as for the exploration well, because it would be another exploration well.

4. Sometime later Congressman Scalise from Louisiana picked up on this theme with a question that should have galvanized the room, but somehow didn't. He asked BP North America President Lamar McKay if the relief wells at Macondo were being drilled to the same plans as the blown-out exploration well. Answer: yes, with oversight at every step of the way.

Oil Company Executives
From left, ExxonMobil Chairman and CEO Rex Tillerson, Chevron Chairman and CEO John Watson, ConocoPhillips CEO James Mulva, Shell Oil President Marvin Odum, and BP America chairman and president Lamar McKay are sworn in on Capitol Hill prior to testifying before the House Energy and Environment subcommittee hearing on oil drilling.

I'm sure I'm neglecting other important comments, though I'm also dismissing the first hour-and-a-half of the hearing, which was frittered away in a blather of posturing and wild "gotcha" chases involving extinct Gulf Coast walruses and dead experts' telephone numbers. But despite all of this, I thought the crux of the problem concerning how to address the other Gulf Coast deepwater leases came through in some astute questions and surprisingly candid answers.

Many of the members recognized the importance of the resources involved to the economy of the region and to the energy and national security of the country, and the serious damage that the drilling freezes are inflicting. At the same time, they highlighted the breakdown of the public's trust in the industry to extract these resources safely, despite the statistical evidence that, with 14,000 deepwater wells drilled globally, the Macondo well stands as an anomaly at a single company. The industry representatives also made it very clear that the primary defense against the effects of uncontrolled blow-outs such as this one lies in prevention, rather than clean-up, for which the industry was not adequately prepared to handle a spill on this scale. That's a situation that can't be rectified within six months, and possibly not six years, though the innovations and inspiration coming out of this disaster ought to provide a substantial kick-start to bringing spill-response into the 21st century.

That leaves our government with a monumental dilemma regarding the resumption of offshore drilling. One answer is the total risk avoidance of the current freeze, which appears politically motivated, but for which its supporters might point to some of today's testimony.

Unfortunately, the freeze will inevitably increase our reliance on imported oil, because as much as we recognize the need to move in the direction of renewable energy and other alternatives, there is currently no other meaningful substitute for the oil that we now get from deepwater, unless we are willing to consider the risk tradeoffs involved in targeting new domestic oil production on onshore and shallow-water resources that are presently off-limits, such as those in the Arctic National Wildlife Refuge.

Another, admittedly riskier solution would be to allow companies other than BP, using designs and procedures in conformance with the industry guidelines developed by the American Petroleum Institute and broadly similar to those just recommended by the Department of Interior, to resume drilling on projects already under way, while the investigations and Presidential commission determine the longer-term measures appropriate for new leases. I lean strongly toward a selective resumption, but the responsibility involved is literally awesome and properly resides with our elected leaders.

By. Geoffrey Styles

Source: Energy Tribune




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