28 June 2010

A little on that BP Oil Spill

Dear visitor,

Officially, 35,000 to 60,000 barrels of oil are pouring into the sea each day. The incident has also claimed 11 lives. BP is collecting about 20,000 barrels per day. (Source: Mirror (UK), 28th June 2010. BP will plug Gulf of Mexico oil leak in 2 weeks.) Originally, when disaster first struck, the pundits estimated that about 1,000 barrels of oil was leaking into the sea each day. By the end of April 2010, this figure was revised to to 5,000 barrels per day. (Ref: New York Times, 28th April 2010. Size of Spill in Gulf of Mexico is Larger Than Thought.) On 23rd June 2010, it was reported that oil was gushing unchecked after BP removed an oil cap, due to a crash by a remote-controlled submarine. (Ref: Physorg, 23rd June 2010. BP removes oil cap after submarine crash.) An internal document, authored by BP, contemplates the worst case scenario: 100,000 barrels of oil gushing into the sea each day. (Ref: Reuters, 21st June 2010. Oil firms challenge deepwater dripping ban. Also ref: Business Insider, 20th June 2010. Internal BP Document Says Spill Could Reach 100,000 Barrels Per Day for images of the internal document)


Here are some links to photos of the oil spill, which began innocently in the Gulf of Mexico.

The issues surrounding the BP oil spill, include: (a) What will happen to BP? (b) Can the oil spill be cleaned? (c) How much will be needed to clean up the oil spill? (d) What policies or laws can countries enact to deal with such oil spills?

Here is a write-up on the oil spill, from a blog by US law firm Donovan Law Group.

On April 20, 2010, the Transocean semi-submersible drilling unit Deepwater Horizon explodes and catches fire, approximately 51 miles southeast of Venice, Louisiana, while finishing a well for British Petroleum (BP). On April 22, 2010, a second explosion occurs causing the Deepwater Horizon to sink. Kinks in the riser (a long pipe that connects the wellhead to the rig), created as the rig sank to the seafloor, may be all that is preventing the Deepwater Horizon well from releasing its maximum flow. Sand is an integral part of the formations that hold oil under the Gulf. This abrasive sand, carried in the oil as it shoots through the pipe at high velocity, is resulting in the ongoing erosion of the riser. Under a worst-case scenario, if the riser were to disintegrate due to this internal sandblaster-like erosion, the resulting catastrophic failure could easily release 60,000 to 160,000 barrels of oil per day. The formation that was being drilled by Deepwater Horizon when it sank is reported to have tens of millions of barrels of oil.
(Source: Donovan Law Group blog, 9th May 2010. BP Oil Spill of April, 2010: Why Class Action Lawsuits May Not be in the Best Interests of Potential Plaintiffs.)

The Donovan Law Group blog entry was concerned with potential class actions. It must be noted that Malaysian law follows the common law model, but the discussion on class actions nevertheless makes for interesting reading. Here is a passage on the common law remedy:

Class actions are an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. The “usual rule” is more commonly referred to as the “necessary parties rule,” and it required that all persons materially interested, either as plaintiffs or defendants in the subject matter of the bill ought to be made parties to the suit, however numerous they may be.

The common law models of litigation that envision one plaintiff sparring with one defendant were not designed to cope with harm experienced by huge numbers of geographically dispersed people.

(Source: ibid.)

The remedy of class actions should be explored in our Malaysian legislation.

Here are a few quick quips from some online newspapers:

  • Christian Science Monitor, 7th May 2010. Offshore drilling disaster: Have past oil spills foretold the current BP oil spill? - "The real, current catastrophe started on April 20, with an explosion on a British Petroleum rig about 50 miles (80 kilometers) offshore that eventually sank and triggered a gush of as much as 5,000 barrels of crude a day. The oil is flowing out of a deepwater pipe 5,000 feet (1,500 meters) down." (Apparently, in 2002, the US government ran an exercise to simulate a massive oil spill that would unleash about 3,000 barrels of oil a day).
  • The Star Online, 11th May 2010. TIMELINE - Gulf of Mexico oil spill. - "A drilling rig explosion on April 20 left 11 workers missing and presumed dead, and the rig's subsequent collapse unleashed a major oil spill that threatens the ecosystems and economy of the U.S. Gulf of Mexico." (Page worth visiting as it outlines the chronology of events)
  • The Star Online, 6th May 2010. US, BP fight Gulf oil spill on all fronts. - "The leak, still weeks or months away from being stopped, threatens to eclipse the 1989 Exxon Valdez catastrophe in Alaska, the worst U.S. oil spill."

From the Timeline at the Star Online:
* April 20, 2010 - Explosion and fire on Transocean Ltd's drilling rig Deepwater Horizon licensed to BP; 11 workers missing, 17 injured. The rig was drilling in BP's Macondo project 42 miles (68 km) southeast of Venice, Louisiana, beneath about 5,000 feet (1,525 metres) of water and 13,000 feet (4 km) under the seabed. A blowout preventer, intended to prevent release of crude oil, failed to activate.

* April 22 - The Deepwater Horizon rig, valued at more than $560 million, sink and a five mile long oil slick is seen.
(Source: ibid. and Chronology dated 10th May 2010)

US$75 Million Liability Limit Raised

The Exxon Valdez oil spill of 1989, alluded to in an article at The Star Online (ibid.), led the US Government to establish a US$75 million cap on liability that a corporation must bear from an oil spill. (Ref: Christian Science Monitor, 6th May 2010. Gulf oil spill: Questions unanswered, residents try legal action.) The Obama administration had planned to raise this limit on liability to US$10 billion. (Ref: Christian Science Monitor, ibid.)

On 16th June 2010, Bloomberg reported that BP would set aside a $10 billion dividend in light of US President Obama's demands that BP set aside cash to pay claims. Lawmakers in the US had demanded that BP pay $20 billion into an escrow account to be disbursed for claims against the company. (Source: Bloomberg, 16th June 2010. BP Dividend ‘Off the Table’ on Obama Spill Demands (Update1).) The article also quoted Standard Chartered Plc's estimation that the costs for "Cleanup and liabilities may reach $40 billion". And on 16th June 2010, as well, Reuters reported that BP had agreed to axe the $10 billion dividend and put $20 billion into an escrow account. (Ref: Reuters, 16th June 2010. BP agrees to $20 billion spill fund, cuts dividend.) On 20th June 2010, Reuters reported that BP was planning to raise US$50 billion to cover the cost of the oil spill. (Ref: Reuters, 20th June 2010. BP to raise $50 billion for oil spill costs: report.)

The BP oil spill incident is not yet concluded. Further developments are taking place all the time. Hopefully there will be time to write another piece on this topic in the near future.

Interested readers may find the following useful:

BP has also made efforts to contain the oil spill. An illustrated timeline of the efforts to contain the oil spill is available at New York Times' website. (Ref: New York Times, 26th June 2010. Methods That Have Been Tried to Stop the Leaking Oil.) On 22nd June 2010, BP announced that revenues from oil recovered in the Gulf of Mexico oil spill would be donated to the National Fish and Wildlife Foundation. (Ref: Marketwatch, 22nd June 2010. BP donating oil spill revenue to charity.)

Certain parties are reporting that the real cost of the oil spill is about US$1 trillion. (Ref: OilPrice.com, 6th May 2010. The Cover-up: BP's Crude Politics and the Looming Environmental Mega-Disaster.) Nobody knows how long this oil leak will last, but apparently there is "satellite imagery being withheld by the Obama administration that shows what lies under the gaping chasm spewing oil at an ever-alarming rate is a cavern estimated to be around the size of Mount Everest." (Ref: OilPrice.com, ibid.)

BP probably knows the environmental cost as well. The interesting part of this whole episode is the sudden epiphany to use oil booms as a containment mechanism. On 7th May 2010, MarketWatch posted about the containment dome that was supposed to cap the oil spill at its source. (Ref: Marketwatch, 7th May 2010. Containment dome heading toward source of oil spill.) All over the world, barbers and groomers collected hair, both of human and animal origin, to send to the Gulf of Mexico to help absorb the oil. (Ref: Dawn.com, 11th May 2010. Hair today, oil boom tomorrow.)


nice1link@yahoo.com said...

if this were to happen to petronas, m'sia will overnight become another greece as petronas income forms 45% of g'ment revenue. wonder if rigs in m'sia are equipped with acoustic switch. bp didn't have it and it could have prevented the spill