Deepwater Assignment

8/17/2019 Deepwater Assignment

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The Deepwater Horizon Incident

(Also known as the BP Gulf Oil Disaster)

A lesson in contracts, torts, insurance, and lots of other legalconcepts...

1. Background and Summary1

The Macondo prospect exploration rights were acquired by BP in 2009, with the prospect jointlyowned by BP (65%), Anadarko (25%) and MOEX Offshore 2007, a wholly-owned subsidiary ofMitsuit Corp. (10%).

BP was the Operator of the prospect, pursuant to an Operating Agreement which provided, inpart, that the working interest owners would indemnify BP for their share of costs, losses andliabilities for the project. The parties were therefore jointly liable for any liabilities on theproject, except actions of the Operator that amount to “gross negligence or willfulmisconduct” in the operation of the project. It can be assumed there was a force majeureclause in the operating agreement.

Before operations could begin, BP had to prepare and submit to the US Minerals Management

Service (“MMS”) detailed plans specifying where and how a well was to be drilled, cased,cemented and completed based on its interpretation of proprietary data, including geologic datafrom seismic surveys. Once the plans were approved, permits were issued and work began,the Operator served as the general contractor that managed all of the work that is performed onits lease. The Operator selected the contractors, including a driller (in this case, Transocean)which provides the rig from which drilling operations are performed. The driller was responsiblefor drilling and supplies most of the crew and equipment on the rig. The Operator’s “well plan”indicated the manner in which the drilling was to occur, including the location, the path, thedepth, the process and the testing. The drill bits were selected by the Operator, but weresupplied by a different subcontractor.

BP self-insured its property and liability risks through its captive insurer, Jupiter Insurance Ltd.2 The policy limit was $700M. The claims for which BP had coverage included marine hull,

marine liability, general liability, environmental/pollution liability, control of well, businessinterruption, drilling and operating liability, and workers’ compensation coverage. (By self-insuring, this substantially reduces the exposure of the commercial insurance industry as awhole to an event.)

The Deepwater Horizon drilling rig was leased from Transocean by BP in 2001. In February2010, the rig commenced drilling an exploratory well at the Macondo Prospect, about 66 km offthe southeast coast of Louisiana, at a water depth of approximately 1,500 m. On April 20, 2010,the well was in its final stages of completion at the time – its cement casing was injected andhardening, and the rig was due to move shortly to its next location. The exploratory work wasdescribed as “concluded” and permission had already been requested from MMS to terminateoperations at the Macondo site.

On 20th April 2010, Transocean’s Deepwater Horizon oil rig burst into flames, and thus began

the worst oil spill in the history of the U.S. oil and gas industry. The leak causing the oil tospread took months to stop and an estimated 200 million gallons of oil spewed into the Gulf ofMexico.

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1 Sources of text and information for this discussion scenario include the following: http://www.bbc.co.uk/news/world-us-canada-13172977;http://en.wikipedia.org/wiki/Timeline_of_the_Deepwater_Horizon_oil_spill.

2 Captive insurance companies are insurance companies established with the specific objective of insuring risks emanating from their parentgroup or groups, but they sometimes also insure risks of the group's customers. (http://en.wikipedia.org/wiki/Captive_insurance)

http://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Insurancehttp://www.bbc.co.uk/news/world-us-canada-13172977http://www.bbc.co.uk/news/world-us-canada-13172977


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The Deepwater Horizon prior to the explosion onApril 20, 2010.

Four important technical issues:

• Cement job failed to seal off the producing reservoir. Basically, the casing seal, whichwas designed and processed by Halliburton, failed.

•

Hydrocarbon inflow was not recognized and hydrocarbons entered riser.• Gas ignited the rig, causing fire and loss of power (therefore the rig started to drift).

• Blowout preventer, provided by Cameron International, also failed to seal the well.

2. Some of the Parties involved:

• British Petroleum – operator under the joint operating agreement.• Halliburton – cement manufacturer and designer of the cement casing seal.• Transocean – owner of the Deepwater Horizon oil rig• Cameron International - Houston company that supplied the blowout preventer for the

Deepwater Horizon.• US Regulatory Agencies (e.g. Minerals Management Service, or “MMS”, now Bureau of Ocean

Energy Management, or “BOEM”)• Fisherman and small businesses along the Gulf Coast• Rig crew (mostly supplied by Transocean under contract to BP).• Kurt Mix, Drilling and Completions Project Engineer, BP• Joseph Kaminski – engineer who designed the solution to stop the oil flow• Various insurance companies

3.EAM Terminology to be Discussed in the Context of this Disaster

Risk management, due diligence, offer and acceptance, breach of contract, consensus, consideration,capacity, intent to create legal relations, precedents, damages (compensatory, liquidated, punitive, nominal),indemnities, representations and warranties, privity of contract, termination of contractual relationship,insurance, statute of limitations, torts, negligence.

4. News release: US oil spill: Transocean 'contributed' to Gulf disaster (April 22, 2011)3

“A lax safety culture and poorly working kit aboard the Deepwater Horizon oil rig contributed to last year's explosion,the US Coast Guard says.

In a report on the incident, which killed 11 and caused a massive spill, the agency criticised the practices and trainingof rig owner Transocean.

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3 http://www.bbc.co.uk/news/world-us-canada-13172977

http://homeport.uscg.mil/cgi-bin/st/portal/uscg_docs/MyCG/Editorial/20110422/FINAL%20REDACTED%20VERSION%20DWH.pdf?id=d86d1a2b13c58cd23843618a0d45c43e1f638ba2http://homeport.uscg.mil/cgi-bin/st/portal/uscg_docs/MyCG/Editorial/20110422/FINAL%20REDACTED%20VERSION%20DWH.pdf?id=d86d1a2b13c58cd23843618a0d45c43e1f638ba2


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It said equipment was poorly maintained and alarms and automatic shutdown systems did not work properly.

A Transocean spokesman on Friday rejected the findings.

In a 288-page report released just over a year after the accident, the Coast Guard found actions by Transocean andthe oil rig crew hindered their ability to prevent or contain the disaster.

"Deepwater Horizon and its owner, Transocean, had serious safety management system f ailures and a poor safetyculture," the report said. "Collectively, this record raises serious questions whether Transocean's safety culture was a

factor that contributed to the disaster."

'Lax oversight' Transocean spokesman Brian Kennedy told the Associated Press that the Coast Guard had inspected the DeepwaterHorizon seven months before the blowout and deemed it in compliance with safety standards.

"We strongly disagree with - and documentary evidence in the Coast Guard's possession refutes - key findings in thisreport," he said in a statement.

Overnight on 20 April 2010, Transocean's Deepwater Horizon burst into flames while drilling a well for BP.

In the months that followed, more than 200 million gallons (780 million litres) of oil flowed in the Gulf of Mexico fromthe well, soiling hundreds of miles of coastline in the worst US oil spill in history.

The Coast Guard also cited lax oversight by the Republic of the Marshall Islands, the nation in the Pacific where

Transocean had registered the rig.

It said national regulators had effectively "abdicated" their inspection responsibilities by contracting them out to thirdparties.

Crew 'complacent' The Coast Guard report said evidence indicated the explosion occurred when electrical equipment ignited a cloud offlammable gas that had flowed up from the well.

It said electrical equipment may have been incapable of preventing ignition, and cited a 2010 inspection audit thatfound some equipment on board was in "bad condition" and was "seriously corroded".

"Because of these deficiencies, there is no assurance that the electrical equipment was safe and could not havecaused the explosions," the Coast Guard said.

Among other contributing shortcomings, the report found:• Gas detectors on the oil rig were not set up to shut down the flow from the well automatically in an

emergency, nor to shut down the air flow into the rig's engine room• Audible alarms on some gas detectors had been turned off to avoid disturbing the crew with false alarms• The rig's fire-fighting system depended on electricity to power water pumps and was rendered useless when

the explosions caused a loss of power • Rig crew had become complacent following routine fire drills from which drilling crew were sometimes

excused• The crew had not held training drills on how to respond to a well blowout requiring rig evacuation

On Wednesday, the first anniversary of the explosion, BP sued Transocean for $40B (£24.37bn) in damages in anattempt to defray the oil firm's tens of billions of dollars in liabilities associated with clean-up and compensation.

In federal court in New Orleans, BP said safety systems on Transocean's Deepwater Horizon rig had failed. BP alsosued the maker of the rig's blowout preventer, alleging the device failed to stop the huge oil spill that followed theexplosion.

Transocean has also demanded court judgements against BP and other companies.

5.Timeline of the Disaster

2008

• March 2008 – The mineral rights to drill for oil at the Macondo well, located in MississippiCanyon Block 252 in the United States sector of the Gulf of Mexico about 41 miles(66 km) off the Louisiana coast, were purchased by BP at the Minerals ManagementService's (MMS) Lease Sale No. 206, held in New Orleans.

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http://en.wikipedia.org/wiki/BPhttp://en.wikipedia.org/wiki/Minerals_Management_Servicehttp://en.wikipedia.org/wiki/Mississippi_Canyonhttp://en.wikipedia.org/wiki/Macondo_Prospecthttp://en.wikipedia.org/wiki/Mississippi_Canyonhttp://en.wikipedia.org/wiki/New_Orleanshttp://en.wikipedia.org/wiki/New_Orleanshttp://en.wikipedia.org/wiki/Minerals_Management_Servicehttp://en.wikipedia.org/wiki/Minerals_Management_Servicehttp://en.wikipedia.org/wiki/Minerals_Management_Servicehttp://en.wikipedia.org/wiki/Minerals_Management_Servicehttp://en.wikipedia.org/wiki/BPhttp://en.wikipedia.org/wiki/BPhttp://en.wikipedia.org/wiki/Mississippi_Canyonhttp://en.wikipedia.org/wiki/Mississippi_Canyonhttp://en.wikipedia.org/wiki/Mississippi_Canyonhttp://en.wikipedia.org/wiki/Mississippi_Canyonhttp://en.wikipedia.org/wiki/Macondo_Prospecthttp://en.wikipedia.org/wiki/Macondo_Prospect


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2009

• February – BP files a 52 page exploration and environmental impact plan for theMacondo well with the MMS. The plan stated that it was "unlikely that an accidentalsurface or subsurface oil spill would occur from the proposed activities". In the event anaccident did take place the plan stated that due to the well being 48 miles (77 km) fromshore and the response capabilities that would be implemented, no significant adverseimpacts would be expected.

• April 6 – The Department of the Interior exempted BP's Gulf of Mexico drilling operationfrom a detailed environmental impact study after concluding that a massive oil spill wasunlikely.

• June 22 – Mark E. Hafle, a senior drilling engineer at BP, warns that the metal casing forthe blowout preventer might collapse under high pressure.

• October 7 – The Transocean Marianas semi-submersible rig begins drilling the Macondowell.

• November 9 – Hurricane Ida damages Transocean Marianas enough that it has to bereplaced.

2010

February• February 15, 2010 – Deepwater Horizon drilling rig, owned by Transocean, begins

drilling on the Macondo Prospect. The planned well was to be drilled to 18,000 feet(5,500 m) below sea level, and was to be plugged and suspended f or subsequentcompletion as a subsea producer.

March

• March 8 – Target date for the completion of the well which had been budgeted to cost$96 million.

• March 17 – BP Chief Tony Hayward sells one third of his BP stock (223,288 shares).Closing BP price on March 17 on the New York Stock Exchange is $58.15.

• March ? – An accident damages a gasket on the blowout preventer on the rig.

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http://en.wikipedia.org/wiki/Gaskethttp://en.wikipedia.org/wiki/Blowout_preventerhttp://en.wikipedia.org/wiki/Gaskethttp://en.wikipedia.org/wiki/Blowout_preventerhttp://en.wikipedia.org/wiki/Subsea_(technology)http://en.wikipedia.org/wiki/Blowout_preventerhttp://en.wikipedia.org/wiki/Blowout_preventerhttp://en.wikipedia.org/wiki/Gaskethttp://en.wikipedia.org/wiki/Gaskethttp://en.wikipedia.org/wiki/Tony_Haywardhttp://en.wikipedia.org/wiki/Tony_Haywardhttp://en.wikipedia.org/wiki/Subsea_(technology)http://en.wikipedia.org/wiki/Subsea_(technology)http://en.wikipedia.org/wiki/Transoceanhttp://en.wikipedia.org/wiki/Transoceanhttp://en.wikipedia.org/wiki/Deepwater_Horizonhttp://en.wikipedia.org/wiki/Deepwater_Horizonhttp://en.wikipedia.org/wiki/Hurricane_Ida_(2009)http://en.wikipedia.org/wiki/Hurricane_Ida_(2009)http://en.wikipedia.org/wiki/Semi-submersiblehttp://en.wikipedia.org/wiki/Semi-submersiblehttp://en.wikipedia.org/wiki/Transocean_Marianashttp://en.wikipedia.org/wiki/Transocean_Marianashttp://en.wikipedia.org/wiki/Blowout_preventerhttp://en.wikipedia.org/wiki/Blowout_preventerhttp://en.wikipedia.org/wiki/Macondo_Prospecthttp://en.wikipedia.org/wiki/Macondo_Prospect


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April

• April 1 – Halliburton employee Marvin Volek warns that BP's use of cement "was againstour best practices." (The terms of Halliburton's contract with BP indemnifies Halliburtonfrom liability for spill damages, unless Halliburton is found to have been grossly

negligent.)• April 6 – MMS issues permit to BP for the well with the notation, "Exercise caution while

drilling due to indications of shallow gas and possible water flow."

• April 9 – BP drills last section with the wellbore 18,360 feet (5,600 m) below sea level butthe last 1,192 feet (363 m) need casing. Halliburton recommends liner/tieback casingthat will provide 4 redundant barriers to flow. BP chooses to do a single liner with fewerbarriers that is faster to install and cheaper ($7 to $10 million).

• April 14 – Brian Morel, a BP drilling engineer, emails a colleague "this has been anightmare well which has everyone all over the place."

• April 15 – Morel informs Halliburton executive Jesse Gagliano that they plan to use6 centralizers. Gagliano says they should use 21. Morel replies in an email, "it's too late

to get any more product on the rig, our only option is to rearrange placement of thesecentralizers." Gagliano also recommends to circulate the drilling mud from the bottom ofthe well all the way up to the surface to remove air pockets and debris which cancontaminate the cement, saying in an email, "at least circulate one bottoms up on thewell before doing a cement job." Despite this recommendation, BP cycles only 261barrels (41.5 m3) of mud, a fraction of the total mud used in the well.

• April 15 – MMS approves amended permit for BP to use a single liner with fewerbarriers.

• April 16 – Brett Cocales, BP's Operations Drilling Engineer, emails Morel confirming the6 centralizer approach.

• April 17 – Deepwater Horizon completes its drilling and the well is being prepared to becemented so that another rig will retrieve the oil. The blowout preventer is tested and

found to be "functional." Gagliano now reports that using only 6 centralizers "would likelyproduce channeling and a failure of the cement job."

• April 18 – Gagliano's report says "well is considered to have a severe gas flow problem."Schlumberger flies a crew to conduct a cement bond log to determine whether thecement has bonded to the casing and surrounding formations.

• April 19 – Halliburton completes cementing of the final production casing string.

Halliburton conducted four tests on the cement to be used on the Deepwater Horizon rig.Only one showed the mix would hold.

Halliburton, which has blamed BP's well design and operational decisions for the disaster,acknowledged it never tested the final mixture of cement for stability after BP made a last-minute change to the mix.

• April 20 –

• 7 am – BP cancels a recommended cement bond log test. Conducting the testwould have taken 9–12 hours and $128,000. By canceling the cement test BPpaid only $10,000. Crew leaves on 11:15 am flight. BP officials gather on theplatform to celebrate seven years without an injury on the rig. The planned

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moving of the Deepwater Horizon to another location was 43 days past due andthe delay had cost BP $21 million.

• April 20, 2010 21:49 (CDT), Block 252, Mississippi Canyon Andrea Fleyras hadbeen monitoring the dynamic positioning system on the bridge of the Horizonwhen she felt a jolt. Before she could make sense of it, a rig shaking shock cameout of nowhere and magenta warnings began flashing on her screen. Magentameant the most dangerous level of combustible gas intrusion.

• 9:45 pm CDT – Gas, oil and concrete from the Deepwater Horizon explodeup the wellbore onto the deck and then catches fire. The explosion kills11 platform workers and injures 17 others; another 98 people survivewithout serious physical injury.

A relief well was the only source control option mentioned by name in Defendants' InitialExploration Plan for the area that included the Macondo well. Other than the lengthyprocess (at least 100 days) of drilling a relief well, Defendants had no available, testedtechnique to control or stop a deepwater blowout in the event of a failure of the blowoutpreventer ("BOP") to properly function.

• April 21 Coast Guard rear admiral Mary Landry named Federal On Scene Coordinator.Coast Guard log reports “Potential environmental threat is 700,000 gallons of diesel on

board the Deepwater Horizon and estimated potential of 8,000 barrels per day of crudeoil, if the well were to completely blowout. Most of the current pollution has beenmitigated by the fire. There is some surface sheening extending up to 2 miles from thesource.” The log also reports that two attempts to shut the BOP using an ROV havefailed.

• April 22 10:21 am – Rig sinks. CNN quote Coast Guard Petty Officer Ashley Butler assaying that "oil was leaking from the rig at the rate of about 8,000 barrels (340,000 US gallons; 1,300 cubic metres) of crude per day." 100,000 US gallons (380,000 litres) ofdispersants are pre-authorized by the United States Environmental Protection Agency(EPA) and placed in position even though there is no sign of a leak. Three Norwegiancrews from Ocean Intervention III from Oceaneering International, Skandi Neptune fromDOF ASA, and Boa Sub C (from Boa International) begin using remotely operatedunderwater vehicles (ROV) to map the seabed and assess the damage to the wreck.The crews report "large amounts of oil that f lowed out."

• April 23 – Coast Guard Rear Adm. Mary Landry tells CBS "At this time, there is no crudeemanating from that wellhead at the ocean surface, er, at the ocean floor...There is notoil emanating from the riser either." Unified Command begins operating out of the RoyalDutch Shell Training and Conference Center in Robert, Louisiana. Search and rescuesuspended at 5 pm. Eleven of the 126 people on the rig have perished. Coast Guard logreports, “BP will establish an ICP at Houma, Louisiana today to monitor the responseand prepare for potential release estimated potential of 64,000- 110,000 bbls (2 ,688,000- 4,620,000 gal) per day of crude oil if the well were to completely blowout.”

• April 24 – In accordance with the existing in situ burn plans, the OSC determined in situburning was a viable response method for several reasons. First, weather and sea-state

did not allow continuous skimming and alternatives were needed. Second, skimmersand dispersants could not completely remove the oil being released from the well.Finally, the OSC determined in situ burning (ISB) was a safe and effective way toremove large volumes of oil from the ocean surface, based on data for in situ burns fromprevious spills. BP reports a leak 1,000 barrels (42,000 US gallons; 160 cubic metres) aday.

• April 25 – Oil sheen seen covering 580 square miles (1,500 km2) and is 70 miles(110 km) south of Mississippi and Alabama coastlines and was 31 miles (50 km) from

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the ecologically sensitive Chandeleur Islands. BP begins process to establish two reliefwells.

• April 26 – Oil reported 36 miles (58 km) southeast of Louisiana. Booms set up to keep oilfrom washing ashore. A huge containment chamber is moved to Superior EnergyServices subsidiary Wild Well Control in Port Fourchon, Louisiana. BP closing stockprice 57.91 Coast Guard log reports “attempts to actuate the blow preventer (BOP)middle rams and blind shears were ineffective due to a hydraulic leak on the valve.

Repairs are being worked overnight. The well head continues to dischargeapproximately 1,000 barrels/day.”

• April 27 – Slick grows to 100 miles (160 km) across and 20 miles (32 km) from Louisianacoast.

• April 28, the National Oceanic and Atmospheric Administration estimated that the leakwas likely 5,000 barrels (210,000 US gallons; 790 cubic metres) a day, five times largerthan initially estimated by BP. BP announces controlled test to burn oil off the surfacewas successful. Oil is 20 miles (32 km) east of the mouth of the Mississippi River. MMSpostpones 2010 Offshore Industry Safety Awards scheduled to be May 3.

• April 29 – Louisiana Governor Bobby Jindal declares a state of emergency. 100,000 feet(30 km) of containment booms were deployed along the coast. By the next day, thisnearly doubled to 180,000 feet (55 km) of deployed booms, with an additional 300,000feet (91 km) staged or being deployed.

• April 30 – Oil washes ashore at Venice, Louisiana. President Barack Obama halts newoffshore drilling unless safeguards are in place. – Coast Guard issues subpoena toTransocean "to maintain the blowout preventer and to not allow anyone or anything totamper with it" without the Guard's permission. EPA establishes its website epa.gov/bpspill for its response. Sanford Bernstein estimates capping the leaks and cleaning upthe spill may cost $12.5 billion. Innocentive launches a website asking people to submittheir solutions to the crisis by June 30. On April 30, the United States House Committeeon Energy and Commer ce asked Halliburton to brief it as well as provide any documentsit might have related to its work on the Macondo well.

May

•May 2 – Obama meets with fishermen and Coast Guard in Venice, Louisiana. Oildiscovered in the South Pass. Transocean's Development Driller III starts drilling a firstrelief well.

• May 3 – Shares of Nalco Holding Company jump 18% in one day after it is revealed thatits dispersant products are being used for the cleanup.

• May 5 – BP announces that the smallest of three known leaks had been capped allowingthe repair group to focus their efforts on the remaining leaks.

• May 7 – A 125-tonne (280,000 lb) container dome is lowered over the largest of the wellleaks and pipes the oil to a storage vessel on the surface.

• May 8 – BP reports that methane is freezing at the top of the dome making it ineffective.

• May 10 – After failed containment dome BP announces plans to apply five feet indiameter containment vessel nicknamed "top hat". BP announces strategy of trying topush mud and debris down the tube to clog it. The strategy is nicknamed "junk shot."

• May 11 – BP, Transocean and Halliburton officials testify before Congress blaming eachother for the incident. MMS and Coast Guard Joint Investigation Team chaired by USCGCapt. Hung Nguyen and MMS employee David Dykes begin a Joint Marine Board ofInvestigation into the accident holding the first hearings at the Cr owne Plaza Hotel inKenner, Louisiana where they interview survivors.

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http://en.wikipedia.org/wiki/Kenner,_Louisianahttp://en.wikipedia.org/wiki/Crowne_Plazahttp://en.wikipedia.org/wiki/Nalco_Holding_Companyhttp://en.wikipedia.org/wiki/Venice,_Louisianahttp://en.wikipedia.org/wiki/United_States_House_Committee_on_Energy_and_Commercehttp://en.wikipedia.org/wiki/United_States_House_Committee_on_Energy_and_Commercehttp://en.wikipedia.org/wiki/Innocentivehttp://epa.gov/bpspillhttp://en.wikipedia.org/wiki/Sanford_Bernsteinhttp://en.wikipedia.org/wiki/Venice,_Louisianahttp://en.wikipedia.org/wiki/Barack_Obamahttp://en.wikipedia.org/wiki/Boom_(containment)http://en.wikipedia.org/wiki/Bobby_Jindalhttp://en.wikipedia.org/w/index.php?title=Superior_Energy_Services&action=edit&redlink=1http://en.wikipedia.org/wiki/Port_Fourchon,_Louisianahttp://en.wikipedia.org/w/index.php?title=Superior_Energy_Services&action=edit&redlink=1http://en.wikipedia.org/wiki/Kenner,_Louisianahttp://en.wikipedia.org/wiki/Kenner,_Louisianahttp://en.wikipedia.org/wiki/Crowne_Plazahttp://en.wikipedia.org/wiki/Crowne_Plazahttp://en.wikipedia.org/wiki/Methanehttp://en.wikipedia.org/wiki/Methanehttp://en.wikipedia.org/wiki/Nalco_Holding_Companyhttp://en.wikipedia.org/wiki/Nalco_Holding_Companyhttp://en.wikipedia.org/wiki/Development_Driller_IIIhttp://en.wikipedia.org/wiki/Development_Driller_IIIhttp://en.wikipedia.org/wiki/Venice,_Louisianahttp://en.wikipedia.org/wiki/Venice,_Louisianahttp://en.wikipedia.org/wiki/United_States_House_Committee_on_Energy_and_Commercehttp://en.wikipedia.org/wiki/United_States_House_Committee_on_Energy_and_Commercehttp://en.wikipedia.org/wiki/United_States_House_Committee_on_Energy_and_Commercehttp://en.wikipedia.org/wiki/United_States_House_Committee_on_Energy_and_Commercehttp://en.wikipedia.org/wiki/Innocentivehttp://en.wikipedia.org/wiki/Innocentivehttp://en.wikipedia.org/wiki/Sanford_Bernsteinhttp://en.wikipedia.org/wiki/Sanford_Bernsteinhttp://epa.gov/bpspillhttp://epa.gov/bpspillhttp://epa.gov/bpspillhttp://epa.gov/bpspillhttp://en.wikipedia.org/wiki/Barack_Obamahttp://en.wikipedia.org/wiki/Barack_Obamahttp://en.wikipedia.org/wiki/Venice,_Louisianahttp://en.wikipedia.org/wiki/Venice,_Louisianahttp://en.wikipedia.org/wiki/Boom_(containment)http://en.wikipedia.org/wiki/Boom_(containment)http://en.wikipedia.org/wiki/Bobby_Jindalhttp://en.wikipedia.org/wiki/Bobby_Jindalhttp://en.wikipedia.org/wiki/Mississippi_Riverhttp://en.wikipedia.org/wiki/Mississippi_Riverhttp://en.wikipedia.org/wiki/National_Oceanic_and_Atmospheric_Administrationhttp://en.wikipedia.org/wiki/National_Oceanic_and_Atmospheric_Administrationhttp://en.wikipedia.org/wiki/Port_Fourchon,_Louisianahttp://en.wikipedia.org/wiki/Port_Fourchon,_Louisianahttp://en.wikipedia.org/w/index.php?title=Superior_Energy_Services&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Superior_Energy_Services&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Superior_Energy_Services&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Superior_Energy_Services&action=edit&redlink=1http://en.wikipedia.org/wiki/Chandeleur_Islandshttp://en.wikipedia.org/wiki/Chandeleur_Islands


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• May 11 - Mr. Kaminski telephones the BP Help Hotline and offers to assist BP in itsefforts to control the source of the oil spill resulting from the blowout. The BPHelp Hotline technical support team representative was so impressed with Mr.Kaminski's solutions that he requested Mr. Kaminski to submit his ideas in writingto the Horizon Support Team.

• May 12 – BP releases first public video of leak and others say the leak is significantly

higher than what BP has been saying. One estimate says it could to be 20,000–100,000barrels (840,000–4,200,000 US gallons; 3,200–16,000 cubic metres) a day.

• May 13 – Tony Hayward calls the oil spill "relatively tiny" in comparison with the size ofthe "ocean." Transocean files in the U.S. District Court for the Southern District of Texasto limit its liability under the Limitation of Shipowner's Liability Act to just its interest in theDeepwater Horizon which it values at $26,764,083.

• On May 13, 2010, during a conference call with BP representatives organized byMs. Elizabeth Hittos, Legislative Counsel for U.S. Congressman Gus Bilirakis, Mr.Kaminski again explained his ideas and answered questions from BPrepresentatives. Ms. Hittos was asked questions by BP representatives on the lineand conveyed the questions to Mr. Kaminski who provided detailed and specific

answer s to the questions being asked by the BP representatives.

• On May 14, 2010, Mr. Kaminski received an email from Ms. Hittos wherein sherequests Mr. Kaminski's further assistance. In her email, Ms. Hittos states,"Joseph, I'd like to forward you a slide show of BP's plan. Take a look andspecifically tell me where they are going wrong. I would like to point out theirinherent mistakes in our next conference call. Thanks."

• May 14 – BP inserts 4-inch (100 mm) wide riser into the 21-inch-wide burst pipe. It isinitially dislodged when an underwater robot collides with the pipe.

• May 15 – Coast Guard and EPA authorize use dispersants underwater, at the source ofthe Deepwater Horizon leak.

• May 16 – GSF Development Driller II starts drilling second relief well.

• May 17 – BP begins burning off gas with the Discoverer Enterprise. BP says it willrelease a live feed of the leak hours after receiving a request from Congressman EdwardMarkey. Supporting his position is Steve Wereley from Purdue University who says theleak may be 70,000 barrels (2,900,000 US gallons; 11,000,000 litres) a day. ChrisOynes, offshore drilling director for the MMS, announces a hurried retirement.

• May 19 – Oil washes ashore on mainland Louisiana.

• May 21 – BP begins live underwater video broadcasts of the leak. Flow Rate TechnicalGroup established for "scientifically validated information about the amount of oil flowingfrom BP s leaking oil well." The average daily oil collection rates is 2,000 barrels (84,000US gallons; 320,000 litres) a day.

• May 23 – BP rebuffs EP A order to change its dispersants. BP says that if oil reaches the

shore, it would do more environmental harm than if it were dispersed off the coast. Itnotes that Corexit is the only product that is available in sufficient quantities to deal withthe spill.

• May 26 – BP announces plan to force feed heavy drilling mud in a project called "topkill". Doug Brown, the chief mechanic on the Deepwater Horizon, testifies at the jointU.S. Coast Guard and Minerals Management Service hearing that a BP representativeoverruled Transocean employees and insisted on displacing protective drilling mud withseawater just hours before the explosion.

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• May 27 – Obama announces a six-month moratorium on new deepwater oil drillingpermits in 500 feet (150 m) of water or more. Based on the oil flow estimates by the FlowRate Technical Group, the United States government increased its estimate at 12,000 to19,000 barrels (500,000 to 800,000 US gallons; 1,900,000 to 3,000,000 litres) per day.Elizabeth Birnbaum resigns from MMS.

• May 29 – BP declares Top Kill is a failure and moves on to their next contingency option,the Lower Marine Riser Package (LMRP) Cap Containment System.

• May 31 – BP announces plan to slice the leaking pipe, placing a cap on it andchanneling the oil to surface ships.

June

• June 1 – Oil began washing up on the beaches of Gulf Islands National Seashore.

• June 4 – Tar balls arrive on beaches in Pensacola, Florida.

• June 6 – BP abandons plans to close three remaining vents on the containment capnoting that with one vent it is capturing as much oil as it can handle.

• June 8 – BP releases the requested high resolution images of the leak.

• June 9 – BP's chief operating officer Doug Suttles says the undewater plume is "in veryminute quantities."

• June 11 – Flow Rate Technical Group says the leak could be 20,000 to 40,000 barrels(840,000 to 1,700,000 US gallons; 3,200,000 to 6,400,000 litres) of oil a day.

• June 23 – Oil appeared on Pensacola Beach and in Gulf Islands National Seashore, andofficials warned against swimming for 33 miles (53 km) east of the Alabama line.

• June 25 – Hurricane Alex (2010) causes relief rigs to disconnect and let the oil spillunchecked into the ocean.

July• July 1 – The supertanker A Whale begins skimming tests at Boothville, Louisiana.

• On July 1, 2010, Mr. Kaminski received a "Thank you" email fr om CongressmanBilirakis. This email states: "Dear Joseph: Thank you for sharing your creative

solution in the hopes of plugging the leak to the continuous flow of oil in the Gulfof Mexico. . . . I appreciate you sharing your ideas on how to quickly and safelyresolve the oil spill in the Gulf of Mexico. I will also share your ideas andsuggestions with my House colleagues. I am certain they will benefit from yourviews."

• July 2 – National Oceanic and Atmospheric Administration issues models of theprobability of oil coming ashore based on historical winds and currents noting that oilmay come ashore in the Keys and Miami.

• July 8 – United States Court of Appeals for the Fifth Circuit in 2–1 vote refuses tooverturn oil drilling moratorium in Hornbeck Offshore Services LLC v. Salazar.

Administration says it will issue a new moratorium.

• July 10 – Old cap removed from well at 12:37 pm CDT in preparation for a new cap. Oilis expected to flow unabated into the Gulf for 48 hours.

• July 12• Three ram capping stack installed on the Deep Water Horizon LMRP at 7 pm

CDT (0000 GMT). The stack completes the installation of the new 40-toncontainment device sealing cap. Tests begin on testing well integrity.

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• Salazar issues a new moratorium until November 30 on deepwater wells that usea blowout preventer.

• National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drillingbegins two days of hearings at the Hilton New Orleans Riverside

• July 15 – BP test cuts off all oil pouring into the Gulf at 2:25 pm. However, Thad Allencautions that it is likely that containment operations will resume following the test.

• July 16 – A Whale will not join the containment process after tests show that itsskimming operations were "negligible" in comparison to the much smaller and morenimble skimmers.

• July 18 – Allen sends Dudley a letter to provide "written procedure for opening the chokevalve as quickly as possible" noting tests have "detected seep a distance from the welland undetermined anomalies at the well."

• July 19

• Kent Wells says BP is considering a "static kill" of the well using heavy mudbumped through the new cap in a process known as bullheading.

• Donald Vidrine, who was the ranking BP representative on Deepwater Horizon,citing ill health, refuses to testify at Coast Guard hearing into the accident.

• July 24

• BP says an internal investigation has cleared itself of gross negligence in the spilland will publish the findings in the next month.

• July 27

• BP board formally announces that Bob Dudley will replace Tony Hayward as BPCEO effective October 1.

• From approximately May 11, 2010 through July, 2010, Mr. Kaminski, at the requestof BP, provided his engineering ideas, designs, and services to BP both directlyand indirectly via the office of Congressman Bilirakis. During this period, Mr.Kaminski conceived, invented, and designed the novel, unique, and concreteinsertion pipe idea and the novel, unique, and concrete "Top Hat" with thermallifting action idea. Using the detailed LMRP/BOP diagrams sent to him, Mr.Kaminski also: (a) devised a stint pipe, later called the "Riser Spool" by BP; and(b) provided plans to BP for the purpose of installing two (2) pins (one long & oneshort) in the riser spool to allow it to be mated to the old riser pipe adapter plate.The ROVs guided the first pin (the long pin) to a hole on the plate, then rotated thepipe on that pin to align the second pin as it is lowered. Mr. Kaminski's two-pindesign for riser spool flange alignment allowed for the error-free and expedientinstallation of a BOP on top.

August

•

August 2• Flow Rate Technical Group reports that the well initially was dumping 62,000

barrels of oil per day initially after the spill and that it dwindled to 53,000 barrelswhen it was capped as the well was depleted. This means that 4.9 million barrelswere leaked into the Gulf.

• Environmental Protection Agency r eleases a study of eight dispersants whichconcludes that Corexit 9500 "is generally no more or less toxic than mixtures with the other available alternatives" and that "dispersant-oil mixtures are generally nomore toxic to the aquatic test species than oil alone."

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• August 4 – BP reports that the well achieved “static condition” shortly after midnight afterdrilling mud is said to now fill the well.

• Mr. Kaminski was instrumental in helping to control and eventually cap theMacondo well blowout. By taking on this task, Mr. Kaminski saved BP billions ofdollars in damages and fines under the Oil Pollution Act of 1990 and the CleanWater Act.

September • September 29 – Andy Inglis, who headed deepwater drilling operations in the Gulf of

Mexico at the time of the spill, steps down as head of the upstream business.

• September 30 – Dudley tells the Houston Chronicle, "We don't believe we have beengrossly negligent in anything we've seen in any of the investigations." Dudley alsoannounces BP will create a stronger safety division.

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October

• October 1 – Allen steps down.• The FBI stated in a press release that Kurt Mix (drilling and completions project engineer

for BP) worked on internal company efforts to estimate the amount of oil leaking from thewell. Mix was also involved in various efforts to help stop the leak, including Top Kill, inwhich BP unsuccessfully attempted to pump heavy mud into the blown-out wellhead totry to stop the flow of oil. The Justice Department acknowledged that BP informed Mixthat he was to retain all information concerning oil flow from the Macondo well, includinghis text messages.

• According the FBI’s press release, Mix deleted more than 200 text messages from hisphone on or about Oct. 4, 2010, after learning that his electronic files were beingcollected by a vendor working for BP. Some of the texts were recovered forensically andincluded communications exchanged between Mix and other BP employees during theTop Kill operation that indicated that the effort was failing.

• In one of the text messages that was recovered, Mix stated that roughly 15,000 barrelsof oil per day (BOPD) were leaking from the Macondo well and that he and other BPemployees knew that Top Kill would not be successful if the flow rate was that high. The

Justice Department pointed out that BP estimated that the flow rate was 5,000 BOPD.April 20, 2011

The first anniversary was the deadline for filing lawsuits in relation to the disaster.

• The criminal charge against Kurt Mix was filed April 23 in the U.S. District Court for theEastern District of Louisiana. If convicted, Mix could face up to 20 years in prison and afine of up to $250,000 for each count.

6. A Few Insurance facts

• Transocean Ltd.’s excess insurers filed a complaint for declaratory judgment in a Texasfederal court, seeking a ruling that no additional insured coverage is owed to BP withrespect to pollution claims arising out of the explosion of BP’s oil well in the Gulf of

Mexico (Certain Underwriters at Lloyd’s, London, et al. v. BP plc. et al., No. 10-01823,S.D. Texas).

• The complaint, filed in the U.S. District Court for the Southern District of Texas byCertain Underwriters of Lloyd’s, London, alleges that BP is not entitled to coverage asan additional insured because the release of oil on April 20 emanated from BP’s welland not Transocean’s oil rig.

• Pursuant to the drilling contract, BP was named as an additional insured underTransocean’s excess policies issued by certain underwriters. On May 14, BP filed aclaim for coverage with Transocean’s excess insurers. In response, the insurers filedthe suit.

• The insurers maintain that the policies provide coverage to BP only for surfacepollution from substances in Transocean’s possession and liabilities that originateabove land and water. “Because liabilities BP faces for pollution emanating from BP’swell are from below the surface and from BP’s well, those liabilities are not within thescope of the additional insured protection,” the insurers claim.

• In its current location on the floor of the Gulf of Mexico, the value of the DeepwaterHorizon is estimated to be $US 26.7M. Transocean carried insurance coverage for therig, including insurance for the fair market value of the rig at the time of the accident.Transocean has also publically stated that “other insurance was in place for claims thatwere asserted following the April 20 accident”. Swiss Reinsurance Company of Zurichestimates the insured market loss for the rig blast and subsequent natural disaster to

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range somewhere between US$1.5B to US$3.5B. The rig was insured for US$560M, ofwhich Transocean had collected $481M as of May 26, 2010.

7. A Few Facts about the Litigation (could also be called “The Blame Game”)

• British Petroleum is suing Transocean, Halliburton and Cameron for $42B• Halliburton is suing BP for negligent misrepresentation, business disparagement,

defamation and fraud• BP has been sued by its partners in the well (Anadarko Petroleum Corp and Mitsui)• Transocean – has also requested court judgments against BP, Cameron and others.• Cameron International filed counter-claims against various other parties and defended the

integrity of its products.• Mr. Kaminski seeks economic and compensatory damages, in amounts to be

determined at trial, and punitive damages.

The class will be divided into seven groups, each representing a different organization or interestgroup.

1. Halliburton2. BP

3. Transocean4. Insurance companies for Halliburton, BP, Transocean, and the People of the Gulf Coast5. Mines and Minerals Service (US Government)6. People of the Gulf Coast7. Mr. Kaminski8. Judges of the U.S. Federal Court

Assignment (Some questions have been provided to help you understand what you need tocover…)

• If you are BP, Halliburton, or Transocean, your job is to deflect responsibility and seek, on thebasis of contract or torts law, damages from other parties, and/or coverage under yourinsurance policy. What kind of remedy (specific performance or damages - compensatory,

punitive, liquidated or nominal) would you be seeking from the other parties, and under whatbasis (breach of contract or tort)? What types of insurance might you have that may or maynot cover the costs relating to the incident? Assume that the CAPL Operating Procedure isthe procedure under which BP was operating, and that litigation is the form of disputeresolution that will apply. (5-6 person team for each company)

• If you are the insurance company, your job is to identify the types of insurance that eachparty may have, what you are prepared to pay for or what you are not prepared to pay for,and why the insurers for the other parties should also be contributing to the insurancepayout. In the context of this situation, what would it mean to subrogate the claim againstBP, Halliburton, or Transocean? (2 person team)

• If you are the people of the Gulf Coast, your job is to recover damages (compensatory,punitive, nominal or liquidated) from any party that owed you a duty of reasonable care(including the MMS). Who owed you a duty of care? Was this duty breached? How? Arethere any contracts in place under which you could sue for breach of contract? (2-3 personteam)

• If you are the MMS, you need to justify why you were not negligent, and if you were, whatkind of damages you should be paying to which party. Consider how the other parties willtry to prove that you were negligent, and why, under tort law, you should be responsible for

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compensating anyone that may have a claim against you. Would there be any contracts inplace between you and any of the other parties to this dispute? (2-3 person team)

• If you are Mr. Kaminski, explain on what basis you should receive compensation for yourcontribution to the solution. Was there a contract in place? If so, with who? If not, on whatother basis could you receive compensation? (1 person job)

•If you are the judges, you must decide, on the basis of the information given to you, whoshould pay who what, on what grounds (breach of contract or tort) and the reasons why. Isuggest that you do some prework re understanding the legal concepts involved as you willnot have much time to prepare your decision. See if you can, incorporate some of theclauses from the CAPL operating agreement in your your decision. NOTE: The judges’decision will be due at the beginning of class on October 15.

NOTE: For the purposes of this assignment, “MMS” = Canadian National Energy Board with andmandate similar to REDA and the AER.

2 Hard copies of your court brief is due and will be presented on October 8th, should be no morethan four pages long and organized into the following:

1. Date2. Your group’s name3. Your claim (e.g. breach of contract, negligence, or compensation from insurance companies

– use the questions above to help guide your claim)4. The party or parties from who you are claiming (defendant)5. The remedy or damages that you seek (again, use the questions above to help you)6. The facts that support your claim7. Conclusion

All of the following concepts are relevant to this scenario... try to incorporate them into yourbrief!

• Due diligence (or lack thereof)• Competency or incompetency• Offer and acceptance• Breach of contract• Consensus• Contractual Consideration• Capacity to contract• Intent to create legal relations• Precedents• Limitation period• Negligence and/or gross negligence• Tort• Damages• Representations and Warranties

• Privity of contract• Events that would cause termination of

contract (force majeure)• Liability and vicarious liability• Subrogation• Remedy• Remoteness of damages• Indemnification• Regulatory agency• Court• Types of insurance that would be relevant in

this situation• Utmost good faith• Insurable interest• Vicarious liability

Total possible marks: 12 (critical thinking and problem solving – applying what you’ve learned inBLAW and the legal concepts to the situation at hand) + 8 (communicating effectively and logicallyfrom a written perspective=5 &verbal presentation 3) for a total of 20 possible points.

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Documents

Deepwater Assignment