Gulf Oil Spill Could Spell Disaster for U.S. Energy Independence

Includes: BP, RIG, XOM
by: Bob van der Valk
Louisiana is currently bracing itself for the big oil spill in the Gulf of Mexico to hit their shores with devastating consequences. This calamity brings back the experiences and lessons learned from previous oil spill disasters like the Exxon Valdez spill in 1989 and the 1969 Santa Barbara channel oil spill.
The oil spill in the Gulf of Mexico was caused by the recent explosion and sinking of the British Petroleum deep water Horizon drilling rig. The tragic loss of 11 lives and massive oil spill will result in yet another shutdown of any new offshore oil exploration.
British Petroleum (NYSE:BP) will ultimately be held financially responsible even though the rig belongs to Transocean (NYSE:RIG), the world’s biggest offshore drilling contractor. The rig was originally contracted through the year 2013 to BP and was working on BP’s Macondo exploration field in the Gulf of Mexico when the fire broke out.
Location of Horizon oil rig in the Gulf of Mexico - NOAA
The floating rig had apparently just finished cementing steel casing in place at depths exceeding 18,000 ft. The next operation was to suspend the well so that the rig could move to its next drilling location, the idea being that a rig would return to this well later in order to complete the work necessary to bring the well into production.
It is now suspected that oil and gas formation fluids got into the wellbore and were undetected until it was too late to take action. The floating drilling rig moves with the waves, currents, and winds and all of the main pressure control equipment sits on the seabed and the uppermost unmoving point is in the well. The pressure control equipment – the Blowout Preventers (BOP’s) – is controlled with redundant systems from the rig.
In the event of a serious emergency, there are multiple panic buttons to hit, and even fail-safe dead man systems will automatically be engaged when something of this proportion breaks out. In this case it is suspected that none of those were activated, which suggests that the blowout was especially swift to escalate to the surface. The glow of the flames could be seen up to 35 miles away and flames were 200 to 300 feet high.
This country had a similar oil spill over forty years ago 6 miles off the coast of Santa Barbara, California. At the time of the 1969 oil spill event I was working for Union Oil Company of California as a marketing employee. I was even allowed to fish around the oil drilling platforms including platform A. That platform had a well blow out and the massive oil spill eventually became the rallying cry for today’s environmental movement.
That movement was created as a result of efforts by Get Oil Out! (GOO!), which was founded by James “Bud” Bottoms, a local Santa Barbara resident in 1969. After the spill, Bottoms urged the public to cut down on driving, burn oil company credit cards and boycott gas stations associated with offshore drilling companies.
Bud Bottoms helped organize a drive to gather 100,000 signatures on a petition banning offshore oil drilling. The petition resulted in a short freeze on drilling and federal as well as California laws were soon passed to strengthen offshore oil drilling regulations and putting a permanent moratorium on new offshore oil drilling off the California Coast. My company suffered millions in losses from lawsuits and clean-up efforts, and its reputation as well as that of the oil industry was forever blemished.
That reputation followed me in 1974 upon being assigned as the Resident Manager at the Santa Barbara bulk plant located on Salsipuedes Street. My two years working in Santa Barbara brought me closer to the attitudes of the people living there. I became the recipient of harassing phone calls telling me to leave town and take the 76 sign down from our plant.
What eventually happened to the bulk plant was not a direct result of actions by GOO! I had been told by my superiors that we would not leave Santa Barbara with our tail between our legs. Economics in the market place took care of trying to maintain a direct marketing operation in Santa Barbara County. The bulk plant was sold to an independent petroleum distributor in the 1979; however Platforms A, B & C are still producing crude oil as of today.
The massive oil spill left a devastating ecological impact on the scenic Santa Barbara seacoast in its wake. An estimated three million gallons or 75,000 barrels – one barrel equals 42 gallons - of crude oil was spilled creating an 800 square mile oil slick. Corpses of dead seals, dolphins, fish and more than 3,600 oil-soaked seabirds littered 35 miles of formerly pristine coastline.
The president of Union Oil Company, Fred Hartley, was quoted:

I don't like to call it a disaster, because there has been no loss of human life. I am amazed at the publicity for the loss of a few birds.

His picture and quote were published far and wide resulting in additional bad publicity for the company, immediate calls for consumer boycotts and federal investigations into the cause of the oil spill.
BP will be able to tap the Oil Spill Liability Trust Fund, which was established after the Exxon Valdez (NYSE:XOM) oil spill. The fund collects 8 cents from the industry for every barrel of oil produced or imported to the U.S. Currently this fund has about $1.6 billion available to cover damages suffered by coastal residents, fishermen and other affected businesses.
BP’s reputation will suffer irreparable damage and the costs for the clean up and fines will be borne by their stockholders. Even worse, the U.S. becoming energy independent will be on hold while additional federal legislation is expected to restrict and further regulate offshore oil exploration.

Disclosure: No positions