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The Oil Business Is Always About Controlling Risk


A front page story in today’s New York Times focuses on the increased risk of drilling in deep waters in the Gulf of Mexico. The thrust of the article dealt not with offshore drilling but rather the large, deepwater oil producing platforms that are increasingly populating the Gulf. The authors are trying to make the point that these large platforms, a long way away from land, are at increased risk because they are so sophisticated, which more can wrong. The authors quote Robert Bea, a professor at the University of California, Berkeley, who studied the space shuttle accidents and the Deepwater Horizon accident, about how going to the moon is hazardous but going to Mars is even more so. While there is some validity to this comparison, we would point out that the U.S. space program suffered three deaths in the Apollo moon landing program, but 14 in its near-space shuttle exploitation efforts. Was the shuttle program more sophisticated than the Apollo spaceships? It’s much like asking which has the greater risk – climbing on an airplane or crossing the street? More people die each year from the latter than the former.
The article points to the problems BP had with its Thunder Horse production platform due to a valve installed backward and poor welding that produced serious cracks in the structure. The repairs delayed the platform’s start-up by three years. These are not design problems or production complexity issues, rather they related to poor construction supervision, or man-made errors. Interestingly, BP was the operator of this platform as well as the Deepwater Horizon drilling rig. 
The oil business has always been about risk mitigation. People engaged in the industry understand it is a dangerous business and working safe is the number one priority. In fact, the oil industry is notorious for having one of the longest time spans for adopting new technology because the industry is so conservative and likes to work with technologies that are well established. This has been a huge frustration for energy equipment entrepreneurs and companies trying to introduce new products.
What we worry about is that an article such as this that focuses on offshore risks, without truly determining what the risks are, plays in to the hands of the Obama administration’s moratorium rationale. If one thinks about Interior Secretary Ken Salazar’s op-ed in the Houston Chronicle a couple of weeks ago, he spent time chastising the oil industry for its focus on drilling for resources and profits and wild risk–taking that he equated to gambling. He then stated, “Those days of big risks are over.” 
While trying to explain how the government’s reactions to the Deepwater Horizon disaster are all directed to improving the industry’s safety practices and equipment, he never explained what that has to do with risk-taking or risk management. Exploring for oil and gas always involves risk-taking because one can never be sure if there are hydrocarbons in the wells that are drilled or what challenges may be encountered during the drilling. But by applying all the accumulated knowledge about the area and other similar wells, the drilling risk can be mitigated. That does not mean that accidents can’t and won’t happen, but more than likely they will be the result of mistakes in judgment that cannot be overcome by the safety equipment being utilized. 
All oil and gas companies manage business risk.  Some may do it better than others. But to merely equate bigger, deepwater production platforms with increased risk is not correct. How the project is executed is important, and the BP record with Thunder Horse should be an example of how not to do it. Thunder Horse, along with BP’s Texas City refinery and the Alaskan oil pipeline issues, should have been a clue that BP’s risk-management process was deficient. We hope the government would better understand the risk-management issue and work with the industry on how to improve that issue rather than using a meat-axe strategy of blanket solutions to regulating offshore oil and gas operations.