IOC March-quarter profit jumps 85 percent
Indian Oil Corp said on Thursday net profit rose 85 percent in the fourth quarter, in line with analysts' expectations, as revenue from operations grew.
NUEVO CAMPECHITO, Mexico Within a week of the explosion of Mexico's Ixtoc offshore oil well in June, 1979, Misterveel Rodriguez and other village fishermen were pulling up nets choked with tarballs instead of red snapper.
Ixtoc's blowout caused the world's worst ever oil spill. More than 140 million gallons of crude poured into the Gulf of Mexico, eventually washing up on beaches in Texas, hundreds of miles away. That is roughly three times more than what has so far spewed into the Gulf of Mexico from the Deepwater Horizon disaster.
"Every fisherman could see the column of flame and smoke," the 59-year old Rodriguez said earlier this month in the living room of his metal-roofed home. "Then suddenly our nets were coming up empty, except for the crude."
Until the Deepwater Horizon rig drilling BP Plc's (BP.N) Macondo well off Louisiana blew up in April, Ixtoc was the only catastrophic oil spill at sea that was not caused by a tanker accident or sabotage.
That disaster made plain what could go wrong in deepwater drilling. After all, it took Mexico's state oil company Pemex [PEMX.UL] 297 days and the drilling of two special relief wells -- the industry's slow moving but only certain fix for blowouts -- to intersect and cap the raging Ixtoc well, located in 150 feet (50 metres) of water.
But a review of hundreds of pages of U.S. government documents related to the Ixtoc spill, as well as interviews with many experts, shows that regulators for years downplayed the possibility of a similar disaster occurring in the United States.
"I remember people saying 'this would never happen if an American company was operating,'" said John Farrington, a retired researcher at the Woods Hole Oceanographic Institution who was part of a U.S. government-funded research cruise around the Ixtoc slick in September 1979. "There was a lot of wishful thinking going on."
In fact, a combination of politics, money and hubris encouraged the industry to drill ever deeper. Warnings from researchers in the aftermath of Ixtoc that little was known about how crude spilled deep under water might behave or that runaway deepwater wells could be more challenging to cap fell on deaf ears.
Macondo, the scene of BP's spill, is 30 times deeper than Ixtoc -- 4,993 feet, or about a mile down in the dark, freezing depths of the Gulf. Special robots able to resist the crushing pressure of the deep that would destroy a modern navy submarine are the only way to get close to the leak.
BP began drilling relief wells soon after the blowout but does not expect them to be completed before August. Until then it is concentrating its efforts on trying to collect the oil gushing out.
Even today, more than three decades after the accident, chunks of Ixtoc tar can be found on the seabed from Texas to Tabasco in southern Mexico.
Macondo may well come to match Ixtoc's notoriety. But it is unclear what its policy impact will be. Indeed, an examination of the political and scientific fallout from the earlier disaster underscores just how short attention spans can be in political, regulatory and financial circles.
THE ROAD TO MACONDO
Offshore oil drilling faced little organized opposition in the United States until 1969. That year, an oil production platform in federal waters off Santa Barbara, California exploded, dumping 3 million gallons of crude into the sea over four weeks.
A decade later Ixtoc blew, and the U.S. Congress faced pressure to do something. In 1982, Washington imposed a moratorium on drilling in some federal waters, which was renewed and expanded annually for about a decade, putting 462 million acres of federal waters off limits by 1992.
By then, however, oil companies were keen to go deeper as areas still open to drilling off Texas and Louisiana in shallower waters had been thoroughly explored. What stopped them was the prohibitive cost of getting into deeper waters.
So the industry pushed for lower fees on oil and gas production, known as federal royalties, to support more aggressive deep drilling. They found an unlikely ally in President Bill Clinton and his Energy Secretary Hazel O'Leary, who threw their support behind an initiative to temporarily cut royalties on deepwater oil and gas production to spur the industry.
The result was the Deepwater Royalty Reduction Act of 1996 that triggered a rush into new areas in the Gulf of Mexico that had previously been dismissed as uneconomical.
That same year the Clinton administration also ruled that environmental concerns over deepwater drilling on the outer continental shelf were outweighed by the upside: a boost in oil services activity and a potential reduction in foreign oil imports.
In 1996, a study by the Minerals Management Service, the arm of the Interior Department that regulated offshore oil development, found that: "any environmental risks ... are largely offset by resulting decreases in risks from foreign tanker traffic ... Oil spills would represent a localized and low-level impact to coastal waters."
Since then, MMS has consistently argued that increased offshore drilling actually reduced the risk of oil spills by cutting the need for foreign oil imports -- back when the worst spills were expected to be from tankers. Between 1996 and 2009 crude oil imports rose by 20 percent while domestic oil production slumped by 18 percent.
Under the Clinton administration, the MMS worked closely with the oil industry. In August 1997, the agency announced a relaxation of testing requirements for blowout preventers, or BOPs, as the industry called such safety equipment. The technology was designed to allow rig operators to control or shut down a well that is even at risk of blowout, let alone about to blow.
The rule change, which came "at the request of the industry," as the MMS put it, pushed back BOP tests to once every 14 days from once every 7 days. That move alone would save oil companies up to $46 million a year by speeding up drilling times.
In the 1997 press release announcing the change, the MMS said that its studies had concluded that there was no statistical difference in BOP failure rates between the two testing requirements.
At the same time, the industry and government both were concerned about how to control a deepwater well blowout. Offshore Magazine, a trade publication, highlighted in an April 1998 article a shortage of drilling rigs and a lack of research into well control options, industry-speak for cleanup in the event of a leak.
"Of particular concern is the ability to stop a deepwater (undersea) spill once it begins," the MMS wrote in a 2000 Environmental Assessment (EA) of Gulf of Mexico drilling. "Further investigation is needed before the consequences of a blowout in deepwater can be fully evaluated."
But in the same breath the report described a deepwater blowout that spilled a large amount of oil as "highly unlikely." It called "the probability of deepwater-related spills occurring and contacting coastal waters ... very low."
The EA concluded that the agency's regular environmental impact statements and other actions adequately addressed concerns over deepwater oil spills and that no additional reviews were needed.
The agency's assumption that deepwater drilling posed a low risk of catastrophic blowouts stemmed from its longstanding reliance on historical operating statistics to calculate the risk of spills.
Until the Macondo disaster offshore operations in the Gulf of Mexico had been relatively incident free. As of 2000 the MMS noted there were only 7 blowouts per 1,000 well starts in the Gulf, of which only 23 percent resulted in spilled oil.
None of the blowouts caused a serious accident.
By the end of the 1990s, deepwater activity in the Gulf of Mexico was expanding. Oil production from fields at least 1,000 feet below sea-level, the MMS's official definition of deepwater, was 17 times higher in 1999 than at the start of the decade.
By then, technological advances were making wells possible in water depths that were "unheard of" only five years ago, the MMS reported.
Starting in 2000, operators led by some of the biggest oil companies in the world were drilling in water depths of 7,500 feet or more -- described by the MMS as "ultra-deepwater."
The rapid pace of development unnerved some scientists and the environmental community. These people worried aloud that too little was known about the behavior of oil spilled at great depths to be sure a major accident would not lead to a profound environmental catastrophe.
An unintended consequence of the 1980s moratorium was cuts in funding to oil spill research, as it fell down the list of priorities, recalled Woods Hole's Farrington.
Even after the Exxon Valdez spill of Alaska, much of the increased funding focused on the threat from oil spilled on the surface due to tanker accidents. "The regulatory authorities really dropped the ball when they accepted the industry's claims that it has so much experience with deepwater drilling that we don't need to worry about blowouts," said Jeff Short, a retired U.S. government oil spill expert who now works for environmental advocacy group Oceana.
It was not until 2000 that researchers attempted the first deliberate oil spill in deep waters to understand how crude leaked at great depths would behave. Project Deep Spill off the coast of Norway was a $2 million effort funded by the MMS and 23 oil companies. It concluded that oil behaved at times as expected by a theoretical model but noted natural gas in the crude exhibited unexpected behavior and speculated that oil in smaller droplets may not ever surface.
The crude gushing out of the Macondo well is hotter than the boiling point of water and is mixed with natural gas that has been under great pressure. BP's application of oil dispersing chemicals at the wellhead adds a further, and as yet unstudied, complication.
Even today little is known about the behavior of crude oil when it is released deep beneath the sea surface, Short and other scientists said.
Some scientists now believe oil could be trapped beneath the surface in long sub-sea plumes but they admit that they face a shortage of the necessary equipment to measure and monitor this. If they do exist no one knows how long they will endure under water.
Several have theorized that some of the oil from Macondo is not rising to the surface of the Gulf due to the interaction of scalding hot crude oil, bone chilling water and crushing water depths.
Samantha Joye of the University of Georgia suggested in testimony before Congress earlier this month that the suspected plumes could even trigger the creation of more oxygen-deprived "dead zones" in the Gulf as oil-eating microbes multiply and use up the oxygen supply around the plumes.
Despite these concerns, the MMS further downplayed deepwater blowout risks after George W. Bush assumed the presidency in 2001. The environmental impact statement prepared to support the agency's proposed 2002-07 leasing program contains almost no reference to the challenges of deepwater drilling and again based its oil spill assumptions on historical rates.
HARD TO KILL
The limited understanding of how oil behaved when released in deep waters held up efforts to study methods for containing a deepwater blowout.
A 1999 report commissioned by the MMS noted that the development of undersea containment systems was prohibitively expensive. That was especially true, it said, given the low probability of a deepwater blowout. The report went on to argue that it would be pointless to speculate about the behavior of crude oil spilled near the sea floor in deep waters.
Another area of concern for researchers, the report said, was the challenge of dealing with the huge pressures and depths associated with ultra-deepwater drilling. Specifically, it asked if the race towards new record depths was potentially risky.
As recently as December 2004 a doctoral thesis that was later incorporated into an MMS study noted a surprising lack of research into containing a blowout at great water depths since the late 1990s. The thesis also warned that ultra-deepwater drilling conditions made it more difficult for operators to detect "kicks," an oil industry term for the potentially dangerous intrusion of oil or gas into a well.
"The trend and history for blowout frequency show that ultradeep drilling is clearly at risk and an ultradeep blowout will be very difficult to avoid in the future," Ray Oskarsen wrote in his dissertation.
Oskarsen's work pointed to further trouble by suggesting multiple relief wells may be needed to overcome the pressures associated with ultra-deepwater drilling, which could prolong the time it would take to get a major blowout under control.
Neither of these warnings was heeded by the MMS when it prepared its environmental impact study for its 2007-12 drilling acreage leasing plan, the study that gave it the authority to sell the lease on the Macondo prospect to BP.
Once again the agency relied on historical statistics to assume that most deepwater spills would be relatively small and easy to contain.
"Spills in deep water are not likely to affect listed birds ... deepwater spills would either be transported away from coastal habitats or prevented, for the most part, from reaching coastal habitats by natural weathering processes," MMS analysts concluded.
WORST CASE SCENARIO
The Macondo blowout is certain to have a huge impact on deepwater development in the United States. Interior Secretary Ken Salazar has promised "major changes" to regulations and has moved to break up the MMS to bolster its focus on safety.
The government has imposed a temporary ban on deepwater drilling and issued new rules tightening up specifications and testing requirements for blowout preventers.
The accident has also cast considerable doubt on the adequacy of existing oil spill response rules. Under regulations enacted in 2005 Gulf operators are required to file a response plan with the MMS that shows they can deal with a worst case spill.
In BP's case, the company estimated the worst possibility was a 250,000 barrels per day blowout that flowed for 30 days. Its plan claimed the company and its contractors could recover nearly 500,000 barrels per day.
Experience has shown that the plan, which was approved by the MMS in 2009 after President Barack Obama took office, has fallen far short of this level of recovery with oil washing up on beaches from Louisiana to Florida despite the well leaking less than a fifth of BP's worst case scenario.
The company has attempted a string of improvised solutions with varying degrees of success but the well continues to leak and is unlikely to be capped until at least August, when two relief wells are completed.
Back in the impoverished fishing villages on the coast of Tabasco in Mexico, residents accustomed to the periodic spills and accidents of Mexico's oil industry fret about the possibility that oil from Macondo will foul their shores as they watch daily coverage of the spill on television.
"We've got no choice but to fish, we don't know how to do anything else, said Rodriguez resignedly.
"My grandson won't fish," he said, gesturing towards the shy boy, "that's why he goes to school."
(Reporting by Robert Campbell; editing by Jim Impoco and Claudia Parsons)
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