Memorandum. all federal actions in this Court pursuant to 28 U.S.C Eventually,

Transcription

1 Memorandum TO: Prof. Hooks FROM: Gary Johnson RE: Alleged Responsibility for Various Acts DATE: November 16, 2012 Procedural History On August 10, 2010, the Judicial Panel on Multidistrict Litigation centralized all federal actions in this Court pursuant to 28 U.S.C Eventually, hundreds of cases with thousands of individual claimants would be consolidated with this Multidistrict Litigation. 2 On October 19, 2010, the Court issued Pretrial Order 11 (Rec. Doc. 569) creating pleading bundles for various types of claims. 3 Relevant here is the B1 bundle, which encompasses all private claims for economic loss and property damage. 4 The plaintiffs filed the B1 Master Complaint on December 15, 2010 (Rec. Doc. 879), and a First Amended B1 Master Complaint on February 9, 2011 (Rec. Doc. 1128). 5 Numerous Defendants filed motions to dismiss the First Amended B1 1 IN RE: OIL SPILL BY THE OIL RIG DEEPWATER HORIZON IN THE GULF OF MEXICO, ON APRIL 20, 2010 MDL No (E.d. May 5, 2012). 2 Id. 3 Id. 4 Id. 5 Id.

2 Complaint. 6 On August 26, 2011, the Court issued an Order and Reasons granting in part and denying in part these motions. (Rec. Doc. 3830). 7 BP subsequently answered the First Amended Complaint on September 27, 2011 (Rec. Doc. 4130). 8 Phase one of a multi-phase trial in Transocean s Limitation and Liability Action, Case No , was scheduled for February 27, In the 20 months that have passed since the JPML s centralization order, the parties have engaged in extensive discovery and motion practice, including taking 311 depositions, producing approximately 90 million pages of documents, and exchanging more than 80 expert reports on an intense and demanding schedule. Depositions were conducted on multiple tracks and on two continents. 10 Discovery was kept on course by weekly discovery conferences before Magistrate Judge Shushan. 11 The Court also held monthly status conferences with the parties. 12 BP and the PSC report that in February 2011 settlement negotiations began in earnest for two distinct class action settlements: a Medical Benefits Settlement 6 IN RE: OIL SPILL BY THE OIL RIG DEEPWATER HORIZON IN THE GULF OF MEXICO, ON APRIL 20, 2010 MDL No (E.d. May 5, 2012). 7 Id. 8 Id. 9 Id. 10 Id. 11 IN RE: OIL SPILL BY THE OIL RIG DEEPWATER HORIZON IN THE GULF OF MEXICO, ON APRIL 20, 2010 MDL No (E.d. May 5, 2012). 12 Id.

3 and an Economic and Property Damages Settlement. 13 Talks intensified in July 2011, occurring on an almost-daily basis. 14 In early 2012, Magistrate Judge Shushan became involved in the negotiations as neutral mediator. 15 The parties report that over 145 daylong, face-to-face negotiation meetings took place, in addition to numerous phone calls and WebEx Conferences. 16 On February 26, 2012, the eve of the Limitation and Liability Trial, the Court adjourned proceedings for one week to allow the parties to make further progress on their settlement talks. 17 On March 2, 2012, the Court was informed that BP and the PSC had reached an Agreement-in-Principle on the proposed settlement. 18 Consequently, the Court adjourned Phase I of the trial, because of the potential for realignment of the parties in this litigation and substantial changes to the current trial plan. (Rec. Doc. 5955). 19 On March 8, 2012, at the parties request, the Court entered an Order creating a process to facilitate the transition from the Gulf Coast Claims Facility to the Court Supervised Settlement Program envisioned by the settlement. (Rec. 13 Id. 14 Id. 15 Id. 16 IN RE: OIL SPILL BY THE OIL RIG DEEPWATER HORIZON IN THE GULF OF MEXICO, ON APRIL 20, 2010 MDL No (E.d. May 5, 2012). 17 Id. 18 Id. 19 Id.

4 5995). 20 The Order also appointed a Transition Coordinator and Claims Administrator. In a separate Order, the Court appointed a neutral party to preside over the seafood component of the proposed settlement. 21 (Rec. Doc. 5998). The class action complaint was amended on May 2, (Rec. Doc. 6412). On April 18, 2012, the PSC and BP filed the instant Proposed Settlement (Rec. Doc. 6276) and Motions (Rec. Docs. 6266, 6269, 6414). 23 On November 15, 2011, a federal judge in New Orleans ruled that BP was not entitled to coverage for the spill under Transocean s insurance policies. 24 The judge stated that insurance policy did not cover the risk therefore Transocean was not responsible for BP actions. 25 In January 2012, a federal judge ruled that BP was required to indemnify Halliburton for third-party compensatory claims. 26 Halliburton would only be responsible for pollution or contamination that originated from their property IN RE: OIL SPILL BY THE OIL RIG DEEPWATER HORIZON IN THE GULF OF MEXICO, ON APRIL 20, 2010 MDL No (E.d. May 5, 2012). 21 Id. 22 Id. 23 Id. 24 Harry R. Weber and Kevin McGill, BP loses 2 big Gulf oil spill rulings in federal court, Associated Press (Nov. 15, 2011, 3:23 PM), ml. 25 Id. 26 Vivian Kuo, Ruling favors Halliburton indemnity claim in Gulf oil spill, CNN (Jan. 31, 2012), 27 Id.

5 Alleged Responsibility for Various Acts The United States consumes roughly 22-25% of the world oil. 28 In 2010, the country consumed a total of 7.0 billion barrels of petroleum and 6.87 billion barrels in Americans consumed between million barrels of oil per day. 29 In 2011, about 45% of the petroleum consumed by the United States was imported from foreign countries. 30 The United States only produces 10.7% of the world s oil. This is far from enough to supply the country s demand. 31 The demand of energy per-capita is steadily growing. 32 To keep up with demand, the oil and gas industry is constantly growing and further developing various methods to extract oil from the Earth. 33 The oil drilling industry rapidly moved to deepwater drilling. 34 In the last 20 years, the industry went from primarily drilling at depths of no greater than 1000ft, to aggressively expanding their exploration to depths from 1000ft to 5000ft and far beyond. Depths of 5000ft and deeper are considered as being ultra-deepwater. 35 The Macondo well is 28 U.S. Energy Information Administration Independent Statistics & Analysis (Nov. 15, 2012), 29 Id. 30 U.S. Energy Information Administration Independent Statistics & Analysis (Nov. 15, 2012), 31 Mark T. Wieczorek, Global Oil Production and Consumption, 32 Id. 33 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling: A Brief History of Offshore Oil Drilling (2010). 34 Id. 35 Id.

6 considered an ultra deepwater well. 36 Companies constantly have to advance technology to explore at such great depths. 37 The race to drill at greater depths has fueled the advancement in technology but has come at a price, which we may never be able to calculate. 38 The gulf oil spill is only one example of problems that have been a result of ultra deepwater drilling. 39 Even before this incident, many have been negatively affected from the exploration of oil. 40 The Deepwater Horizon, was a semisubmersible oilrig owned by Transocean, a Louisiana based company. 41 A Semi-submersible platform or rig is a mobile structure used for drilling for oil and natural gas in offshore environments. Columns sitting on hulls or pontoons support the superstructures. 42 The columns are ballasted below the water. 43 They provide excellent stability in rough, deep seas. Semi-submersible rigs can be moved from place to place. 44 Semisubmersibles can be used in depths from 600 up to 35,000 feet Id. 37 Id. 38 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling: A Brief History of Offshore Oil Drilling (2010). 39 Id. 40 Id. 41 Id. 42 Oil Rig Photos Drilling Rigs - Semi-Submersible, 43 Id. 44 Id. 45 Id.

7 Transocean has the world largest deepwater fleet of semisubmersibles and drillships. 46 They are the world s leading contractors of offshore drilling rigs. 47 A semisubmersible is a floating deepwater platform that is towed to a desired location and then partially flooded for stabilization and usually anchored to the seafloor. 48 The platform is used as the work base and living quarters for crew members for deep water drilling operations. 49 The Deepwater Horizon was built and operated in accordance with the 1989 IMO MODU Code. 50 The United States Coast Guard periodically performed a limited safety examination, which included verifying statutory certificates, testing of safety devices, and witnessing emergency drills. 51 The Deepwater Horizon possessed all required valid documents certifying compliance with applicable international, RMI, and USCG requirements. 52 BP and its corporate partners were leasing the Deepwater Horizon from Transocean to work on the Macondo well. 53 BP is a London based global oil and gas company and operates in the United States under BP America. The company s U. S. headquarter is based out of Houston, Texas. Finding and extracting oil is one of the company s main 46 The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011). 47 Id. 48 Webster Dictionary 49 Id. 50 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 51 Id. 52 Id. 53 Id.

8 operations. The Macondo well was originally only supposed to take 51 days to drill but had proven to be more complicated and challenging than originally estimated. 54 The oil reservoir was located over 18,000 feet below the ocean s surface. 55 Deepwater oil drilling, at these particular depths, is relatively new territory of the industry. 56 Like any other industry, the oil and gas industry has its problems. The industry may never be problem free but lessons must be learned from the past accidents. The Deepwater Horizon Oil Spill must be explored to uncover the problems that led to this disaster. Hopefully, discovering the true causes of the oil spill can be a starting point to avoid further catastrophic disasters as this oil spill. The United States Coast Guard called the oil spill a catastrophic casualty. 57 The disaster encompassed a number of events and failures. 58 According to the coast guard, the initiating event was the well blowout. 59 The blowout was preceded by numerous operational decisions. 60 The coast guard stated that BP and the vessel operators actions eventually led to the blowout. 61 The coast guard list the critical 54 The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011). 55 Id. 56 Id. 57 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 58 Id. 59 Id. 60 Id. 61 Id.

9 events to include the blowout, the fire, evacuation, vessel sinking and vessel safety system. 62 On the evening of April 20, 2010, BP and Transocean officials were touring the Deepwater Horizon. 63 The Deepwater Horizon s master was conducting the tour. 64 The drilling crew began to observe abnormal pressures in the pipe leading to the well and began initiating steps to shut the well down. 65 Around 9pm a well blow out occurred causing mud and hydrocarbons to shoot out the well. 66 The crew was unsuccessful in diverting the flow of hydrocarbons to a mud gas separator. Mud and hydrocarbons began to discharge onto the drill floor. 67 The rigs alarms began to sound, alerting those present of the various problems occurring. 68 Subsequently, the first explosions and fire occurred setting off more alarms. 69 The second explosion was more powerful and violent leading to the loss of all power. 70 Following the above events, the master requested permission to activate the emergency disconnect system (EDS). 71 The system was 62 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 63 Id. 64 Id. 65 Id. 66 Id. 67 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 68 Id. 69 Id. 70 Id. 71 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011).

10 designed to cut off the flow of hydrocarbons to the Deepwater Horizon. 72 The hydrocarbons were fueling the fire. 73 The EDS was supposed to disconnect the Deepwater Horizon from the well. Unbeknownst to the master, a supervisor had already attempted to activate the EDS. 74 The signal appeared to have gone through only to be determined that the signal was not received. 75 The Deepwater Horizon was still connected to the well. 76 The explosions is believed to have occurred when gas cloud encountered one or more ignition sources on the drill floor or somewhere else on the Deepwater Horizon. 77 The U.S. Coast Guard (USCG), the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) conducted a joint investigation of the events surrounding the Deepwater Horizon. 78 The Joint Investigation Team (JIT) used the combined investigative powers and authorities afforded to the USCG and BOEMRE. 79 The series of events resulted in the lost of 11 lives and injuring of 16 others. 80 The Deepwater Horizon eventually sank and resulted in a continuous flow 72 Id. 73 Id. 74 Id. 75 Id. 76 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 77 Id. 78 Id. 79 Id. 80 Id.

11 of hydrocarbons into the Gulf of Mexico. 81 It took 87 days to cap the well but not before causing the largest oil spill in the history of the U.S. 82 The impact of the oil spill on the environment is still relatively unclear. 83 Before the oil spill, little research had been on the surrounding areas. 84 It is estimated to take decades to fully understand the overall effect of the spill. 85 For various reasons, the majority of the oil never made landfall. 86 It was immediately apparent that many lively hoods were affected by the oil spill. 87 The seafood industry found their boats forced to stay docked because of the oil-polluted waters. 88 The JIT were able to identify seven key issues within the system deficiencies and crew decisions that may have affected the events surrounding explosion. 89 The seven keys were identified as the following: failure to use the diver line, hazardous electrical equipment, gas detectors, bypassed systems, design of the main and emergency power sources, crew blast protection, and command and control United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 82 Id. 83 The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011). 84 Id. 85 Id. 86 Id. 87 Id. 88 The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011). 89 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 90 Id.

12 The first issue was that the crew did not try to divert the uncontrolled well flow to the diverter line in efforts to reduce the risk of an onboard explosion. 91 The diverter line could have reduced the pressure that the well released on the main deck. 92 The JIT concluded that the pressure still might have overwhelmed the Main Deck or caused the diverter line fail. 93 Furthermore, the report stated that hazardous electrical equipment might have caused the explosion. 94 The electrical equipment did not comply by regulations that were supposed to safeguard against such problems. 95 An audit, in April 2010, found that the Deepwater Horizon did not have a system in place to track the hazardous electrical equipment. 96 The audit discovered severely corroded electrical conditions. 97 The equipment was said to be in bad condition. 98 Lastly, they found that subcontractor s left their equipment, which was in poor condition, within some hazardous areas. 99 Then JIT did could not definitively state that the hazardous electrical equipment caused the explosion Id. 92 Id. 93 Id. 94 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 95 Id. 96 Id. 97 Id. 98 Id. 99 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 100 Id.

13 The third issue labeled the gas detector system was flawed. 101 The emergency shutdown system for the engines did not automatically activate. 102 It could have avoided or delayed the explosion in the engine room. 103 The crew was not trained to activate the emergency shutdown system. 104 Furthermore, a number of gas detectors were bypassed or inoperable during the time of the explosion. 105 It was standard practice for the detectors to be in inhibited mode to prevent false alarms. 106 The chief electronics technician stated it was to done to prevent false alarms from disturbing crewmembers as they slept. Also, the crew bypassed another automatic shutdown system. 107 This system could have prevented the ignition or flammables from entering certain areas. 108 The entire fleet bypassed this automatic shutdown. 109 The Deepwater Horizon bypassed the system for five years. 110 The fifth issue was the design of the main and emergency power source. 111 The design did not adequately take into account the operating conditions of the 101 Id. 102 Id. 103 Id. 104 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 105 Id. 106 Id. 107 Id. 108 Id. 109 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 110 Id. 111 Id.

14 equipment. 112 If it would have taken into account their specific locations in relation to each other, it might have seen that the certain conditions would affect the entire power source at once. 113 Next, the crew did not have barriers sufficient enough to provide effective blast protection. 114 Even though these protection met the standard of protection, this standard was insufficient did not provide enough resistance to the explosion. 115 The final key issue was in part a clerical error that permitted the Deepwater Horizon to have a dual-command organization structure. 116 The lack of one central command did not allow the master to immediately activate the emergency disconnect system. 117 At this critical time, the master should not have been required to ask permission to transfer authority to him. 118 The Macondo blowout is believed to be the product of several individual missteps and oversights by BP, Halliburton, and Transocean, which government regulators lacked the authority, the necessary resources, and the technical expertise to prevent Id. 113 Id. 114 United States Coast Guard, Deepwater Horizon (Apr. 22, 2011). 115 Id. 116 Id. 117 Id. 118 Id. 119 The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011).

15 The primary cause of the Deepwater Horizon explosion was a failure of the cement at the well s base. 120 The cement failed to contain the oil and gas within the well bore. 121 The national commission on the BP Deepwater Horizon spill stated that three things could have contained the wells pressure. 122 The commissioned believed that the cement at the bottom of the well, the mud in the well and in the riser, and the blowout preventer could have contained the pressure. 123 Furthermore, the commission reported that the fundamental problems persisted far beyond the scope of the parties involved in the Deepwater Horizon blowout. 124 They found systematic failures rooted within the industry and government oversight. 125 The government failed to provide the oversight necessary to prevent the lapses in judgment and management by oil and gas industry. 126 The mineral management service failed to address the risk of deepwater drilling. 127 There was no government oversight, protocol, or any requirement for a negative-pressure test. 128 The 120 John M. Border, The Deepwater Horizon oil drilling rig burning at a well in the Gulf of Mexico, The New York Times (Sep. 14, 2011), Id. 122 The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011). 123 Id. 124 Id. 125 Id. 126 Id. 127 The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011). 128 Id.

16 misreading of the negative test had a vital impact to the blowout. 129 Additionally, the cement stability test lacked clear and concise requirements to ensure that crew knew what to do to secure the well. 130 Mineral management services did not have the proper funding to regulate the industry The National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Deep Water (Jan. 1, 2011). 130 Id. 131 Id.