Mark Geller

It has been over 40 days since the BP oil rig explosion and blow-out that has been spewing 15K-20K barrels per day into the Gulf and there is still no end in sight. Aside from the media coverage of the potential devastating impact on the environment and way of life of the people in the affected areas, there is now a lot of discussion about the events that led up to the explosion and how the government and the energy industry can prevent similar events in the future.

All that is good and necessary. There are certainly steps the government should take to ensure better enforcement of regulations in the future, such as separating revenue-collection from policing to reduce conflicts of interest. However, these discussions and the coverage of the attempt to cap the well are missing the larger point–why is it that neither BP nor the government had taken any steps to develop the expertise necessary to fix catastrophic problems with deep-water wells before allowing drilling to take place?

BP is now on its fourth and apparently final attempt to minimize oil flow from the damaged well before the relief wells they claim will permanently fix the problem in August. As with the other three attempts, BP has warned the odds of this fix working are low due to the difficulty of the fix and the fact “it has never been attempted before at this depth.”

This is the problem. Analysts now estimate the spill will cost BP $40 billion, which is roughly 25% of the value of the company. Some investors believe BP will be placed into receivership or could be broken up and sold as a result of the crisis. (Never mind that current legislation limits BP’s civil liability to $75 million or the government is discussing raising this limit to $10 billion–Congress can and probably will retroactively remove any limit on the liability.)

Accidents happen. Always. Corruption happens. Bending the rules happens. Given the massive cost for BP, the environment, and the local population, it should have been a no-brainer for BP and regulators to spend whatever budget was necessary to be able to confidently manage this type of situation and dozens of other possible scenarios. I do not claim to know any details of oil drilling, however, I have to believe with a budget of $1-$2 billion, BP and the government could have developed–and fully tested at similar depth–the types of techniques they are attempting to use now. They could have and should have staffed a team of scientists and engineers full-time to do nothing but simulate catastrophic failures and practice containing them.

Yesterday it was reported that for the full size of the spill since the start of the crisis, the U.S. as a nation burns through this amount of oil every 5 minutes. With that type of massive energy need, it is inevitable we will have accidents that, while they are small relative to our energy need, are huge in terms of real environment and economic impact for millions of Americans. Preventing accidents is important. Developing the ability to successfully contain them is critical and this should be part of the plan for the future.

Full disclosure: I have been a BP shareholder for several months as a hedge against a major global political crisis. I am certainly paying the price now.