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Tuesday, June 25, 2024 | Back issues
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An ‘Incestuous Web’ of Relationships|Makes Oil Spill Litigation Byzantine

HOUSTON (CN) - Cameron International knew 10 years ago that the blowout preventer that eventually would be used on the Deepwater Horizon had a high likelihood of failure and "was vulnerable to a complete shutdown in the event of an emergency," shareholders say. But Cameron didn't fix the instrument even after Cameron and Chevron, working together in 2009, developed a better blowout preventer that could have prevented the Gulf of Mexico catastrophe, according to the complaint in Harris County Court.

"Cameron itself performed studies as early as 2000 demonstrating that the Deepwater Horizon BOP [blowout prevent] stack was not failsafe, and in fact, was designed so that it was vulnerable to a complete shut-down in the event of an emergency," according to the complaint.

Shareholders say the improvements that Cameron and Chevron devised in 2009 could have prevented the oil spill catastrophe set off by the April 20 explosion of the Deepwater Horizon.

The plaintiffs say Cameron's Board of Directors has an "incestuous web of business relationships," and that most of them "are either members or were high level officers and directors of entities which are members of API [the American Petroleum Institute], the self-regulating industry which sets standards for, among other things, the production of the BOP, and which has taken positions against increasing the regulation and safety of off shore drilling in an effort to save money. Thus, these board members ... were aware that API standards governing BOP design were inadequate and allowed for BOPs to be manufactured which provided for a single point of failure, among other design failures."

Shareholders cite a 2003 report by Transocean, the owner of the Deepwater Horizon rig, that stated that "the oil industry was so focused on drilling that it was willing to pay higher maintenance costs to keep rigs drilling and avoid downtime rather than address some of the fundamental problems with BOPs."

"The report stated that, 'floating drilling rig downtime due to poor BOP reliability is a common and very costly issue confronting all offshore drilling contractors.'

"The report further stated that BOPs were being rushed into the field with limited testing, given the pressure to drill."

Shareholders say, "There is little question at this point that one of the reasons for the severity of the oil spill was the failure of the blowout preventer or BOP to operate."

A blowout preventer is attached to the wellhead of an oil well and is supposed to act as a failsafe mechanism to shear the drilling pipe and seal the well in the event of a spill. It does this, in part, through shearing rams that sever the pipe from the well in the event of a catastrophic event and seal it to prevent further spillage of oil.

While "both government and private investigations of the cause and impact of the oil spill are ongoing, almost all these investigations have focused upon the fact that the BOP failed to operate, and thus failed to stop the flow of gas and oil from the well," according to the complaint.


Shareholders say that investigators have "noted that the BOP in use by the Deepwater Horizon was designed so that a single point of failure could impact various other systems, causing the BOP to completely fail to operate. In other words, the controls of the BOP were so interdependent such that one control failure could result in the complete loss of control over the BOP, making it inoperable in an emergency situation - precisely the occurrence on the Deepwater Horizon leading to the oil spill."

BP issued a report on Sept. 8 this year, stating that '"none of the emergency methods available for operating the BOP were successful in isolating the wellbore. The different methods available were not fully independent; therefore, single failures could affect more than one emergency method of BOP operation," according to the complaint.

"Additional investigations, including a congressional investigation spearheaded by Rep. Bart Stupak of the House Energy and Commerce Committee, further found that the Deepwater Horizon BOP suffered from additional design problems, including that it had only one shear ram (the piece of equipment which would shear the pipe in the event of a spill or leak), and that it had '260 failure modes' or ways in which it could fail, that were sufficiently severe that it would require pulling the BOP (bringing it to the surface). In short, it was not designed to be failsafe, but rather, as expert Robert Bea has publicly stated, was 'designed to fail.'" (Parentheses in complaint.)

Shareholders say, "at least five of the defendants are directly conflicted and are unable to take necessary action to protect Cameron and its shareholders, and sue other entities involved in the oil spill, including Halliburton and Anadarko, as they are all part of the same web of oil industry executives whose companies work with each other, and maintain long-term contract."

They add: "Given these conflicts, and the incestuous web of business relationships, a pre-suit demand upon the board to take action against other wrongdoers, such as Halliburton and Anadarko, at a minimum would be futile, as certain of Cameron's directors are fiduciaries or former fiduciaries of other companies."

(The federal National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling chose Chevron to conduct tests on Halliburton's cement design. Results of Chevron's investigation hit the fan last week when it became known that the company had questioned whether Halliburton's recipe for the underwater cement might have contributed to the disaster by being slow-setting. Halliburton and BP are both deeply interested in holding the other corporation liable, at least in part, for the giant oil spill.

(Although not mentioned in the shareholders' complaint, just as some of Cameron's Board of Directors have ties to Halliburton, Halliburton has and has had many contractual arrangements with Chevron, as does Cameron, including blowout preventer development.)

The shareholders say, "In 2009, Cameron and Chevron announced that they had jointly developed a new kind of BOP, the AWKS or Alternative Well Kill System for Chevron - a new generation of BOP which can simultaneously shear and seal a well," The plaintiff add that according to a presentation on the BOP given by Cameron and Chevron, "the joint project's focus is on the shear and seal capability of the well control system during disconnects - precisely the situation which occurred on the Deepwater Horizon rig."

Last week, Chevron released results of the Halliburton cement tests it performed for the Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. Chevron reported that its Houston-based cement testing facility was unable to generate stable foam cement using the materials Halliburton provided. It suggested that the foam cement used on the Macondo well was unstable and may have contributed to the April 20 explosion. Halliburton, not surprisingly, rejected the claim.

Along with Cameron International itself, defendants in the shareholder derivative complaint included the company's Board of Directors, particularly those with alleged ties to the American Petroleum Institute and/or oil and gas companies, such as Sheldon R. Erickson, a member of the API.

Bruce W. Wilkinson is former chairman and executive officer of McDermott International, a company with contracts and agreements with BP, according to the complaint.

Peter J. Fluor, in addition to sitting on Cameron's board, is CEO of Texas Crude Energy, a private, independent oil and gas exploration company. He served as interim chairman of Fluor Co., a member of API, and is on the board of Anadarko Petroleum, which owns 25 percent ownership interest on the lease of the Macondo well.

Defendant Douglas L. Foshee sits on Cameron's board and is CEO of El Paso Corp., and previously served as an executive vice president and COO of Halliburton, which also is a member of the API, and which purchases Cameron products, according to the complaint.

The plaintiffs are represented by Michael Lynn of Dallas.

Follow @SabrinaCanfiel2
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