[moredasers]

Oil Slickonomics – Part 5

Cumberland Advisors / Market Commentary
David Kotok
Chairman and Chief Investment Officer
May 27, 2010

“Any and all injury, loss, destruction and damage arising out of or related to the above described casualty event was not caused or contributed to by any fault, negligence or lack of due care on the part of Petitioners…”

This was excerpted from the May 13, 2010 motion filed by Transocean in the Federal District Court of Texas, in which they are trying to limit their liability in claims against them to $27mm (to be exact, the number is $26,764,083.00), by invoking an 1851 maritime law. We have the full document posted on our website. See: http://www.cumber.com/content/Special/Triton051310.pdf .

This is chutzpah.

Chutzpah is a term that is often used in parts of the United States and originates in European Yiddish. It means brazenness, temerity in a pejorative way, engaging in an effrontery.

Here’s another example: Lehman Brothers’ lawyer takes a cab to the bankruptcy court. The cabbie says the fare is $27. The lawyer says, “Come inside and join the unsecured creditors.” That’s also chutzpah. You get my drift.

Legal process requires that Transocean’s lawyers admit no wrongdoing. We shall find out more about that when the allegations of negligence get the clarity of trials, depositions, interrogatories, witnesses, etc. So let’s just look at some facts.

Transocean is trying to avoid payment of claims by arguing they are under the rules of admiralty (law applied to the sea) and they are invoking the “Shipowner’s Limitation of Liability Act of 1851.” That’s right, 1851. The same Transocean that has collected over $400 million from its insurers is trying to avoid paying the claims of the injured and dead that resulted from the blowout of their drilling rig. This is also the same Transocean that valued the rig at $650 million before the blowout but now is using the $27 million figure because it is the remaining salvage value of this “vessel.”

By getting the case into admiralty court, Transocean may be able to delay the proceedings and may have the ability to limit exposure to a jury trial. They may be able to combine all the claims. They will claim that all they owe the injured and the families of the dead is $27mm. That, too, is chutzpah.

We are just starting to enter the legal proceeding stage of the BP-Transocean saga. This is where the figure will reach into the tens of billions if the Top Kill attempt to seal the well is successful and permanent. Tens of billions in claims are coming. More billions in clean up costs lie ahead. Over 130 lawsuits are already filed. Thousands will be involved before this is over.

New estimates are that the oil spewing rate is somewhere around 20,000 barrels a day; that’s nearly 1 million gallons a day. This is now deemed to be the largest and most serious oil catastrophe in US history. And the same politicians who didn’t impose strict rules and didn’t supervise and didn’t do what they were supposed to do, from either the White House or the Congress, are now claiming they have been busily concerning themselves with this event every day. That, too, is chutzpah.

By the way, Transocean says they filed the maritime limiting motion “at the instruction of our insurers” and in order to preserve coverage. Again, pure chutzpah.

The fight now is who pays whom and how much and when. The battles will be between lawyers. Stay tuned as we observe what is about to be one of the biggest legal battles in history. We continue to suggest that these liabilities are going to be huge and cannot be presently estimated. We would avoid these stocks. Some are recommending them over other energy companies. That, too, may come to be seen as chutzpah.

COPYRIGHT © 2010 CUMBERLAND ADVISORS, INC.

[Rnlvifov]

Get out your calculators ... One guy offers some numbers and a diagram:

The diagram notes that the Oil Reservoir Pressure is ~ 13,000 psi at a depth of ~ 18,360' ...

ZerOhead
June 1, 2010

... the well layout again ...

Thar she be..

http://www.theoildrum.com/files/GOM%...0Figure_2a.jpg

A 36 inch diameter means the oil pressure of around 8,000 PSI (numbers courtesy of Thad Allen..)

means let's see... 36/2 (radius) =18... then squared = 324... then times Pi = 1,018 sq inces... times 8,000 PSI equals...

Eight million one hundred and forty four thousand pounds of upward pressure on the BOP of course one has to subtract the weight of the water column above it to come out with a final answer of...

Just over 6 million pounds of upward pressure on the BOP and wellhead! Ouch!

[jokilewqs]

I'm sorry, I thought this had become a matter of national security. If not ... of course, let it be: the BP Company can be relied to take care of things within their own fiscal model.

Could we put out fires on this model? Or handle outbursts of terrorism?

I just want the damn thing plugged up. I wish Obama could miracle it closed, but he can't. I don't think all the threats of law suits and bodily harm in the world are going to help get it done any faster. Oil industry know how is needed here. There will be plenty of time for finger pointing later.

[KinicsBonee]

when folks are ready to give up their cars..... talk is cheap
how many households have more than 1 car??????
it's not just BP, because simply boycotting BP, will just give OTHER oil companies business... Would it not be good for people to start cutting their car usage(what a concept.... mass transit or car pool)

At Ablarc:
I think you need to calm down and go have a beer at the local pub. Not your best contribution..

quote: Why is there not a Coast Guard contingent, guns drawn, aboard the ship with a broken saw? And a second Coast Guard contingent, guns drawn, at BP Headquarters, ready to arrest everybody at the top and take over the operation in the National Interest?

Hasn't Obama shown himself to be every bit as owned by the Gigantic Corporations as his predecessor?

[Savviioor]

exactly
before the oil spill, 'all' (majority) were 'ok' with oil drilling , I did not see people protesting oil companies to the point of boycotting, and not driving their oil tank cars, at that time

Now 'everyone' is coming out of the wood work as if 'they all knew' , until after the fact..... well nice job folks....it's too late

How would standing on the boat with guns make anything work better/faster?

I do not like this any more than you abl, but I fail to see where MILITARY action should be taken in a case like this. This is Civil with national implications. If the military cannot help, why waste the money in using them for something like this?


As for the well, I wonder if they could try a tap-line. Go to a point on the pipe that they know is still OK, attach a coupling around that portion of the pipe, then insert/cut a vent hole in it. Once that hole is drilled, something could be inserted to divert SOME of the flow. Additional measures could be taken as well (I was thinknig like a plumbing valve) where the drell would preceed to the opposite side of the pipe and drill a somplete axle support that would be reinforced by the coupling around it.

The trick would then be to find a way to butterfly-valve it. Getting a plate in there sideways that would allow tham to close the pipe off 90% or so.

The problem is now it looks like everything they are trying has no guidance. If they can anchor to the pipe, and anchor the pipe itself, then getting other things in the right spot would be a LOT easier!

[rowneigerie]

June 2, 2010 NYTimes
Nuclear Option on Gulf Oil Spill? No Way, U.S. Says
By WILLIAM J. BROAD
The chatter began weeks ago as armchair engineers brainstormed for ways to stop the torrent of oil spilling into the Gulf of Mexico: What about nuking the well?

Decades ago, the Soviet Union reportedly used nuclear blasts to successfully seal off runaway gas wells, inserting a bomb deep underground and letting its fiery heat melt the surrounding rock to shut off the flow. Why not try it here?

The idea has gained fans with each failed attempt to stem the leak and each new setback — on Wednesday, the latest rescue effort stalled when a wire saw being used to slice through the riser pipe got stuck.

“Probably the only thing we can do is create a weapon system and send it down 18,000 feet and detonate it, hopefully encasing the oil,” Matt Simmons, a Houston energy expert and investment banker, told Bloomberg News on Friday, attributing the nuclear idea to “all the best scientists.”

Or as the CNN reporter John Roberts suggested last week, “Drill a hole, drop a nuke in and seal up the well.”

This week, with the failure of the “top kill” attempt, the buzz had grown loud enough that federal officials felt compelled to respond.

Stephanie Mueller, a spokeswoman for the Energy Department, said that neither Energy Secretary Steven Chu nor anyone else was thinking about a nuclear blast under the gulf. The nuclear option was not — and never had been — on the table, federal officials said.

“It’s crazy,” one senior official said.

Government and private nuclear experts agreed that using a nuclear bomb would be not only risky technically, with unknown and possibly disastrous consequences from radiation, but also unwise geopolitically — it would violate arms treaties that the United States has signed and championed over the decades and do so at a time when President Obama is pushing for global nuclear disarmament.

The atomic option is perhaps the wildest among a flood of ideas proposed by bloggers, scientists and other creative types who have deluged government agencies and BP, the company that drilled the well, with phone calls and e-mail messages. The Unified Command overseeing the Deepwater Horizon disaster features a “suggestions” button on its official Web site and more than 7,800 people have already responded, according to the site.

Among the suggestions: lowering giant plastic pillows to the seafloor and filling them with oil, dropping a huge block of concrete to squeeze off the flow and using magnetic clamps to attach pipes that would siphon off the leaking oil.

Some have also suggested conventional explosives, claiming that oil prospectors on land have used such blasts to put out fires and seal boreholes. But oil engineers say that dynamite or other conventional explosives risk destroying the wellhead so that the flow could never be plugged from the top.

Along with the kibbitzers, the government has also brought in experts from around the world — including scores of scientists from the Los Alamos National Laboratory and other government labs — to assist in the effort to cap the well.

In theory, the nuclear option seems attractive because the extreme heat might create a tough seal. An exploding atom bomb generates temperatures hotter than the surface of the sun and, detonated underground, can turn acres of porous rock into a glassy plug, much like a huge stopper in a leaky bottle.

Michael E. Webber, a mechanical engineer at the University of Texas, Austin, wrote to Dot Earth, a New York Times blog, in early May that he had surprised himself by considering what once seemed unthinkable. “Seafloor nuclear detonation,” he wrote, “is starting to sound surprisingly feasible and appropriate.”

Much of the enthusiasm for an atomic approach is based on reports that the Soviet Union succeeded in using nuclear blasts to seal off gas wells. Milo D. Nordyke, in a 2000 technical paper for the Lawrence Livermore National Laboratory in Livermore, Calif., described five Soviet blasts from 1966 to 1981.

All but the last blast were successful. The 1966 explosion put out a gas well fire that had raged uncontrolled for three years. But the last blast of the series, Mr. Nordyke wrote, “did not seal the well,” perhaps because the nuclear engineers had poor geological data on the exact location of the borehole.

Robert S. Norris, author of “Racing for the Bomb” and an atomic historian, noted that all the Soviet blasts were on land and never involved oil.

Whatever the technical merits of using nuclear explosions for constructive purposes, the end of the cold war brought wide agreement among nations to give up the conduct of all nuclear blasts, even for peaceful purposes. The United States, after conducting more than 1,000 nuclear test explosions, detonated the last one in 1992, shaking the ground at the Nevada test site.

In 1996, the United States championed the Comprehensive Test-Ban Treaty, a global accord meant to end the development of new kinds of nuclear arms. President Obama is pushing for new global rules, treaties and alliances that he insists can go much further to produce a nuclear-free world. For his administration to seize on a nuclear solution for the gulf crisis, officials say, would abandon its international agenda and responsibilities and give rogue states an excuse to seek nuclear strides.

Kevin Roark, a spokesman for Los Alamos in New Mexico, the birthplace of the atomic bomb, said that despite rumors to the contrary, none of the laboratory’s thousands of experts was devising nuclear options for the gulf.

“Nothing of the sort is going on here,” he said in an interview. “In fact, we’re not working on any intervention ideas at all. We’re providing diagnostics and other support but nothing on the intervention side.”

A senior Los Alamos scientist, speaking on the condition of anonymity because his comments were unauthorized, ridiculed the idea of using a nuclear blast to solve the crisis in the gulf.

“It’s not going to happen,” he said. “Technically, it would be exploring new ground in the midst of a disaster — and you might make it worse.”

Not everyone on the Internet is calling for nuking the well. Some are making jokes. “What’s worse than an oil spill?” asked a blogger on Full Comment, a blog of The National Post in Toronto. “A radioactive oil spill.”

Henry Fountain contributed reporting.

[Lillie_Steins]

^^^ There's certainly enough hypocrisy to go around. But I wouldn't necessarily assume the people on this thread haven't been thinking about environmental issues for decades. We all need to change our habits, no doubt about it, but would you rather we all ignore the manifest criminal negligence leading up to this disaster?

[denyffishh]

What if the bomb were to breach the oil field, not seal the small part we tapped into?

I would worry about many things:

-Turning the leak site into a ragged gaping hole that cannot be sealed.
-Causing a tear in the rock (fracture) that would breach the oil field
-Radioactivity in the soil/water and oil itself.

The whole thing about this being against disarmament is ludicrous. "OMG you said you did not want nuclear weapons stockpiled high enough to blow the world up 100X over but here you are using one to seal a well!!!, Hmm? HMM??!?"

Unsubstantiated conjecture is sad.

[ViagraFeller]

when folks are ready to give up their cars..... talk is cheap how many households have more than 1 car??????

No doubt that cars are a problem, but as already pointed out by another poster, oil is deeply ingrained in our lifestyles.

Is your home air conditioned? Do we need it in so many places? Wasn't too long ago that movie theaters advertised that they had air conditioning.

What about plastic water bottles? Found a few facts: In 1976, an American consumed 1.6 gallons of bottled water; in 2006, it was 28 gallons. Plastic is made from hydrocarbons, and it took 17 million barrels of oil just to make the bottles.

Go into a store and buy a bunch of small items. They are all wrapped in oversized plastic cases (antitheft). Not too long ago, a clerk put all the loose items in a paper bag.

How about all the electronic junk we use? Where does the power come from?

[OvDojQXN]

It comes from God.