The team closed the operation down, but those who gave the order from Houston forgot that the complicated procedures had never previously been executed. After the hurricane passed, the returning teams discovered the rig tilting at a dangerous angle. Defective valves in the hydraulic control system had allowed water to drain out of the ballast tanks. Oil was also leaking from equipment on the sea bed that linked the well to the pipeline. BP’s engineers had not noticed the poor quality of the manufacturers’ work. None of BP’s designing engineers had taken into account the fact that only valves manufactured from nickel could sustain the extraordinary pressures and temperatures on the sea bed; and the welding had been faulty. The flaws were superficially simple, and exposed BP to ridicule from its rivals. Sending divers to carry out repairs a mile down was impossible, and the damage was too great to repair with robots. The equipment would have to be brought to the surface. It was not clear where the blame lay, but the sums involved were too large to reclaim from the designers and the Korean shipyard. Publicly, BP reported that the rig would be unusable until 2007, and that the repairs would cost £250 million. Such optimism caused wry smiles across Houston.
In normal times, the employees of the major oil companies cooperated to serve their common interests, but in the competitive atmosphere of the time mischievous gossip raged across Houston, and the spirit of BP’s humiliated team faltered. Thunder Horse was more than just a tilting platform – it was symbolic of the company. ‘Poor design and supervision,’ smiled Shell’s head of design about the calamity. ‘BP always shoot from the hip,’ said a Shell technician, characteristically dismissing the abilities of a rival. ‘Their technology and engineering is second rate. They’re always coming to us for help.’ He dismissed BP as a late arrival, hanging onto Shell’s coat-tails, copying its rivals or outsourcing. A colleague agreed that BP was a fast follower, depending on ‘off-the-shelf go-buys’.
David Rainey was indignant at such criticism. History, he believed, undermined Shell’s claims of superiority. He felt the company had rested on its laurels, and that following the success at Mars it had been closed to new ideas in the Gulf. ‘Deep Mensa’, an $80 million well bored by Shell in 2001, had been a disaster. Technicians monitoring the data witnessed the ‘crash out’ – the uncontrolled vibrations which smashed the drill as it struggled through fractured rock. Even the best explorers risked embarrassment on the frontiers of the industry. Mortified, Shell’s engineers had taken a year to rectify their mistakes.
Shell’s expensive errors had been concealed from the public. But Thunder Horse appeared to be a warning to Russia and other national oil companies not to rely on BP. The company’s explanations were gleefully rebutted by a Chevron vice president: ‘It’s defeatist to say “Stuff happens.”’ That criticism was also rebutted by Rainey. During the 1980s, he recalled, Chevron had suffered multiple drilling failures which had crippled the company. Cooperation in the Gulf with Chevron, Rainey said, had caused arguments. In 2001, BP’s explorers had collaborated with Chevron to test drill the ‘Poseidon’ block. ‘They’re off the structure,’ Rainey had complained, urging Chevron to reconsider the test location. Chevron insisted on its expertise, but missed the oil reservoir. Expressing condolences for the failure, BP negotiated to inherit the ‘barren’ field. Rainey’s team had precisely calculated the top of the reserve’s ‘hill’, hit a billion barrels of oil, and renamed the well Kodiak.
BP’s engineers were however not protected from the reproaches of a leader of Exxon’s exploration team. As the junior partner in Thunder Horse, Exxon was suffering losses caused by BP. Lee Raymond’s jocular description of John Browne as a ‘bandit’ found many echoes among Exxon’s executives, especially from the technical director who recalled a fault at the BP’s Schiehallion oilfield off the Shetland Islands which had compelled BP to lift equipment off the sea bed not once, but twice. On two occasions the company’s engineers had failed to spot valves installed upside down by the contractors. While Exxon’s engineers would at worst have spotted the fault and learned the lesson, BP’s management system was not equipped to evaluate the technology, neutralise risks and absorb the lessons.
Exxon, as the industry leader, proudly avoided technical disasters. Since the days of John D. Rockefeller, the nineteenth-century founder of Exxon’s forerunner Standard Oil, the corporation had standardised the rigorous management of costs and processes to prevent financial or technical errors. Like God, the system and the company were infallible. Relying on a culture developed since Standard Oil’s creation in 1870, Exxon was built on tested foundations. By comparison, BP in 2004 was a conglomerate including former Standard Oil companies – Sohio, Arco and Amoco – still struggling to replicate Exxon’s excellence and standardisation. While Raymond concealed uncomfortable truths by cultivating a mystique and keeping outsiders at a distance, Browne was constantly selling himself and his improvised company. Nevertheless, both men could justifiably claim considerable technical achievements to ameliorate oil shortages; yet their skills were spurned by oil-producing countries.
One manifestation of the mistrust of BP, Exxon and the other major oil companies lay across the Gulf, in Mexico. The country, the world’s sixth largest oil producer, owned vast quantities of unexplored oil beneath its coastal waters. To Browne’s frustration, Mexico’s national constitution forbade the participation of foreign companies in its oil industry, and 1938 nationalisation laws had expelled American oil corporations, damaging Mexico itself. Pemex, the national oil company, mired in intrigue and patronage, had become notorious for its inefficiency, and as a slush fund for local politicians. Like so many national oil companies, Pemex was expected to provide employment – there were 27 workers on each of its wells, compared to the industry’s average of 10. And those employees, lacking technical skills, relied on services provided by Schlumberger, which posed no challenge to Pemex’s sovereignty.
In 2002 Mexico’s president Vicente Fox sought to change that situation. The facts were alarming. Mexico’s oil production was falling. The reserves in Cantarell, Mexico’s biggest field in shallow water, which accounted for 60 per cent of the country’s production, was declining by 12 to 15 per cent every year. In 2002 the government borrowed and spent $50 billion to pump more oil, but it had spent only $5 billion on exploration in four years, none of which was in deep water. Consequently, Mexico’s proven reserves – the oil that was technically and economically recoverable – had been reduced within three years from 15.1 billion barrels to 11.8 billion. The country had neither the expertise nor the money to undertake deep-sea drilling, and its plight was compounded by its inability to refine sufficient crude for its domestic consumption. Instead, Pemex exported crude oil to the USA and paid mounting prices for the petrol and other refined products imported from America. Natural gas was flared or burnt at Cantarell because Mexico could not afford to collect and pipe it across the Gulf. Within a decade, the country would need to import oil. Fox urged the vested interests to change the 1938 constitution and allow foreign investment, with the condition that any benefits would materialise only after a decade. His exhortations were ignored. Mexico’s political leaders cared even less about their introverted and protectionist neighbour than about their own plight, an attitude which weakened the oil majors and encouraged the ambitions of the Chinese and other consuming nations to make unrealistic offers to Mexico and neighbouring Venezuela, which was even more beleaguered by falling production. For those governments, local politics and world prices were more important than America’s energy needs.
These seemingly disparate events around the Gulf of Mexico became interlocked in the summer of 2005. In August Hurricane Katrina hit the Gulf, passing over Thunder Horse and devastating New Orleans. 220-mph winds destroyed old rigs, and struck the Mars rig and 11 refineries. One quarter of all America’s oil production and one half of its refining capacity was paralysed. Overnight, Americans understood the vulnerability of oil and gas production in the Gulf. Four weeks later,