BP knew of problems hours before blast

The Deepwater Horizon drill rig burns in the Gulf of Mexico, April 21.





NEW YORK (CNNMoney.com) -- BP knew of problems with an offshore well hours before it exploded last month, spilling millions of gallons of oil into the Gulf of Mexico, a House committee chairman said Wednesday.

Rep. Henry Waxman, D-Calif., said the oil company told the Energy and Commerce subcommittee on oversight privately that the well failed a key pressure test just hours before it exploded on April 20.

The test indicated pressure was building up in the well, which could indicate oil or gas was seeping in and could lead to an explosion, said Waxman.

"Yet it appears the companies did not suspend operations, and now 11 workers are dead and the Gulf faces an environmental catastrophe," he said, asking why work wasn't stopped on the well.

"This is one of the key things the investigation is going to have to look at," said Lamar McKay, chairman and president of BP America.

Witnesses before the panel, which included executives from the three primary companies working on the well - BP, Transocean, and Halliburton - said the course of events and actions leading up to the explosion is still under investigation, and will come to light over time.

BP's deepwater oil well, 40 miles off the coast of Louisiana, is now leaking some 200,000 gallons of crude a day following the explosion that claimed 11 lives.

Lawmakers also wanted to know why a valve sitting atop the well, known as a blowout preventer, or a BOP, failed to close and avert the disaster.

"It is far too early to draw conclusions about how the incident occurred," said Jack Moore, president and CEO of Cameron International (CAM, Fortune 500), the company that built the device. "Our BOPs have a very long history of reliable performance, including performance in some of the harshest operating conditions in the world."

Rep. Bart Stupak, D-Mich., said the blowout preventer may have failed for four reasons: Modifications to it may have reduced the number of shears that can close the well; a hydraulic leak may have knocked it out of commission; it may have hit a section of pipe that was too thick to cut; and its battery power may have died.

The executives said the blowout preventer is not designed to handle all situations, especially when it becomes clogged with debris from an actual explosion.

"I would think that your blowout preventer should be designed to handle that," said Rep. Joe Barton, R-Texas.

Lawmakers also criticized proposed efforts to seal the well by injecting rubber debris down the top, including old golf balls and bits of tires.

"The American people expect a response on par with the Apollo Project, not Project Runway," said Rep. Ed Markey, D-Mass.

Senate hearings

On Tuesday, hearings in the Senate focused on similar themes: what caused the well to explode, and why the blowout preventer did not work.

Three executives from the three principal companies working on the well all blamed each other.

BP (BP), which owns the well and subcontracted the other companies to work on it, said it was Transocean's job to ensure that the blowout preventer was functioning. Transocean was the owner of the drilling rig that sunk, the Deepwater Horizon, and also owned the blowout preventer.

Transocean (RIG) said the blowout preventer worked just fine in tests, and that it may have gotten jammed with concrete or other well fluids that were injected by a third contractor, causing the well to explode. Either way, argued Transocean's president, it was the faulty well, not the rig or the blowout preventer, that ultimately caused the leak.

Halliburton (HAL, Fortune 500) was the third contractor; it injected cement and other well fluids into the hole before the explosion. But a Halliburton exec said it was only following the orders of BP, which wanted a heavier fluid, known as mud, removed from the well before the well was capped with a concrete plug.

Some senators, citing a Wall Street Journal report, said this process of removing the heavy fluid before the concrete plug is installed is unusual in deep water drilling, and suggested it may have caused the accident by allowing the highly pressurized oil and gas to escape. But Halliburton's executive said the process was not out of the ordinary.

The Minerals Management Service, the federal agency that regulates offshore drilling, has also come under fire in the wake of the spill.

On Tuesday, senators wanted to know why there weren't other back-up systems in place to stop a leak besides the blowout preventer, and questioned why the blowout preventer may not have been able to cut through thicker sections of pipe to pinch it shut and stop a leak. Lawmakers also questioned the agency's relationship with the oil industry, which some have described as cozy.

The Obama administration announced plans Tuesday to split the agency in two, thus removing an apparent conflict of interest between the drive to maximize oil production and efforts to ensure safety, which could slow drilling down.

Under federal law, BP, as the lead project operator, is responsible for all clean-up costs associated with the spill.

While the subcontractors are thought to have some legal indemnification from BP and the federal government, lawyers say they could still be open to lawsuits from fisherman and others affected by the spill.

Ultimately, experts have said the total cost of the spill could range from $2 billion to $14 billion or higher, depending on when the leaking well is closed and where the oil washes ashore.