A Crash Course History Lesson in Oil Spills

by Tony D'Altorio

A Crash Course History Lesson in Oil Spills

Tony Daltorio, Investment U Research

Monday, July 19, 2010

So BP (NYSE: BP) has finally managed to successfully put a cap on its gushing, undersea oil well.

Great news, yes, but it hardly means the story is over. Both the company itself and the Coast Guard agree that the cap is a mere temporary fix.

So the well's fate still relies on BP's ongoing attempt at an incredible feat of engineering. If it doesn't sound all that tricky to you, let me explain...

The bottom of the production casing on the blown well is 18,360 feet down. That includes about 5,000 feet of water and 13,000 feet of seabed.

The relief wells the company is drilling should intersect the current pipe at 17,500 feet. BP intends to use that to interrupt the oil flow... and then attempt a "dynamic kill" by cramming huge amounts of drilling mud and fluids into the pre-existing well.

That means it has to drill down three miles totally blind. It then hopes to intersect the blown pipe - a very small target - at just the right angle.

That requires a lot of know-how and even more luck.

Can BP - and the U.S. government - do better? Both can look to a similar accident in the 1970s to learn a thing or two.

A Blast From Oil's Past... Literally

Two decades ago, Mexico's state-owned oil company experienced an accident of its own. And the parallels between it and the BP spill are striking.

Back then, Petroleos Mexicanos - or Pemex - had an exploration well called Ixtoc 1. About 600 miles south of Houston, it suffered a massive blowout in June 1979.

Natural gas had flowed unnoticed into the well, causing an explosion. Sound familiar yet? Because just like the BP explosion, the failure of the blowout preventer was critical.

It proceeded to gush oil into the Gulf of Mexico for 9 months and 22 days. By March 1980 when Pemex finally capped it, it had spilled over 3 million barrels.

On the surface, Ixtoc 1 was easier to solve than BP's Mancando well. After all, it lay under just 150 feet of water. But experts say that technology advances even the two out.

After the accident, Pemex tried to close the blowout preventer. But pumping in seawater, drilling fluids and rubber chunks only worked for three hours. After that, a large rupture occurred under the preventer and the oil really began gushing.

No Such Luck For Pemex or BP

Just like BP, Pemex tried everything to stop the oil spill.

It tried putting a cap or "sombrero" on top of the well. It pumped debris into it in "top kill" and "junk shoot" efforts. But nothing worked.

At least, that was until it drilled two control wells in a final "plug" operation. But even then, the oil still leaked for several months afterward.

To its credit, BP - unlike the U.S. government - did ask Pemex for help. And the Mexican company is sharing what information it has. But it also has warned BP that its best hope is the two relief wells currently being drilled.

If the relief wells don't work, BP may have to let nature takes its course. Eventually, the pressure of the oil leak will decline enough to place a fitted cap on it.

But that will take a while. Experts estimate that it would take 2-3 years for that to happen. So let's hope that BP's relief wells will be as successful as Pemex's were.

Some Good News Mixed in with the Oil

On the positive side, Ixtoc does offer clues about the environmental effects of an oil spill.

Animal life in the region fell by 50% in the immediate aftermath. But surprisingly, marine life recovered rather quickly. Local fisheries even recovered within 2-3 years.

Arne Jernelov, an expert on environmental catastrophes, studied Ixtoc specifically. So he knows a thing or two about oil spills.

He says that shrimp and squid populations will suffer greatly from the BP disaster. But he also predicts "a close to complete recovery within a limited number of years."

Other scientists who studied Ixtoc found that a large amount of oil simply evaporated. Either that or it dissolved in the hot waters of the Gulf or sunk into the seabed, forming sediment. In addition, that area contains natural microorganisms that break down oil.

The Mexican Institute of Petroleum issued a report as well. It concluded that crude oil from the spill broke down due to ultraviolet light from the sun, hot water and weather conditions like hurricanes.

Of course, BP's leaking well is at a much greater depth. So not all of the oil may rise to where the sun and weather can break it down.

In the end, we can only hope and pray that it turns out right.

Good investing,

Tony Daltorio

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