CORRECT: Oil Chiefs Back Away From BP; Democrats Say Cos Unprepared

15th Jun 2010 22:57

("Oil Chiefs Back Away From BP, published at 4:05 p.m. EDT, misstated the Republican who called on Lamar McKay to resign in the 14th paragraph. A corrected version follows.) By Siobhan Hughes and Tennille Tracy Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--Oil-company executives distanced themselves from BP PLC (BP, BP.LN) at a Capitol Hill hearing on Tuesday, amid a threat that the federal government will use a vast BP oil spill in the Gulf of Mexico to enact policies that go beyond a temporary ban on deepwater drilling. Exxon Mobil Corp. (XOM) Chief Executive Rex Tillerson said that that "we would not have drilled the well the way they did." Chevron Corp. (CVX) Chief Executive John Watson said that "it's not a well we would have drilled" and told a House Energy and Commerce Committee panel that an independent investigation will show that "this tragedy was preventable." But criticism from senior House Democrats that oil-company spill response plans were "cookie cutter" illustrated the rough ride facing the oil chiefs at the first industrywide hearing since the oil spill began more than eight weeks ago. The major line of attack: the biggest oil companies face shortcomings similar to those of BP, a rationale that Congress and the Obama administration are using to justify repealing tax breaks and imposing new regulations on the industry. Rep. Henry Waxman (D., Calif.), the chairman of the panel, said that oil-spill response plans provided by the companies to the committee show that Exxon Mobil, Chevron, ConocoPhillips (COP) and Royal Dutch Shell PLC (RDSA) "are no better prepared to deal with a major oil spill than BP." He said that while four plans discussed how to protect walruses, "there are no walruses in the Gulf of Mexico." Rep. Ed Markey (D., Mass.) said that "two other plans are such dead ringers for BP's that they list a phone number for the same long-dead expert." Even Rep. Joe Barton (R., Texas), an oil-industry supporter, said that the entire industry was too reliant on a last-resort device known as a blowout preventer intended to shut off problem wells. "You can't have a contingency plan that says cross your fingers and hope the blowout preventer works," Barton said. BP was unable to activate a blowout preventer on the sea floor following the April 20 explosion, and has since tried a number of tactics that have failed to plug the leak or capture all of the leaking oil. The criticism came amid a Democratic pushback against a reported plan by BP to stash funds owed to shareholders for a dividend payment in an escrow account. "We find this option as unacceptable as the company's original plan to go ahead with its dividend payment as scheduled," Sens. Charles Schumer (D., N.Y.), Mark Begich (D., Alaska), and Ron Wyden (D., Ore.) wrote in a letter. The BP plan is seen by analysts as an opening bid in negotiations with President Barack Obama, who has asked BP to set aside billions in an escrow fund to compensate for the damage stemming from the spill. Senate Democrats have backed him up, asking BP Chief Executive Tony Hayward to set aside $20 billion in a special account as a downpayment for economic damages and clean-up costs of an ongoing oil spill in the Gulf. BP doesn't have $20 billion in cash on hand; the company reported $8.34 billion at the end of 2009. Amid the risk that BP will have to borrow money to meet U.S. demands, Fitch Ratings downgraded BP's long-term issuer default rating to just above junk status. More details may emerge on Tuesday evening, when Obama addresses the nation in his first-ever address from the Oval Office, or on Wednesday, when Obama meets with BP Chairman Carl-Henric Svanberg to discuss a "mechanism" to pay for legitimate claims. On Tuesday evening, Obama will discuss safety regulations; the administration's cleanup efforts; and what needs to be done to mitigate the effect on the Gulf Coast's economy, White House spokesman Bill Burton told reporters. Many unknowns remain about the ultimate costs to be paid by BP. "Damage recovery will not be determined until very far down the road when we actually believe we can calculate what the damage to the environment has been," U.S. Geological Survey Director Marcia McNutt told the House Natural Resources Committee. She is leading a group of scientists evaluating how much oil is spilling from the well. At the House Energy and Commerce Committee hearing, BP America Chairman Lamar McKay declined to comment on BP's financing of an escrow fund. The BP executive took the brunt of the criticism at the hearing. "I'm asking you to resign," Rep. Cliff Stearns (R, Fla.) told McKay. Rep. Joseph Cao (R., La.), who immigrated from Vietnam, went further. "During the samurai days we'd just give you a knife and ask you just to commit hari kari." McKay appeared less than 24 hours after congressional investigators disclosed new details showing that BP had ignored warnings from contractors and BP personnel amid a focus on saving time and money. BP opted for a single string of steel casing from the sea floor to the bottom of the well instead of using a "tieback" method that would have provided twice as much protection, according to evidence released by the House Energy and Commerce Committee. "We would have run a liner, a tieback liner," Tillerson said. The biggest threat to the industry is that the Obama administration will extend a six-month moratorium on drilling new deepwater wells in the Gulf of Mexico. Tillerson said that the moratorium was "unnecessary in terms of the extent and length of it." Shell President Marvin Odum warned that "offshore driling is too important to U.S. energy supplies and our economy not to safely and responsibly move forward." GOP leaders highlighted the issue, with Senate Minority Leader Mitch McConnell (R., Ky.) saying that the moratorium on deepwater drilling ordered by the president was exacerbating the unemployment problem that already existed in the Gulf. Sen. Lisa Murkowski (R., Alaska) said she agreed on a temporary suspension while regulators ensured the necessary safeguards were in place, but said a longer-term moratorium would be damaging. Other risks: possible mandatory rules on cementing practices, reversing years of voluntary industry standards. The scrutiny of offshore drilling also threatens to affect onshore drilling. Rep. Michael Burgess (R., Texas) brought up a controversial drilling technique that involves pumping chemicals and water underground to break up underground rock, or shale, and access the gas within. ConocoPhillips Chief Executive James Mulva said that his company had a lot of experience in gas drilling. But Burgess, who represents an area that sits atop the Barnett Shale, said that "in my neighborhood, it may not be as secure as you think." -By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; [email protected] (Corey Boles, James Herron and Shayndi Raice contributed to this report.) (END) Dow Jones Newswires June 15, 2010 17:57 ET (21:57 GMT)