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Brett King: The death of retail banking is here

by on October 27, 2010

The concept that banking is necessary, but banks are not has often been debated. The question of whether technology advances and new business model results in disintermediation is often dismissed as hype. While the Internet is undoubtedly the most significant technological advanced of the modern age, most retail bankers would argue that this only produced an incremental change in banking with yet another channel to access the existing bank infrastructure. However, that’s only partially accurate as an assessment. If you look at the broader world, there are actually tons of new businesses eating away at the retail banking client experience: Independent Financial Advisors While banks proclaim platform, global experience, asset management capability, etc the fact is that the advisory space is not owned solely by banks. In fact, if you really want a dedicated Relationship Manager who is going to not just sell you a product you really only have two choices – IFA or Private Bank. The mass affluent HNWI space just doesn’t deliver… Contactless Mass Transit Payments Octopus in Hong Kong, Oyster in the United Kingdom, EZLink in Singapore and other such stored value smart cards are actually debit cards. Octopus has a limited banking license in Hong Kong for the purpose of deposit-taking, but let’s not kid about here – all of these are acting like banks, but aren’t banks. As banks we can justify the fact that these are minimal impact and argue that ultimately the payments come from the banks to “recharge” these cards, but the fact is we’re not in the mix. Mobile Payments In some ways the big hit of SIBOS this year has been mobile payments arriving on the scene. The only problem with this is that M-PESA launched in Kenya in 2006 and now ‘owns’ between 5-10% of Kenya’s GDP, GCASH launched in Philippines in October 2004 and now has 28,000 outlets supporting their services across the country. There are other examples too – Nokia is set to dominate the mobile payments space in India as they turn their stores into cash-in/cash-out points across the sub-continent. Where are the banks? Some banks are now offering withdrawal through ATM networks for mobile cash users, but the fact is banks are still arguing about interoperability, platform, security and alliances to be productive – so again banks are missing out. Peer-to-Peer lending Zopa now represents close to 1.5% of the UK lending market with monthly lending of GBP 10-15m. With a reported NPL of 0.7% they are also the industry leader in the UK for credit management. Bankers would find this counterintuitive – how can a non-bank have a better performing loan book than a bank? The answer is better value to the consumer, and social lending as the foundation. Prosper, Lending Club and others are also taking their fair share of the lending markets in places like the US. Average loan sizes for Lending Club and Zopa are not microfinance size either, being around US$2-3k. This is direct competition for the retail banking sector. Peer-to-Peer and alternative Payments networks PayPal is clearly the leader in online payments today, and while PayPal utilizes existing card networks and payments infrastructure, the fact is that in the area of capturing transactional revenue and in respect to ownership of consumer mindshare, PayPal reigns supreme. On eBay, for example, between 50-75% of payments are processed via PayPal. Banks like HSBC are proud of the fact that they process much of the back-end payments for PayPal – but surely being in the front-end is the sweet spot here. Merchant onboarding Square, from Jack Dorsey (Twitter founder), has recently gone live. All you need is an existing bank account and an Android or iPhone and you can start accepting credit card payments. Currently Square is deployed in the USA where there are more than 20 million small business owners who don’t have a merchant account with a bank. The merchant on-boarding process is just too complex for most businesses, and Square recognized that. What would you rather do? Download an App and sign up for Square, or negotiate the 150 pages of different legal contracts and forms from your bank to set up a merchant account? Banks don’t offer value here – in fact, the opposite. Disintermediation abounds and is speeding up This morning at SIBOS we just heard Karen Fawcett of Standard Chartered  proclaim “Transaction banking is now front and centre. Flow businesses that we support are the lifeblood of commerce.” The problem is this view of the world. Bankers are simply used to owning the pipes, the network, the wires and perceiving that their exclusivity on ‘banking’, their ‘lock on customers’ comes from having a banking license. Clearly, however, disintermediation of the retail front-end of banks is rife. Banks are becoming wholesalers, networks and product manufacturers, but clearly with the lack of innovative capability, the rapidly growing gap between customer behavior and retail banks as poor service companies, the question of whether we need banks has been answered… We don’t need retail banks – we do need the back-end networks that process payments, we need organizations that are prepared to take on the risk of lending (social lending is unlikely to scale up to mortgage level), and we need mechanisms that give us access to trading systems and markets. But retail banks, their physical distribution real-estate, their products and services are fast becoming redundant. Sure, it will take a couple of decades, but in many ways it’s already too late. The ‘things’ that were uniquely “banking” 20 years ago, today have all been replicated by a transport department, an internet start-up, a social network and a telecommunications company. Banking at the front-end is no longer unique, it’s a commodity. When such interactions become commoditized, then the concept banks leverage of paying for the privilege of banking make them easy targets for disintermediation.

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Bonnie Raitt, R.E.M., MoveOn Team Up To Defend Open Internet

by Ryan Grim on September 22, 2010

The Federal Communications Commission will meet Thursday in the midst of an ongoing debate over net neutrality regulations that have pitted major telecoms, which want control of the flow of information across their broadband networks, against small businesses, bloggers, political actors and other Internet users who are resisting the telecommunication takeover attempt. On Wednesday, a group of popular musicians entered the fray, joining with MoveOn.org to press the FCC to write regulations that will prevent telecoms from asserting control over the flow of information. Jackson Browne, R.E.M. the Roots, Rosanne Cash, OK Go, Moby and Bonnie Raitt are among the artists to sign the letter. They will be encouraging their fans to contact the FCC and push the commission to write rules preserving an open Internet. Telecoms are pushing the FCC to do nothing and let Congress act instead, while major corporations such as Verizon and Google strike bilateral deals that carve up the Internet. But Congress has already acted. In 1996, the Telecommunications Act updated the original 1934 Communications Act, New Deal legislation that prevented monopolies from dominating the means of communication. In 2002, under pressure from the cable and phone industry, the Bush administration’s FCC classified broadband as an “information service” rather than as a “telecommunications service.” It is, quite plainly, a telecommunications service, but the FCC deemed it otherwise for the sole purpose of avoiding the legislative requirement that neutrality rules be written to protect the Internet from control by major corporations. By 2005, the phone and cable companies had begun publicly discussing their plans to subvert net neutrality. “Why should [companies] be allowed to use my pipes?” Southwestern Bell CEO Ed Whitacre told BusinessWeek. “The Internet can’t be free in that sense … for a Google or Yahoo! or Vonage or anybody to expect to use these pipes for free is nuts!” Earlier this year, the Supreme Court ruled that the FCC could not regulate broadband as an “information service.” It had already ruled in 2005 that the FCC could classify broadband as a “telecommunications service.” So, following the 2010 court ruling, the FCC announced plans to reclassify broadband as what it actually is. That’s when the telecom lobbying went into high gear. The GOP launched an attack arguing that Obama was attempting to take state control of the Internet, as if regulating broadband the way that phone lines are regulated amounted to nationalization. The telecom lobbying effort soon came to focus around an effort to pressure FCC Chairman Julius Genachowski not to reclassify broadband, but to leave it unregulated until Congress acts. The collaboration between MoveOn and the artists is an effort to persuade Genachowski to act. The full letter: Dear FCC Commissioner Julius Genachowski: The Internet has facilitated an explosion of creativity and commerce, offering unprecedented opportunities to musicians and music entrepreneurs. Due to the open structures of the Internet, musicians and other creators and innovators can compete on an equal technological playing field with the biggest companies. The result is a blossoming and legitimate marketplace that compensates creators while rewarding fans with access to an incredible array of music. None of this could have happened without Net Neutrality — the principle that protects the open Internet. That’s why we support efforts to preserve Net Neutrality for the benefit of innovation and free expression — and urge the FCC to act immediately to ensure that the Internet is kept free and open. As artists, we are encouraged that the Commission recognizes the importance of net neutrality. We encourage you to apply its core principles to any and all broadband points of access, including the wireless space. We also encourage you to consider the perspectives of musicians, who depend on an open Internet to compete in a crucial marketplace and express ourselves creatively. We will continue to support the Commission on the road to achieving clear and enforceable rules of the road for the Internet for the benefit of creators, innovators, entrepreneurs and the public. However, we also feel that the time to act is now, to avoid prolonged uncertainty for all stakeholders, including musicians and music entrepreneurs. The future of the Internet depends on decisions made today, as does the future of music. We believe that Net Neutrality is the best and only way to ensure that both futures remain bright. Sincerely, R.E.M. The Roots Rosanne Cash Bonnie Raitt Jackson Browne MOBY OK Go Jamie Kitman Writers Guild of America, East

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Charlotte Dennett: "Let Them Eat Fish:" Reflections on Deceptive Advertising by Entergy and BP

September 1, 2010

As campaign season heats up in my home state of Vermont, environmentally conscious voters have been remarking on the similarity between media ads on local TV by Entergy, owner of the radiation-leaking Vermont Yankee nuclear plant, and BP, responsible for the worst environmental catastrophe in American history. Both Louisiana-based giants are trying to assure the public that the worst is past, that they are responsible corporate citizens cleaning up their respective messes, and the public has nothing to fear. But like the proverbial Pinocchio whose nose gets longer every lie, their respective PR teams have made their mutual cover-ups even more obvious. Consider the homey testimonial of a Vermont Yankee manager telling Vermonters how much he loves living near the Connecticut River, which runs adjacent to the aging plant where elevated levels of radioactive tritium and strontium 90 have been found in monitoring wells, in the groundwater and now, in the river itself. “The river is my home,” says site manager Russ Rusinki on camera. “I like to fish on it. I like to eat fish out of this. I like watching my daughter follow in my footsteps on this river. I have absolutely no concerns about my family living near Vermont Yankee. It’s a healthy environment. It’s a safe environment.” I’ve been sampling responses from Vermonters. They aren’t buying it. Remarks Mary Gagnon, a video store owner in Hardwick, Vermont: “It is one thing to say ‘I LIKE to eat fish out of this.’ It is another to actually eat the fish. Let’s see him eating the fish on a regular basis. Then we can talk.” Even if the fish were safe to eat, Vermonters cannot feel encouraged by the news released in May by radiochemists at the University of Waterloo in Canada that baby teeth of children living near the plant show Strontium-90 concentrations 62% greater than those in the general populations of Vermont and New Hampshire children. And this comes from samples taken during the last decade, before the reports in January 2010 of known radiation leaks. You know the saying, “Fool me once, shame on you; fool me twice, shame on me.” Most Vermonters are no longer fooled. They know that Entergy officials were caught lying to state officials, denying that Vermont Yankee had underground pipes leaking radionuclides when, in fact, the pipes were discovered in 2010 to be the source of not only the most recent leaks, but leaks going back to1998. Perhaps this explains why, according to The Center for Disease Control, Vermont has the highest cancer incidence rate among the young of any US state from 1999-2004. Windham County, where Vermont Yankee is located, has the highest death rate from cancer between 1999 and 2005 of any Vermont county (741 deaths). Equally significant, from 1996-2005 there was a fivefold increase in thyroid cancer in Vermont women. The Vermont Department of Health acknowledged this particularly finding as being statistically significant” given that thyroid cancers are linked to “excess radiation exposure.” News of the radiation leaks and Entergy’s lies dominated headlines in Vermont last February and convinced the Vermont Senate to vote against re-licensing the plant last spring. But the battle isn’t over yet. Entergy, mindful that the future of nuclear energy (like that of offshore oil drilling) hangs in the balance, will do everything possible to win back Vermonters’ trust. After all, it’s been 35 years since the Three Mile Island meltdown. The much vaunted “nuclear renaissance” under the Obama administration seems to be on hold until the Vermont Yankee issue is resolved. No wonder Entergy officials have vowed after losing the Senate vote that they would remain “determined to prove our case to the legislature, state officials and the Vermont public” that the plant is a “vital, safe and reliable source of clean power.” BP, meanwhile, has its own shareholders worrying about rising legal costs and evidence of liability. Ever since it was able to cap the breach of its Deepwater Horizon rig, it has been putting out “all is well” signals through the media, with the federal government often acting as a willing partner. Thus, on August 9, the New York Times quoted government sources as saying “Three quarters of the oil from the Deepwater Horizon leak has already evaporated, dispersed, been captured or otherwise eliminated – and that much of the rest is so diluted that it does not seem to pose much additional risk of harm.” But local fishermen and independent journalists disagreed. They reported that the 1.8 million gallons of highly toxic dispersant that made oil disappear is profoundly affecting the health of their fellow workers and families, turned the entire Gulf into an eery green color, and killed off far more wildlife than was being reported. On August 23, even the Times had to reverse itself, challenging the government’s “rosy narrative” by citing a study by the University of Georgia saying the rate of evaporation and biological breakdown “had been greatly exaggerated.” The editorial also cited a report in Science magazine that a team of scientists had found an underground oil plume the size of Manhattan. The government, the Times went on, “finds itself challenged” on another front, by its insistence on the safety of fish caught in the water. “Senior government officials announced flatly …that it is safe to eat fish and shrimp caught in the 78 percent of federal waters in the Gulf that are open to fishing – an assertion reinforced by photo-ops of President Obama eating seafood during a visit to the Gulf.” Should we be reassured? The Times , having been hoodwinked previously, reserved some skepticism, noting that oil spill critic Rep. Ed Markey of Massachusetts thought that “seafood now available is risk free” but that the government had not been testing enough in “off limits areas where oil still exists.” Above all, the editorial concluded, the Obama administration’s “larger problem is one of credibility, which can only be fixed with much clearer answers about the spill.” Meanwhile, clearer answers continue to pour in from around the Gulf, where local fishermen report finding shrimp coated with oil, and seeing crabs, stingrays, and dolphins desperately trying to escape the water, whose oxygen has been depleted by the use of chemical dispersants. This brings me to the role of whistleblowers in defying the PR spin of both corporations. Thanks to EPA whistleblower Hugh Kaufman, we learn that “The sole purpose…for dispersants is to keep a cover up going for BP to try to hide the volumes of oil that has been released and save them hundreds of millions, if not billions, of dollars of fines.” In Vermont, the heroes of the day are Arnie and Maggie Gunderson, whose Fairewinds consultancy firm succeeded in providing enough sound evidence of Vermont Yankee’s problems to break through industry lies and help convince the Vermont Senate to vote against re-licensing Vermont Yankee. Now the Gundersons are questioning the “credibility of the whole nuclear regulatory process in the state of Vermont,” providing evidence in a recent report to the legislature that the Department of Health and the Department of Public Service had been “actively communicating with Entergy in an attempt to discredit” the efforts of Fairewinds to analyze the plant. The Gundersons have an important ally in this ongoing battle: Vermont Senate ProTem President Peter Shumlin, who helped shepherd the anti-relicensing vote in the Vermont Senate last spring and on August 24th emerged as the winner in a highly contested, five-way race in the Democratic Party primary for governor. Pending a recount requested by runner-up Doug Racine, who is also opposed to extending Vermont Yankee’s license beyond 2012, Shumlin will be facing down Republican gubernatorial candidate Mark Dubie, who supports Vermont Yankee. As the battle lines are tightly drawn, Vermonters will be hearing from another candidate as well: this writer, who is running on the Progressive Party ticket for attorney general. I’ll be challenging the incumbent on his failure to deal with consumer fraud in Entergy’s advertising, and will strive for whistleblower protection in Vermont, which has the worst record in the country. It should be an interesting campaign with national ramifications. Stay tuned. You can find out more about Charlotte’s campaign for Vermont attorney general at www.chardennett.org . Journalist and attorney Charlotte Dennett is the author of The People v. Bush: One Lawyer’s Campaign to Bring the President to Justice and the National Grassroots Movement She Encounters Along the Way , published by Chelsea Green.

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Gulf Oil Spill Investigators Focus On Who Knew What, And When

August 23, 2010

HOUSTON (AP) — Federal investigators seeking the cause of the rig explosion that led to BP’s massive Gulf oil spill focused Monday on communication and chain of command, wondering at times whether the key players knew enough to handle an emergency. They also questioned whether a piece of failed equipment designed to prevent the disaster was inspected on schedule. Details about the so-called blowout preventer, which was supposed to lock in place to prevent a spill in the case of an explosion, will be important as investigators pull it from the seabed to analyze. Testimony about the frantic moments after the spill, when a distraught worker told the rig manager “she just blew, she just blew,” will also be key to understanding what happened April 20. That’s when the Deepwater Horizon rig exploded, killing 11 workers and subsequently spewing 206 million gallons of oil into the Gulf. Two men who testified Monday were key to the successful operation of the complex deepwater rig. But Neil Cramond, who oversees BP’s marine operations in the Gulf, acknowledged he rarely had contact with Paul Johnson, who managed the rig for owner Transocean Ltd., which leased it to BP. Cramond also testified that captains of rigs like the Deepwater Horizon are ultimately responsible for crew safety and environmental matters, but are not always involved in decisions about how to deal with drilling operations and potential risks. Members of the joint U.S. Coast Guard-Bureau of Energy Management, Regulation and Enforcement investigative panel are trying to figure out what caused the explosion and how regulation, safety and oversight can be improved to prevent another such catastrophe. Investigators asked Johnson about whether maintenance of the blowout preventer had been up to code. Johnson testified that a September 2009 safety audit did not include a complete inspection of the device, and so “I don’t think it’s a complete audit.” A few months later, however, as the rig was being moved to the well, the blowout preventer was inspected. But investigators questioned whether this was in line with the three- to five-year timetable laid out in regulatory codes. Meanwhile, Cramond’s description of how responsibilities and communication were divided among the parties responsible for the sunken rig raised eyebrows at times among the investigators. While questioning Cramond, a Coast Guard official wondered if there was anyone who had a “big picture” of what was going on. He said he was concerned the captain was responsible for keeping the crew and vessel safe and preventing pollution, but had “little say and awareness of what’s going on in terms of risk.” “I believe what you’ve outlined is an accurate picture,” Cramond said, noting such arrangements are standard in the oil and gas industry. He insisted, however, that records will show that on a number of occasions he communicated concerns about safety problems to the people who needed to know about them. Asked if the Deepwater Horizon was properly manned at the time of the explosion that killed 11 workers, he replied: “I have no information that would say otherwise.” Johnson, whose responsibilities included training and personnel, was not on board the Deepwater Horizon when it exploded. He said he only visited the rig three days each month and was not able to monitor real-time data from it at his location on shore. The blast knocked out communication between him and the captain and offshore installation manager, he testified. Eventually, he managed to talk to one of the rig workers who told him he had insulation in his eyes and was struggling to see and hear. “I asked what happened,” Johnson testified. “He said, ‘I don’t know Paul, she just blew, she just blew.’ At that point I know he was crying so I just shut the conversation down.” In March, barely a month before the accident, one of Cramond’s employees visited the Deepwater Horizon to ensure Transocean had resolved safety violations found in a random audit a year earlier that forced the rig to shut down for five days. Cramond said 63 of 70 issues had been resolved, and the remainder were minor problems that the company was given six months to resolve. Cramond, however, could answer almost no questions regarding the drilling side of the operation, insisting his responsibility was largely to determine whether the vessel was able to remain seabound. He did, however, acknowledge that several systems and pieces of equipment overlapped, saying a Transocean employee was ultimately responsible for having a broader idea of what was happening on the rig as a whole. Asked if there was a process in place to ensure direct communication between the different parties overseeing the rig’s operation, Cramond said: “I can’t completely answer that question.” In addition to operating the rig that exploded, BP owned a majority interest in the ruptured undersea well. Anadarko Petroleum held a minority interest in the well. The hearings in Houston were scheduled to run through Friday. They are the fourth set of hearings by the panel, which isn’t expected to issue any conclusions for months. The temporary cap placed on the blown-out well in mid-July has kept oil from spewing, and the final sealing should take place after Labor Day. Engineers are preparing to first remove the failed blowout preventer — a key piece of evidence — and replace it with another. After that, they will complete the drilling of a relief well, then will plug the blown-out well for good by pumping mud and cement into the bottom. There are three pieces of pipe from the well inside the blowout preventer that engineers want to remove before attempting to replace it, retired Coast Guard Adm. Thad Allen, the government’s point man on the spill response, told reporters Monday. Tests will be run to determine the best way to remove the pipes, he said.

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Gulf Oil Spill: Leaked Oil To Seep Into Supply Chain As BP Sells What It’s Collected

June 12, 2010

NEW ORLEANS — Oil from the nation’s worst spill could soon end up at gas stations, construction sites and even grocery stores once BP sells the crude taken from a ruptured well in the Gulf of Mexico to raise money for wildlife protection. Energy giant BP PLC announced this week it will donate its share of the proceeds generated by selling the oil captured from the well to fund efforts to protect and restore wildlife habitat along the Gulf Coast. The company has not released specifics on how the fund will work and said it doesn’t know how much money might be raised. But once the oil is brought to shore, it will creep into the world’s economic supply chain unnoticed by consumers. “Oil is oil,” said Julius Langlinais, professor emeritus of petroleum engineering at Louisiana State University. “There’s no stamp or anything on it. It’s all the same molecules.” Scientists have estimated that anywhere between about 40 million gallons to 109 million gallons of oil have gushed into the Gulf since a drilling rig exploded April 20, killing 11 workers and triggering the worst oil spill in U.S. history. Coast Guard Adm. Thad Allen, the Obama administration’s point man for the oil spill, said that since the leak began, 4 million gallons of crude have been siphoned off the leaking well using tubes and caps. An additional 18 million gallons have been skimmed from the ocean surface, he said. The skimmed liquid is generally only 10 to 15 percent oil. Negotiations were still ongoing Friday to find a buyer for all that captured oil, BP spokesman Mark Proegler said. “There’s nothing special about it, other than everyone’s looking at it,” he said. It’s possible the oil won’t even be sold to a refinery directly by BP or processed in the Gulf. Big oil companies have trading departments that commonly swap barrels of crude with other firms or sell them to traders who could route the oil across the globe, Langlinais said. Once that crude hits a refinery, the oil could end up in a wide array of fuels and products including gasoline, diesel, heating oil, asphalt and plastic – including the bags used at grocery stores, the cases for cell phones and microwaves. It also can be used as raw feed for chemical companies. “I think it’s an eye-opening experience for people who don’t give it much thought when they finally realize how much their lives depend on oil,” Langlinais said. BP has said it plans to boost its ability to directly capture oil gushing from the well by early next week. A semi-submersible drilling rig would capture and burn up to 420,000 gallons of oil daily. Once on board, the oil and gas collected from the well will be sent down a boom and burned at sea. A drill ship already at the scene can process a maximum of 756,000 gallons of oil daily that’s sucked up through a containment cap sitting on the well head. Federal officials are still reviewing BP’s plan to build a new containment system designed to capture more oil and be more durable during hurricane season. Allen said the plan could be revised based on calculations of how much oil is spilling from the well. It’s unclear how much the captured oil will be worth once it’s sold. Oil was trading around $74 a barrel Friday, but BP officials said they expect to get a lower price than normal because the oil captured from the leak is laced with methanol. BP is injecting methanol as an antifreeze into the inside of the containment cap sitting over the gushing well to prevent the buildup of an ice-like slush that can clog the pipes. Under its operating agreement, BP gets 65 percent of the net revenue made by selling oil from the leak site. After deducting for royalty payments owed to the government, it will donate its share of the proceeds to the wildlife fund. Anadarko Petroleum Corp., which is entitled to 25 percent of the oil revenue, is still discussing what do with its share of the money when the oil is sold, Anadarko spokesman Matt Carmichael said. “We’re committed to doing the right thing,” he said. A subsidiary of Mitsui & Co. Ltd., which has a 10 percent stake, declined to comment. Meanwhile, the oil seemed to keep coming ashore unabated Saturday morning. Globs of tar lined the white sands Orange Beach, Ala. – some the size of small pancakes. Tony Tingle of Trussville, Ala., said it was even worse the evening before. “It was actually crude oil, not tar balls. All the cleaning crews flooded in. The skimming boats came in pretty quickly, helicopters were circling, and a bunch of boats came in. It smelled like a machine shop,” Tingle said. During a flight over the Gulf of Mexico, aerial spotter Sean Brumley said he saw an oily sheen and brown patches of oil floating for miles off the coast. “The Gulf looks like it has chicken pox,” Brumley said.

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BP Shears Riser Away From Well Under Plan to Divert Leaking Oil With Cap

June 3, 2010

By Jim Polson and Katarzyna Klimasinska June 3 (Bloomberg) — BP Plc has sheared away the riser from its leaking Gulf of Mexico well, a precursor to the company’s attempt to lower a cap onto the leak and divert oil to ships on the surface. The riser was cut off today, and setting a cap on the leak will take a “couple of hours,” U.S. Coast Guard Admiral Thad Allen said at a press conference in Metairie, Louisiana. The company yesterday removed a diamond-blade saw after it got stuck during an attempt to make a second, finer cut on the well’s riser. BP today began using what it called a “massive pair of scissors” to shear off the pipes. The rougher cut may lead to a looser fit and a higher oil leakage rate between the blowout preventer, a five-story tall stack of safety valves, and the cap. BP rose 12.4 pence, or 2.9 percent, to 442.15 at 2:34 p.m. in London. The shares have fallen 33 percent since the Deepwater Horizon drilling rig exploded April 20 and sank two days later, killing 11 workers and causing the leak. The biggest oil spill in U.S. history has soiled about 140 miles (225 kilometers) of coastline, halted new exploratory deep-water drilling in the Gulf, shut down a third of its fishing areas and cost BP at least $1 billion. The Financial Times today quoted Chief Executive Officer Tony Hayward as saying in an interview that it is “an entirely fair criticism” that BP wasn’t fully prepared for an oil leak in deep water. Plugging the Leak The company failed in its first effort to capture oil using a 40-foot-tall containment box from the well about a mile under water. BP removed a tube that was capturing a portion of the flow when it began its failed effort last week to stop the leak using drilling mud and cement. BP and government officials have given up trying to plug the well earlier than August, when an emergency relief well can intercept the damaged hole, Allen said June 1. “I’m still very optimistic they will be able to collect 80 percent to 90 percent of the oil,” said Nansen Saleri, chief executive officer of Quantum Reservoir Impact in Houston, a consulting firm that helps oil companies increase production. “It’s much better to go with solutions that, if not 100 percent, at least mitigate some of the damage. They’re going about it the correct way.” Saleri was previously chief of reservoir management for Saudi Aramco, Saudi Arabia’s state-owned oil company. To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net ; Katarzyna Klimasinska in Houston at kklimasinska@bloomberg.net

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BP Shears Riser Away From Well Under Plan to Divert Leaking Oil With Cap

June 3, 2010

By Jim Polson and Katarzyna Klimasinska June 3 (Bloomberg) — BP Plc has sheared away the riser from its leaking Gulf of Mexico well, a precursor to the company’s attempt to lower a cap onto the leak and divert oil to ships on the surface. The riser was cut off today, and setting a cap on the leak will take a “couple of hours,” U.S. Coast Guard Admiral Thad Allen said at a press conference in Metairie, Louisiana. The company yesterday removed a diamond-blade saw after it got stuck during an attempt to make a second, finer cut on the well’s riser. BP today began using what it called a “massive pair of scissors” to shear off the pipes. The rougher cut may lead to a looser fit and a higher oil leakage rate between the blowout preventer, a five-story tall stack of safety valves, and the cap. BP rose 12.4 pence, or 2.9 percent, to 442.15 at 2:34 p.m. in London. The shares have fallen 33 percent since the Deepwater Horizon drilling rig exploded April 20 and sank two days later, killing 11 workers and causing the leak. The biggest oil spill in U.S. history has soiled about 140 miles (225 kilometers) of coastline, halted new exploratory deep-water drilling in the Gulf, shut down a third of its fishing areas and cost BP at least $1 billion. The Financial Times today quoted Chief Executive Officer Tony Hayward as saying in an interview that it is “an entirely fair criticism” that BP wasn’t fully prepared for an oil leak in deep water. Plugging the Leak The company failed in its first effort to capture oil using a 40-foot-tall containment box from the well about a mile under water. BP removed a tube that was capturing a portion of the flow when it began its failed effort last week to stop the leak using drilling mud and cement. BP and government officials have given up trying to plug the well earlier than August, when an emergency relief well can intercept the damaged hole, Allen said June 1. “I’m still very optimistic they will be able to collect 80 percent to 90 percent of the oil,” said Nansen Saleri, chief executive officer of Quantum Reservoir Impact in Houston, a consulting firm that helps oil companies increase production. “It’s much better to go with solutions that, if not 100 percent, at least mitigate some of the damage. They’re going about it the correct way.” Saleri was previously chief of reservoir management for Saudi Aramco, Saudi Arabia’s state-owned oil company. To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net ; Katarzyna Klimasinska in Houston at kklimasinska@bloomberg.net

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Gulf Oil Spill: Unanswered Questions

May 29, 2010

WASHINGTON — The impatient nation isn’t getting answers fast enough in the Gulf of Mexico oil spill disaster. What exactly went wrong? Who messed up? How much oil is pouring into the Gulf? Can the oil get to Florida and even up the Atlantic coast? What will the environmental and economic consequences be? Will the chemicals used to disperse the oil leave their own destructive legacy? As the oil spreads, people on the Gulf Coast, in Washington and elsewhere want answers in a New York minute. But these mysteries of the deep are not yielding easily. Over three weeks, more than a dozen congressional hearings and scores of hours of witness testimony did not get to the rupture’s cause or its full effects. Many more inquiries are ahead. But then such hearings, especially in an election year, are often designed more to give lawmakers a stage to rant against a politically safe target than to find facts. Vital clues, such as the burned-out behemoth of a rig and a safety device that was supposed to prevent such a blowout, rest under a mile of water accessible only by remote-controlled vessels. Some of the crewmen who manned the rig at the moment of crisis, including two responsible for shutting the oil flow, are dead. The murkiness isn’t just as the ocean bottom. It’s now acknowledged by the government that federal regulators were too close to the oil industry and, as a consequence, probably too lax in enforcing safety rules. But did that cronyism somehow contribute to the spill? President Barack Obama raised the possibility Thursday that the project might never have been approved if his administration had acted more aggressively to overhaul the Interior Department agency that oversees offshore drilling. If the changes taking place now “had been happening fast enough,” he said, “this might have been caught. Now, it’s possible that it might not have been caught.” A look at some knowns and unknowns as BP PLC, the well’s owner, carries out its risky “top kill” operation to seal the gaping wound a mile down: FALSE CONFIDENCE: BP and regulators widely believed that because there had never been such a catastrophic blowout in the Gulf, it would not happen – and that whatever accident occurred could be contained even in a mile of water. That bravado is reminiscent of another environmental crisis three decades ago, when the nuclear industry said a reactor meltdown could not happen. Then it did, Three Mile Island in Pennsylvania. In another age, they also said the Titanic was unsinkable. METHANE RUSH: Human error and mechanical failure probably both played a part in the accident. The crisis began late on the night of April 20 with an unexpectedly powerful rush of methane gas up the well pipe to the sea surface. The rush was so powerful that it shot heavy material – designed to keep downward pressure inside the pipe – to a nearby supply vessel. The state-of-the-art Deepwater Horizon drilling rig was consumed with such speed that, as Steve Newman, president of rig owner Transocean told senators, “the drill crew had very little, if any, time to react.” Eleven crew members died and 115 barely escaped. EARLY WARNING? The House Energy and Commerce Committee collected 100,000 pages of documents from BP, Transocean and others, and produced evidence that the crew had hints of a developing problem on the day of the explosion: worrisome pressure readings in the pipe, which was being sealed for future oil production. This could have been a tip-off to an intrusion of methane gas. But why? That’s still an unknown. Could the cement injected into the pipes have been deficient? Was it a mistake to replace some of the “mud” used to apply downward pressure in the pipes with lighter seawater before a final cement cap was applied? The seawater theory appeared to gain more credence this past week at a hearing in New Orleans. According to witness statements, senior managers worried BP was “taking shortcuts” by replacing heavy drilling fluid with saltwater in the well. Statements from oil rig workers and a congressional memo about a BP internal investigation of the blast indicated warning signs were ignored. Tests less than an hour before the blowout found a buildup of pressure indicating “a very large abnormality,” BP’s investigator said, according to the congressional memo. Still, the rig team was “satisfied” that another test was successful and resumed adding the sea water, said the memo by Reps. Henry Waxman, D-Calif., and Bart Stupak, D-Mich. Waxman is chairman of the Energy and Commerce Committee; Stupak heads the subcommittee on oversight and investigations. Also at the New Orleans hearing, Douglas Brown, the rig’s chief mechanic, testified about what he described as a “skirmish” between the “company man” – a BP official – and three rig employees during a meeting the day of the explosion. BP owns the well; Transocean was doing the drilling. “The driller outlined what would be taking place, but the company man stood up and said ‘We’ll be having some changes to that,’” Brown testified. He said the three other workers initially disagreed but “the company man said ‘This is how it’s going to be.’” FAIL-SAFE FAILURE? Mysteries persist about the blowout preventer, the now-crippled five-story structure sitting atop the well. It was supposed to seal the well pipe at the sea bottom in an eruption. While it didn’t close – or may have closed partially – hearings have produced no clear picture of why it didn’t plug the well. Documents emerged showing that a part of the device had a hydraulic leak, which would have reduced its effectiveness, and that a passive “deadman” trigger had a low, perhaps even dead, battery. Newman repeatedly told lawmakers there was no evidence that the device itself failed and suggested debris might have been forced into the device by the explosive force of the surging gas. HOW MUCH OIL? Not even the amount of oil gushing from the well has been pinpointed. On Thursday, officials upped their estimate, saying the well has been gushing between 504,000 and more than 1 million gallons a day into the Gulf. BP and the Coast Guard estimated soon after the explosion that about 210,000 gallons a day were leaking. WHERE WILL IT GO? There’s almost as much uncertainty about what is happening to the oil already in the water. Lawmakers got little explanation about what appears to be a large plume of oil moving beneath the water surface. Was it oil or a mixture of oil and chemicals? “Unknown,” said Jane Lubchenco, one of the government’s top marine scientists. How much oil will reach the ecologically precious coastal marshes is still uncertain. If oil gets into a fast-moving Gulf “loop’” current it could hit the coral reefs of the Florida Keys and even move around up the Atlantic Coast. Marine scientists say it’s not clear how much damage it will cause because the oil might by then may be significantly degraded. Even one of the bedrock tools for fighting the oil spill – chemicals that break up the oil so it degrades more easily – has raised more questions than answers. The chemicals are being used in amounts and at water depths never envisioned. “The long term-effects (of the dispersant chemicals) on aquatic life are still unknown,” said the head of the Environmental Protection Agency, Lisa Jackson. And this from Interior Secretary Ken Salazar: “There are many facts which are still unknown. I know enough to know there were a lot of problems here.” ___ Online: Live video of oil spill: http://tinyurl.com/2c8y3rj

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BP’s Oil-Spill ‘Hive’ Is Buzzing With New Ideas to Stop Flow of Leaky Well

May 8, 2010

By Stanley Reed May 8 (Bloomberg) — BP Plc continued to work on other ways to seal its leaking oil well as it lowered a containment dome into place on the bottom of the Gulf of Mexico. BP , based in London, won’t know until Tuesday whether its plan to contain the leaking oil within a 40-foot-tall steel structure will work as planned, Bob Fryar, a senior BP executive, said. If it works, the container BP calls a dome will capture about 85 percent of the flow, which will be siphoned to the surface by a mile-long pipe. Fryar, senior vice president of BP’s exploration and production business in Angola , is one of dozens of executives and engineers toiling in a tightly secured warren of offices on the third floor of one of BP’s buildings in suburban Houston, where the work of trying to manage the spill goes on 24 hours a day. Fryar said 400 to 500 people are working at the center, with 60 percent coming from BP and the rest from other oil companies such as Exxon Mobil Corp. and Royal Dutch Shell Plc, private companies and U.S. agencies. While people are tired from long, pressure-filled days, the spirit in the crisis room is positive, Fryar said. The engineers enjoy the challenge of working on new problems, though they haven’t been able to stop the leak yet. Different Circumstances “It’s been a lot of fun doing this work,” Michael Byrd, a manager at the Houston spill headquarters said in an interview yesterday. “I wish it was under different circumstances.” Crisis-room engineers aren’t pinning all their hopes on the dome. They’re working on a variety of methods to stop the oil leak at its source. One project includes injecting substances into the blowout preventer, a piece of equipment mounted over the well that is supposed to seal it during a surge of pressure known in the industry as a blowout. The blowout preventer failed in the April 20 explosion on the Transocean Ltd. ’s Deepwater Horizon rig, leased by BP to drill a well off the Louisiana coast. The well began gushing oil into the Gulf after the burning rig sank two days later. BP calls its blowout plan “top kill.” The idea would be to block the oil from rising and direct it back into the well, Fryar said. Scientists and engineers working on the project were even considering untried methods such as injecting golf balls and other debris into the blowout preventer to gum it up, he said. A team of 20 top industry experts met Thursday to consider such options, Fryar said yesterday. The ‘Hive’ The heart of the oil-spill operation is a room known as “the hive,” where in the normal course of business BP Gulf of Mexico explorers meet to view 3D seismic images and debate where oil and natural gas deposits might lie. Now it’s been transformed into a center for monitoring the dozen undersea robot vehicles that are working for BP at the disaster site. The hive is a dark, cavernous room filled with technicians sitting at tables watching a bank of video screens filled with images of the remote-control robots. Yesterday they focused on lowering the containment dome over the leak. BP hopes to hook a pipe to the concrete and steel structure that will ferry the oil and water from the largest leak to storage aboard a ship at the surface. “By Tuesday we should start to see results,” Fryar, the BP executive, said. Deep-Sea Spaceship A video screen shows the dome descending through the depths like a crude spaceship, with wing-like projections called mud mats about 15 feet from its bottom. These are designed to allow the containment box, which is about four stories high, to sink no further than 15 feet into the soft sea floor. The target area has been mapped out on the surface of the Gulf with buoys. Michael Byrd, the engineer in charge of the hive, said the undersea robots are able to perform a wide range of mechanical operations. They’re tethered to a mother ship above, where their operators manipulate the robots with joysticks. They’re “incredibly creative”, Byrd said. They recently installed a valve on one piece of drill pipe on the bottom, stopping a leak. It didn’t reduce the total flow of oil. Once the dome is in place, BP still has other problems to solve. A mixture of water and natural gas rising to the surface could freeze and block the pipes. So BP surrounded the 6 5/8- inch drill pipe for the oil with a 21-inch pipe, through which sea water and antifreeze will circulate. While trying these temporary fixes for the leak, BP has brought in a rig supplied by Transocean, based in Geneva, to drill a so-called relief well. The new well will intersect the leaking well, and be used to insert cement to permanently plug the leak. That project may take as long as three months, Fryar said. To contact the reporter on this story: Stanley Reed in London at sreed13@bloomberg.net

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U.S. Stocks Drop a Fourth Straight Week on Concern Over European Deficits

February 6, 2010

By Craig Trudell Feb. 6 (Bloomberg) — U.S. stocks fell a fourth straight week, the longest streak since July, as concern grew that widening budget deficits in Europe will slow the economic recovery. A 167-point rally in the Dow Jones Industrial Average during the final hour of trading failed to erase losses. Merck & Co. , Coca-Cola Co. and 3M Co. fell more than 2 percent to help lead declines in the Dow average, which briefly sank below 10,000 for the first time since November. MasterCard Inc. tumbled 12 percent and Pfizer Inc. lost 3.8 percent after posting earnings that missed the average analyst estimate. Boeing retreated 3.6 percent after saying a demand slump may last at least two more years. The Standard & Poor’s 500 Index lost 0.7 percent to 1,066.19, bringing its 2010 retreat to 4.4 percent. The Dow average slumped 55.10 points, or 0.6 percent, to 10,012.23. While both measures reversed course yesterday to post gains, their slumps during the past month are the biggest since March. “The extension of this downturn has been caused by something very similar to what we saw during the financial crisis,” said Jeffrey Kleintop , who helps oversee about $280 billion as chief market strategist at LPL Financial in Boston. “Whether we’re feeling aftershocks of the crisis or whether this is sign of a new crisis in development, the jury is still out.” Budget Deficits Investors have bet that Portugal, Spain and Greece may be unable to control their budget deficits, driving money into assets they consider safer. European Central Bank President Jean-Claude Trichet has struggled to convince investors the euro region shouldn’t be punished for Greece’s budget problems. As Greece tries to control a record deficit and stem a slide in its bonds, Trichet said the economy of the 16-nation euro area is solid and its budget shortfall will probably be smaller than those of the U.S. and Japan this year. Utilities, financial institutions and health-care companies in the S&P 500 retreated more than 1.6 percent for the biggest declines among 10 industries. Equities declined for most of the day yesterday even after the U.S. Labor Department said the unemployment rate fell to a five-month low of 9.7 percent in January. The S&P 500 and Dow turned positive for the day amid speculation the European Union may propose a solution for Greece’s budget deficit. The stock market will be “flat,” or almost unchanged, through the end of the year, New York University professor Nouriel Roubini said yesterday in a Bloomberg Television interview. ‘Just a Precursor’ The largest stock market decline in 11 months may worsen amid persistent U.S. joblessness and economic growth that trails analysts’ forecasts, said Mohamed A. El-Erian , whose Pacific Investment Management Co. runs the world’s biggest mutual fund. Investors have wrongly priced in an “orderly” withdrawal of stimulus measures, a rebound in bank lending and coordinated government policy to restore growth, the chief executive officer of Newport Beach, California-based Pimco wrote in a Bloomberg News column. That means Wall Street projections for gains in 2010 may prove incorrect and prices will slump, he said. “Investors may well find that January’s global equity sell-off was just a precursor to a disappointing year for several asset classes,” El-Erian, 51, wrote. “The global financial crisis has undermined growth and job creation; it has clogged many of the pipes that allocate funds to productive uses; and it has rapidly taken public debt and the budget deficit to worrisome levels.” Earnings Reports A record nine-quarter earnings slump is projected by analysts to have ended in the fourth quarter with a 78 percent increase in S&P 500 profits. More than 60 companies in the index are scheduled to release results next week, including Coca-Cola Co., Pulte Homes Inc. and Sprint Nextel Corp. “The earnings continue to be spectacular,” said Henry Herrmann , chairman and chief executive officer of Waddell & Reed Financial Inc., which manages $67 billion. “There’s profit margin improvement everywhere you look. But if you don’t create jobs people are not going to be comfortable that what’s happening can be extrapolated.” The rebound in spending that gave U.S. retailers a lift during the holiday season probably carried over into the new year, signaling consumers may contribute more to growth, economists said before reports next week. Airgas Inc. soared 44 percent, the biggest gain in the S&P 500, to $60.96. Air Products & Chemicals Inc. said it may take a $5.1 billion cash offer to buy the company straight to shareholders after its rival privately spurned two prior attempts to create the largest U.S. industrial gas company. Lexmark International Inc., the second-largest U.S. printer maker, climbed 25 percent to $32.26 after forecasting at least 29 percent more first-quarter profit than analysts estimated on average. Berkshire Hathaway Inc.’s Class B shares fell 3.7 percent to $73.57 after Warren Buffett’s insurance and investment company was stripped of its last AAA credit rating by S&P. To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net .

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