When two state agencies received complaints in 2005 that a BP drilling contractor routinely cheated on tests of blowout preventers and BP knew it, the agencies let the very companies accused of wrongdoing join the investigation.
Records show that attorneys and officials of BP and its contractor, Nabors Alaska, sat in with, or even in place of, state investigators when they interviewed witnesses, including Nabors rig workers and the BP company men who oversaw their work.
At times, company representatives led the questioning. In at least three instances, after witnesses confirmed allegations, company lawyers took them aside for private conversations away from state investigators. One Nabors employee, immediately after emerging from his private meeting with the Nabors attorney, recanted his statement, state records show.
Despite assertions by at least seven Nabors employees that they witnessed cheating in the recent past leading up to the investigation, the Alaska Oil and Gas Conservation Commission ultimately ruled there was no widespread pattern of wrongdoing and declined to levy penalties.
But how independent was the investigation leading up to that conclusion?
In reports and e-mails written at the time, BP representatives referred to the inquiry as a "joint investigation" by the "team" of BP, Nabors, the commission and the Alaska Department of Environmental Conservation.
In recent interviews, Commissioner John Norman and investigator Jim Regg of the state conservation commission said BP was wrong, and that the agency never agreed to characterize it as a joint investigation. But Norman and Regg could point to no document in the five volumes of their investigative file where a state official objected to BP's use of the term.
On the contrary, the files show that nearly all 34 named witnesses were interviewed with at least one company official or attorney present. At other times, there were at least as many company officials on hand as state investigators.
Norman and Regg said the presence of the company officials during the interviews was for the convenience of the workers, who all worked shifts on the North Slope. The scheduling practice meant the workers only had to appear once for both the internal company inquiries and the state investigations. Norman said his agency's final report was completely independent of the one produced by the companies.
The 5-year-old investigation is drawing new scrutiny because of BP's disaster in the Gulf of Mexico, blamed in part on the failure of its blowout prevention equipment, the same gear involved in the alleged cheating on Alaska's North Slope, and on the coziness of regulators to industry.
One of the original whistle-blowers in the 2005 case, former Nabors drill-rig employee Mike Mason, has recently appeared on national and local broadcasts discussing the case. And longtime Alaska oil industry critic Chuck Hamel, who made the 2005 allegations public in complaints to Congress and the commission, says there are parallels to the Gulf blowout, including accusations that BP took shortcuts to save money, that regulators were too close to industry, and that there has been a "revolving door" of regulators going to work for the companies they once regulated.
In 2005, there were widespread media reports in Alaska and nationally about Hamel's original complaint, in part because he also alleged that two BP wells suffered unreported blowouts in 2003 and 2004. When those two incidents turned out to be less serious than Hamel alleged, media interest in the questions about fraudulent tests of blowout prevention equipment apparently waned.
In light of the Gulf blowout, the Daily News reviewed the five-volume commission case file, including handwritten notes taken by three commission investigators of interviews with Nabors and BP employees, most of them conducted in Nabors' locations in Anchorage and on the North Slope.
JOINT INVESTIGATION?
"It was not a joint investigation," said Norman, one of the oil and gas commission's three commissioners. "We don't do joint investigations. We haven't previously, that one wasn't, and we won't do joint investigations."
But among the documents to the contrary in the five-volume file at the commission's offices is a Feb. 10, 2005, e-mail to Norman, then chairman of the commission. The e-mail was from BP's manager of health, safety and environment in Alaska, Len Seymour. Attached to the e-mail were the company's "talking points," setting forth what BP planned to say if a reporter asked about the investigation.
The first "key message" in those talking points:
"An ongoing investigation is being conducted by a multi-disciplinary team comprised of ADEC (Alaska Department of Environmental Conservation), AOGCC (Alaska Oil and Gas Conservation Commission), BP and Nabors."
There's no record in the file of Norman objecting to or correcting Seymour's characterization of the investigation. The only response message was an e-mail Norman sent to a commission assistant when he forwarded the talking points.
"For incident investigation file," Norman wrote.
An Alaska Department of Environmental Conservation employee who participated in the investigation, Tom DeRuyter, said it was clear to him that the agencies and the companies were working together even though they wrote their own conclusions.
"It is a joint investigation, but it is not a joint report," he said.
EMPLOYEES SAW CHEATING
According to documents in the file, at least seven Nabors employees appeared to confirm the initial allegations, reporting they saw incidents of falsified blowout prevention tests on company rigs in the previous couple of years. At least five employees provided the names of Nabors operators and supervisors who they saw cheating or who appeared to condone it, the records show. One Nabors driller admitted falsifying two tests himself.
But when the commission issued its decision and order on the matter on June 2, 2005, it said it could not validate "anecdotal reports" of widespread cheating and cited only the two admissions by the single driller, who lost his job.
The commission found the violations "were isolated, not condoned or authorized by Nabors, and not harmful to personnel, the environment or the recovery of hydrocarbons," and decided against levying a civil fine against Nabors. Instead, the commission assessed Nabors $10,000 to partially recover the costs of the investigation. Nabors paid up without an argument.
"I just think it's a cover-up, is all it is," Mason, one of two former Nabors employees who made the initial allegations, said recently. "They're just working together to hide it."
The roots of the 2005 investigation go back to 2001, when a portable, self-propelled rig that cost Nabors about $25 million in 1998, called 7ES, caught fire and burned while crawling from one drilling pad to another 12 miles away. Nabors and its insurers sued Firestone, manufacturer of the rig's eight huge tires, alleging a tire rupture was responsible.
Firestone countered that Nabors knowingly overloaded the tire.
As the lawsuit progressed through state court in Anchorage, Nabors employees were called to provide deposition testimony in advance of a trial. The attorney for Firestone suspected that Nabors employees weren't accurately recording the read-outs of tire loads as the rig moved. During depositions on successive days in December 2004, the Firestone attorney asked Mason and co-worker Tony Escobar if Nabors ever falsified records. He and the other attorneys in the room, including those representing Nabors and BP, got an earful.
Both men said daily logs were routinely falsified, such as reporting that safety drills took place when they hadn't. More seriously, they testified that tests of blowout prevention devices were often falsified on Nabors rigs if state inspectors weren't present to watch.
The blowout prevention system consists of a series of valves and other controls designed to shut down a well if subsurface pressures become unmanageable. They prevent gushers like BP's erupting Gulf well. Under commission rules, the complete system had to be tested at least every other week. Drilling must stop for the tests.
In the test, pressure is applied to each valve, first at low pressure, then high -- up to 5,000 pounds per square inch. To pass, the valve must hold the pressure for at least five minutes.
The test is automatically recorded on a circular chart. A mechanical pen records the pressure as the chart slowly rotates on a clock motor, turning about an inch every five minutes.
Cheating was so common, the men said, that it had a name: "chart spinning."
If a valve was leaking, Escobar testified, a driller would quickly spin the chart with his hands so the pressure loss wouldn't be documented and the time and expense required to replace a valve would be saved. Mason said the charts were spun even when the valves held pressure so that a five-minute test could be done in a minute or less.
A full test of all the valves normally took four or five hours. Mason said chart spinning could reduce the rig's idle time by several hours.
The deposition transcripts wound up with Hamel, a former oil broker and congressional aide from Alexandria, Va. Hamel had become a magnet for oil industry whistle-blowers in Alaska, providing a secret conduit to reporters, Congress and watchdog agencies.
On Jan. 20, 2005, Hamel wrote then-Sen. Ted Stevens, at the time chairman of the Senate Energy and Commerce Committee, and told him of the depositions. Hamel sent copies of his letter and the depositions to AOGCC commissioners Norman and Dan Seamount, a geologist. They ordered an investigation.
The commission then was short one commissioner and still recovering from the turmoil left behind when Sarah Palin was its chair and Alaska Republican Party Chairman Randy Ruedrich its third commissioner. Palin investigated Ruedrich for ethical violations and both resigned.
Norman, an attorney, took Palin's place in January 2004. At the time of Hamel's complaint, Ruedrich's seat had been vacant for more than a year. In an interview, Norman said those events had nothing to do with the conduct of the BP-Nabors investigation.
Escobar, who lived in Big Lake at the time of the investigation, couldn't be reached to be interviewed for this story. His Anchorage lawyer said he has lost track of him.
The investigation was led by Regg, a commission staff petroleum engineer. Regg was joined by two other commission employees, engineer Winton Aubert and inspector Jeff Jones. Because Hamel also alleged that Nabors had spilled oil in two blowouts, the Alaska Department of Environmental Conservation added its own investigator, John Dixon. DeRuyter, another DEC employee, attended some interviews and worked with Dixon on the case.
Dixon would go to work for BP in 2006. Aubert did the same in 2007, though he was rehired by the conservation commission last year.
Regg and Norman said that from the onset, they considered it possible that the case involved criminal conduct. Among possible charges: falsification of business records, a misdemeanor, Norman said.
"I think you have to go into an investigation with that idea that there's potentially a criminal element," Regg said.
Despite the possibility of criminal charges and the fact that BP was already on probation from a federal criminal charge related to hazardous waste dumping by another drilling contractor, BP and Nabors were part of the state investigation from the beginning.
BP brought in an official from its Houston office, Gregory Mattson, BP America's head of discipline on well drilling and completion. Mattson, now based in Baku, Azerbaijan, was in Anchorage recently, but didn't respond to e-mails or telephone messages seeking comment for this story.
BP also assigned its outside attorney, Amy Menard, and Seymour, the health, safety and environment operations manager in Anchorage, to the case. Seymour, too, didn't respond to calls from the Daily News. Menard referred questions to a BP lawyer, who also didn't respond.
As the investigation was starting, Nabors brought in its then-associate counsel in Houston, James Lank, along with its Anchorage human resources manager, Belinda Wilson, and its Anchorage health, safety and environment manager, James Haynes.
Current Nabors spokesman Denny Smith didn't return several calls seeking comment for this story. Lank, now general counsel for a Houston company that manufactures drilling rig components, didn't return a call left at his office.
Regg said the main reason for involving the companies was logistics; they helped solve the difficulty of scheduling interviews with workers who spent two weeks on the Slope, then two weeks off.
Though the agency has the power to compel testimony in a formal setting, it preferred to get voluntary cooperation in more informal interviews, he said.
"We looked to Nabors to try to help set up the interviews with these personnel," Regg said. "We never viewed this as a joint investigation with BP and Nabors."
Apparently BP had a different view.
When Menard sought to bring rig employee Escobar into an interview, she wrote his attorney on Feb. 11, 2005:
"I represent BP Exploration (Alaska) Inc. as a member of a joint investigation team comprised of representatives of BP, Nabors Drilling, the Alaska Department of Environmental Conservation and the Alaska Oil and Gas Conservation Commission. The team is investigating allegations made in certain media reports of improper conduct on the part of Nabors and BP. As part of the investigation, we have conducted interviews of approximately 30 individuals involved in the events connected with the allegations."
Menard faxed a copy of her letter to Aubert at the commission. Norman said he never saw the letter. When he asked Aubert about it recently, Aubert said he hadn't objected to Menard's characterization at the time, Norman said.
Despite the participation of BP and Nabors, commission investigators didn't always get the companies' cooperation. In a handwritten note in the file, Jones, the commission's North Slope inspector, said on Jan. 20, 2005, that he had asked Haynes of Nabors to delay two interviews of Nabors employees for an hour so he could finish monitoring a test on another rig. Haynes refused, Jones said.
"I asked him to take good notes and give me a copy," Jones said.
One volume of the commission's file contains notes taken by Regg, Jones and Aubert from the interviews. The notes showed that most employees saw no cheating. Several said chart spinning had occurred in years past; one said it was more commonplace in the Gulf of Mexico than Alaska.
Curiously, one question in a standard set of questions posed by commission investigators asked workers to describe their relationship to Hamel, the industry watchdog. Regg said he wasn't trying to uncover Hamel's sources -- something the oil industry in Alaska had tried over the years, including once setting up a sting using private investigators.
"Nothing nefarious there at all," Regg said. "We're just trying to establish what they knew about the allegations."
One driller who conducted the blowout preventer tests said he witnessed cheating 10 years earlier, but hadn't done it himself. "Maybe they're feeling pressure from supervisors -- it's $5,000 an hour. Oil company reps pressure my supervisors, but I haven't seen it on this rig," he said, according to Jones' notes. Another said the practice was "old oilfield stuff."
But five employees in addition to Mason and Escobar said they had seen chart spinning on Nabors rigs within the previous few years.
One named a driller, by then gone for about a year, who did it regularly.
"He would spin the chart to the time he wanted," the employee said. "If it held pressure for two minutes, he would spin the chart for 10 minutes." The employee said that if he had complained to a supervisor, he would have been the one fired, not the chart spinner. Another said a former rig supervisor routinely belittled workers who raised safety concerns.
Two other workers both named a particular driller as a test cheater. One said he witnessed the driller cheating a dozen times over two years.
Another worker said he saw chart spinning on a Nabors rig five years before, and again more recently under a different driller.
Notes indicate that the direct participation of BP and Nabors in the interviews affected the statement of at least one witness.
A Nabors "floor man," someone who works on the rig floor, said he had seen cheating twice within the last year. "I've seen them spin the charts," he said.
At that moment, according to the notes of both Jones and Regg, BP attorney Menard interrupted the testimony.
"Amy Menard called a break and (the Nabors floor man) went and talked in private w/James Lank," the Nabors attorney, according to Jones' notes.
When the floor man and Lank emerged 12 minutes later, the witness' account had changed. The floor man said that perhaps what he had observed was the driller somehow adjusting the chart pen -- with both hands on the paper chart.
Jones noted that the floor man had his hands over his face and looked "very uncomfortable."
Lank called two of the other Nabors employees, an operator and a motorman, into private sessions beyond the earshot of state investigators after they too said they saw test cheating, according to the notes.
Menard appeared to try to discourage the examination of other evidence. According to the notes, she interrupted when Seymour, the BP health and safety official, said he thought he had discovered that the lines of some charts may have left a telltale trace of cheating. Menard downplayed the discovery as not "comprehensive" and said it would take too long to review the evidence. "Will delay inquiry," the notes quoted her as saying.
Regg said he nevertheless demanded the charts and got them -- but couldn't detect the pattern that Seymour thought he saw.
In the end, Regg said, none of the witnesses reporting the chart spinning was credible except for the driller who admitted doing it himself. The driller, who now works on a rig overseas, declined to talk to the Daily News for fear of losing his current job.
The problem with proving a pattern of falsification, Regg said, was that no one who claimed to have seen cheating could tie it to a specific test on a specific day. Without that evidence, there could be no case, he said.
BP'S 'JOINT' REPORT
The investigation generated reports by BP, the DEC and the Oil and Gas Conservation Commission. BP's report continued to express the notion that the investigation was a team effort.
On Feb. 25, 2005, Mattson, BP's head of discipline, had prepared a draft of what he called the "Joint Investigation Report." In his cover letter to the commission's Aubert, the DEC's Dixon, and other Nabors and BP officials, Mattson said the draft summarized "the findings from the joint investigation into the allegations regarding Nabors Rig 9ES."
The opening page of Mattson's report said:
"On Jan. 25, 2005, BP Exploration (Alaska) and Nabors Alaska Drilling, along with representatives of ADEC and the AOGCC, convened a joint investigation team. The team's purpose was to investigate certain reports in the media ... which alleged that Nabors Drilling and BP engaged in improper conduct in connection with Nabors Rig 9ES."
The draft contained signatures lines for officials from each of the four team members to sign.
The only significant difference between the draft and the final version three months later, on April 10, 2005, was that the blanks for commission and DEC officials to sign their names had disappeared. Regg said he believes someone from the commission called Mattson and told him to remove those signature blocks, though the file contains no comments on the draft from the commission or its staff.
The references in the draft's text to a joint investigation remained intact.
"I know, I know," Regg said. "It's as perplexing to me as it is to you."
Norman said the commission continued the investigation for more than a month after Mattson delivered his final report. That demonstrates the agency's investigation was independent, he said. If any Nabors or BP employee felt intimidated by the presence of company officials, they had plenty of time to take up the commission's offer to talk privately with state investigators, Norman said.
"They had every opportunity to come in and talk to us, every opportunity to give us dates, times, places, and they did not do it," Norman said.
The commission's final report was issued June 2, 2005, as part of its decision and order in the case.
Commission records show it considered fining Nabors $25,000 -- Norman couldn't remember what led to that proposal. It instead settled on the $10,000 assessment.
In addition to paying the penalty, Nabors agreed to more stringent test procedures to prevent chart spinning in the future, and BP vowed to supervise its contractors more closely.
"I have zero tolerance for anybody falsifying," Norman said. "If something is being falsified, that to me is the highest form of crime. The flip side to that, we have people who come in and self-report. If they do, we take that into consideration."
Norman also cited the agency's big fines levied against BP around the same time -- $1.2 million for a fire at a well that severely injured an employee, $102,500 for failing to report a high pressure event on a well, among others -- as evidence it wasn't afraid of Alaska's largest oil company, and the company that pays for most of the commission's $5.6 million annual budget through regulatory fees.
Find Richard Mauer online at adn.com/contact/rmauer or call 257-4345.
By RICHARD MAUER
rmauer@adn.com