Former FBI Director Louis Freeh was appointed last week as a special master to investigate apparent misconduct by one of the lawyers who helped manage BP plc’s $7.8 billion settlement fund with Gulf Coast plaintiffs over the deepwater Macondo well blowout in April 2010.

U.S. District Judge Carl Barbier, who is overseeing BP’s multidistrict litigation, appointed Freeh, now a consultant, to run the investigation. Freeh recently led a Pennsylvania State University-sanctioned investigation into the school’s sex abuse scandal. Freeh, who founded Freeh Group International Solutions LLC in 2007, was a New York federal judge before serving as FBI director from 1993 to 2011.

The move is a victory for BP, which had called for the investigation into allegations that one of the spill claims administrator’s staff attorneys received a portion of the settlement proceeds for claims that he had referred to a New Orleans law firm before he began working on the BP program.

“We believe that Judge Freeh’s experience on the federal bench and as director of the FBI make him ideally suited to conduct a thorough investigation into the recent allegations of unethical and potentially criminal behavior within the program,” BP spokesman Geoff Morrell said.

The court-appointed claims settlement committee, which represents thousands of businesses and individuals that may have been impacted by Macondo, also applauded Freeh’s appointment.

“We welcome Mr. Freeh’s appointment, and are confident that any impropriety, if confirmed, will prove to be an isolated incident,” stated Plaintiffs Steering Committee (PSC) attorneys Stephen Herman and James Roy. They said they had “full confidence” in PSC administrator Pat Juneau, “who for more than a year, has led the court supervised settlement program with the utmost integrity, competence and thoroughness.”

BP committed $20 billion for a compensation fund for individuals and businesses impacted by Macondo, and Juneau has been in charge of processing claims after a settlement was reached last year. Last year BP and the PSC came to terms on a $7.8 billion agreement to settle claims, and the administrator has determined that to date, more than $3 billion in claims are eligible.

BP’s legal team of late has gone on an offensive over payouts from the compensation fund (see NGI, July 1). Among other things, BP’s lawyers claim that Barbier and Juneau misinterpreted the terms of the settlement and have allowed fictitious and inflated claims to be compensated. The Fifth Circuit Court of Appeals in New Orleans is to hear the case on Monday (July 8).

Freeh’s duties under the court order are not confined to allegations concerning one attorney. He instead is to review the entire settlement program, according to Barbier. Freeh is charged with “fact-finding as to any other possible ethical violations or other misconduct.” No compensation figures were included in the order.

Meanwhile, a reservoir engineering expert hired by BP said in a report for the court that the Macondo blowout spilled much less oil than the U.S. government estimates of 4.9 million bbl. In May, Martin J. Blunt submitted a previously confidential report to Barbier. Determining the amount of oil spilled ultimately will be the set point for BP’s penalties under the U.S. Clean Water Act (CWA). If Barbier were to find that BP was grossly negligent in the Macondo blowout — and the higher government spill figure is used — the CWA penalty could be close to $18 billion.

The government had calculated that the total amount of oil spilled from the blown well was 4.9 million bbl. BP has argued that government spill estimates are too high. Among other things, BP claimed that it captured 810,000 bbl from the flowing well at the time of the incident, which would reduce the penalty by $891 million to $3.5 billion, depending on whether BP is found grossly negligent.

If Blunt’s oil spill calculations were used to determine the CWA fine, the penalty could be reduced by much more. Blunt’s findings were prepared on behalf of BP Exploration & Production Inc. and minority Macondo partner Anadarko Petroleum Corp. (10%). The findings, issued in two parts, may be downloaded here and here.

“I calculate that the volume of oil released from the Macondo reservoir was 3.26 million stock tank barrels (MMstb),” Blunt stated. “I have used conservative assumptions to avoid understatement of the volume. I find a range of oil released between 2.9 MMstb and 3.7 MMstb. This is the total volume of all the oil that left the reservoir, including any oil burnt or collected, converted to a volume at surface (stock tank) conditions of 60 degrees F and 1 atmosphere pressure.”

Blunt, a distinguished member of the Society of Petroleum Engineers, noted that he has been teaching fluid flow principles for more than 20 years at Imperial College in London. He also disclosed that his first job after graduating from college was with BP, where he worked for four years.

Blunt said he used “a well established method from my field called material balance.” In material balance, three quantities — the oil volume connected to the well, compressibility and pressure depletion — are multiplied together to calculate cumulative oil flow.

“Compressibility determines how much oil is released from the rock as the pressure drops,” he noted. “The main difference between my estimate” and those of the U.S. government and others “is that they double the compressibility from the value measured on Macondo rock samples at an independent service laboratory,” which he said was a “switch” from an approach first used by the government and others to evaluate the Macondo oil flow.

“We will see that this has been a repeated problem in the work of the government experts,” Blunt noted. “In order to obtain their estimates of 5 MMstb oil released, they had to make assumptions that disagree significantly with direct measurements of the Macondo rock and fluid properties.

“The government investigators each disregarded vital pieces of experimental evidence without justification; not all of their errors were identical, yet they arrived at the same final answer. There is a choice: either accept their calculation of 5 MMstb, despite the lack of any scientific explanation of why the measurements are wrong, or perform a calculation consistent with the data and arrive at a lower value. I have chosen the latter approach.”

Blunt claimed in his analysis that experts who did not use the material balance approach “took an estimate of the final flow rate before shut‐in, approximately 50,000 stb/day, and assumed that the flow rate during the preceding 86 days was even higher. Of course, simple mathematics dictates that the outcome of a cumulative-flow calculation based on this assumption will exceed 4.5 MMstb.

“They justified this approach by assuming that there were no impediments to oil flow in the wellbore, blowout preventer or tubing that might have caused flow to be lower in those preceding days. They did not prove this assumption; indeed, they hardly discussed it. By contrast, the material balance method used here is not tied to an assumption about historical flow rates…”

Government experts, said Blunt, also “assumed the reservoir oil was completely connected to the Macondo well, omitting to analyze geological features that the government’s nonlitigation expert consultant said would limit connectivity. None of the government experts analyzed the evidence from the Macondo geology and seismic analysis that indicates that the oil reservoir was not completely connected to the well,” even though a government consultant from the University of Texas at Austin had said “geological evidence pointed to a significant probability of poor connectivity…” in the reservoir.

“The government estimates therefore have an implicit upward bias from ignoring evidence that some of the oil was likely compartmentalized and hence cut off from flowing to the well.” The government’s team also “overestimated flow by overstating the pressure depletion in the reservoir,” Blunt claimed.

“The government experts based their calculation on measurements of capping stack pressure increasing slowly over time, but the reservoir pressure was rising faster than they suggest: there was an extra factor — the weight of oil — that was also increasing…By assuming the oil was hotter and lighter than it actually was, indeed unfeasibly hot, they end up overestimating pressure depletion, and hence the oil flow.”

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