Tony Hayward: From BP disaster to Malta

Tony Hayward, current CEO of GENEL - one of the companies drilling for oil off Malta's coast- was the chief executive of oil and energy company BP at the time of the Deepwater Horizon oil spill in the Gulf of Mexico which is considered the largest accidental marine oil spill in the history of the petroleum industry.

He will be addressing upcoming Economist Events' Business Roundtable with the Government of Malta, March 7. In an exclusive interview with MaltaToday, Hayward reveals that there is a "one in five chance" of striking oil off Malta's coast and argues that the industry has taken steps to improve safety after the Deepwater Horizon incident.

Malta's positive oil prospects

In 2012 GENEL, of which Hayward is now CEO, acquired a 75% interest in Area 4 (Blocks 4, 5, 6 and 7), south of Malta, from Mediterranean Oil & Gas.

"We plan to commence drilling a well on what is named the Hagar Qim prospect, Block 4, around the end of March. The rig itself is operated by an internationally renowned contractor, Noble Corporation, and results can be expected in May".

In an interview with Oilprice.com, Hayward spoke about the good prospects of striking oil in Malta: "As we have expanded outside Africa, we have targeted opportunities to take material interests in high impact prospects, with the potential for field sizes of at least 250 million barrels. Malta and Morocco both fall firmly in these categories and, while expectations are dangerous in this business, we are confident in the geology and look forward to drilling them both." How does he assess the Malta's potential for finding oil?

"I stand by those comments. We are targeting 250mmboe and we like the look of the geology, but oil and gas exploration is never a sure thing. We estimate that the chance of success is around 1 in 5, but with drilling set to begin around the end of the first quarter of 2014, we will know soon enough".

How safe is drilling?

Nearly four years after the Deepwater Horizon incident, scientists are still assessing the effects of the estimated 170 million gallons of oil that flooded into the Gulf after the explosion of BP's Deepwater Horizon oilrig. Five months after the spill was capped, the federal government estimated the marine animal death toll at 6,104 birds, 609 sea turtles, and 100 mammals, including dolphins.  Scientists have found significant amounts on the Gulf floor, and the oil that has already washed into wetlands and beaches will likely persist for years.  If a similar accident happens next to Malta, the country would be denied literally of half of its water supply, which is derived from the sea.

After the incident, Tony Hayward was at the centre of a media storm, clashing with US President Barrack Obama who called for his resignation from BP four months before he was replaced.

In view of this incident, can offshore drilling ever be safe and is it worth taking such enormous risks if the cost to communities and the environment can be so great?

Safety comes first?

Hayward argues that oil companies spend a tremendous amount of time analysing and mitigating risk.

"Every incident results in lessons to be learned, and every one leads to more stringent processes".

For example, for the well in Malta, GENEL will be using an upgraded Blow Out Preventer and as part of the oil spill response plan, GENEL will have a capping stack available in the unlikely event of a well control incident, both of which are a result of lessons learned from Deepwater Horizon. 

"It is sadly impossible for any industry to be one hundred percent failsafe, but there are thousands of offshore wells that are drilled safely each year that provide huge benefits to local communities - not just in terms of revenue from oil produced, but also from the number of jobs created both directly and indirectly".

How prepared are oil companies to cater for such major disasters and can we ever be prepared enough?

"The industry never stands still and it has seen great technological improvements helping to both prevent incidents and also mitigate their impact".

Expertise and experience remain crucial

He claims that GENEL and Mediterranean Oil & Gas are a strong combination.

"Both companies have been involved in offshore wells recently, and we have a fine drilling contractor with world class experience. We also have a team with extensive experience of offshore wells. While we can never be complacent, all steps are taken to mitigate any risk, including comprehensive planning for a wide range of scenarios that, while extremely unlikely, means we will be as prepared as it is possible to be".

Despite the dramatic consequences of the 2010 incident, Hayward still thinks that offshore drilling has a future.

"Offshore drilling continues to play a significant part in fulfilling our energy needs. With fewer regions containing oil that is easily accessed, and technological capabilities improving all the time, a hugely significant amount of oil is yet to be discovered offshore. This oil is going to play a key part in the world's energy security".

Assessing seismic risks

In a recent interview with MaltaToday, Italian geologist Carlo Casaniti, former vice-president of the Ordine Geologi Sicilia, warned of volcanic and seismic risks in Malta's oil exploration area unless proper studies are carried out. Is enough consideration being given to geological factors before the commencement of oil exploration?

Hayward replies that these risks are always assessed.

"Before drilling extensive analysis is undertaken, and risks are comprehensively analysed. Drilling would not take place if there were serious concerns over seismic activity".

Risk assessments have been carried out for the first time ever before the commencement of exploration activities though the Maltese government has refused to publish these reports.

The shift to gas

While allowing oil drilling on its coast, Malta is shifting from oil to gas for its own national consumption.

Hayward anticipates that LNG prices will continue to decrease in the next years but still believes that there is a place for oil.

"Global gas prices will continue to converge, exports from the US over time will become the principle price setting mechanism - the link between gas and oil prices will continue to weaken".

But he also anticipates that demand for oil will continue to rise "as it remains the preferred fuel for transportation".

In defense of fracking

Fracking technologies have contributed to falling gas prices worldwide but this technology is met with concern in Europe due to safety impacts, fears of contamination of ground water sources and possible seismic activity resulting from the process.  But Hayward dismisses these concerns and insists that fracking is a safe technology.

"If I could implement one energy policy I would put natural gas (including fracking) at the heart of Europe's energy policy for the next 30 years. Fracking has been around for many years; it is a safe and proven technology. While the population density in Europe, and the lack of an existing supply chain, may mean that it will not have as great an effect as we have already seen in the United States, it could have significant benefits for Europe. It is also considerably cleaner than coal, and will help to reduce emissions across the continent."

Clean energy at a cost?

One option, which was entertained by the PL in opposition, was the use of carbon capture and storage technologies but the proposal was not even considered in the new government's energy plan. 

According to Hayward, carbon capture and storage will remain a niche 'clean' energy technology for the foreseeable future.

"It is very expensive, not commercially viable without significant subsidies and there are serious concerns over the storage of large volumes of CO2. It only makes sense today where the CO2 can be used to increase the recovery in depleted oil fields", says Hayward.

Renewable energy from the sun or the wind is the cleanest and safest source energy around. But Hayward doubts whether EU targets for 20% renewable energy by 2020 are realistic.

"Renewable energy has an important part to play in a diversified energy mix. Today most forms of renewable energy require significant subsidies to allow them to compete with fossil fuels. Everyone wants an increase in renewable energy, but not a rise in their energy bills. The EU targets look very challenging".