Stocks are at 10-month lows with recent Europe debt and N-S Korea saga....

Asian stocks are at 10-month lows amid fears that tensions will keep escalating on the Korean peninsula and possibly of bringing the stocks sliding to 2008 crisis?

A Korean war is not the only downside risk to markets and before that, fears were festering that Europe's debt crisis could spread, and that China's real estate bubble could pop horribly and cause problems around the globe. Another scare came when the Dow Jones Industrial Average plunged almost 1,000 points in less than 30 minutes earlier this month, for reasons yet to be fully explained although it was quickly to blame on computer glitch or human error in keying the trade figure with additional zero 000s’.

The ups, as well as the downs, are also getting sharper - with the Dow often rising or falling 200 points or more in a single day.

For long-term investors, it should not be reacting to the short-term volatility and be derailed from their long-term plans. In times like these - while there can be an appropriate shift of risky assets to less risky assets - totally exiting from risky assets may not be the most advisable strategy.

If one is uncomfortable putting in a lump sum of money, regular investing is a disciplined approach and more palatable if you are uncertain about the market.

Question is whether this level of volatility is keeping you up at night if your main concern is limiting your losses and saving what cash you have, then you may want to put a lower percentage of your money into stocks and stock funds.

You can put all your money in bank deposits just because they are very secure, but that is not wise as your purchasing power will be reduced by inflation - which exceeds bank deposit rates by a fair margin ! !

Some says that a sensible combination of products with varying risk levels can provide good returns.

Bonds

Assume you buy a bond that has a face value of $10,000, a coupon - the annual interest payment - of 6 per cent, and a maturity term of five years.

You would earn a total of $600 (6 per cent of $10,000) in interest a year for the next five years. When the bond reaches maturity after five years, you would get your $10,000 back.

Consider buying Asian bonds. Asian bonds are a very attractive asset class to invest in.It is worth mentioning that while bonds are generally safe bets, they are not risk-free either.

The bond issuer could default on its debt payments.

Investing directly in bonds does not come cheap. The average bond is usually sold in blocks of $50,000 to $1 million at a time and if chosen properly can be cost efficient.

Money market funds

Money market funds invest in high-quality short-term instruments and debt securities. The latter are loans sold by firms and governments to borrow money.

These funds are a good alternative for investors who are looking for a stable, low-risk instrument with potentially higher returns - ranging between 1 per cent and 2 per cent - than banks' savings deposits.

Not all money market funds are the same. Do your homework and read the fund's prospectus and annual reports. Check to see what kinds of debt instruments the fund invests in.

Multi-asset funds

The rationale for investing in such funds is straightforward.No single asset class can be guaranteed to top the performance charts each year, so it makes sense to have exposure to a broad mix of investments, such as stocks, bonds and property. Multi-asset funds are riskier than fixed deposits, but they are usually less risky than a stock-only portfolio.

It has the ability and flexibility to invest in not just traditional asset classes like equities, bonds and cash, but also alternative asset classes like commodities and property. The fund also tactically moves into asset classes that are most appropriate for the prevailing market cycle.

Gold

Many people invest in gold as a hedge against stock market declines, burgeoning national debt, currency failure, war and social unrest. In fact, there are a number of studies which show that gold prices generally move in the opposite direction from stock prices: Gold soars when stocks tank.

Gold protects wealth as a safe haven in troubled and uncertain times. This appeal remains compelling for modern investors. United Overseas Bank sells physical gold that can be bought from, and sold back to, the bank at its daily buy-sell market rate.

Gold savings accounts

UOB and Citibank customers can open a gold saving account, allowing them to invest directly in the metal without actually owning the physical item.UOB customers can buy and sell gold at prevailing market rates. The minimum transaction and maintenance requirement for its gold savings account is 5g of 999.9 fine gold.
Based on indicative pricing rates on its website, this would cost $278.55. Transactions are done in units of 1g, at a minimum of 5g per transaction. Holdings in the account are not subject to GST and can be exchanged for cash.
An administrative fee is charged: either 0.12g of gold per month or 0.25 per cent of the highest balance per month, whichever is higher. Fees are subject to GST, which will also be deducted from a user's account in grams of gold.
At Citibank, users have to set up an account with a minimum requirement of 30 ounces of gold bought at market rates.Taking the example of a US$1,258 an ounce price, this would amount to US$37,740.
Trades are done in blocks of 30 ounces. No administration fees are charged.

Gold certificates
Gold certificates, offered only by UOB, are more popular among buyers and allow for ownership of physical gold without any physical movement of the metal. This means it is free of GST.
Issued in multiples of 1 kilobar, or kilocert, one certificate can account for at most 30 kilobars of 999.9 fine gold. An annual administrative charge of $30 per kilobar and a certificate fee of $5 per certificate are levied.
Certificates can be traded at UOB according to daily prices.

Last Friday, 18June'10, a single unit gold certificate sold at $55,843. The bank would buy it back at $55,743 - a 0.17 per cent difference. Customers can also exchange their certificates for gold kilobars with two days' notice. The bars would be subject to GST.

Fixed deposits

If the top priority is to have cash at hand, then fixed deposits are the usual place to park your money.They let you save a fixed amount of money for a fixed period at a fixed interest rate.DBS is offering 0.7 per cent a year for a 24-month term deposit.

Investing tip 1

It is better to remain focused and stay invested during volatile times.During volatile times, it is important to remember to stay focused and stick to your long-term investment strategy. An investor who panics and sells his investments when markets are down is likely to incur losses. In addition, he may also miss out on potential gains when markets recover. Historically, markets have rebounded and eventually returned to or even surpassed previous levels. By investing over the long term, you can ride out the volatility.

Investing tip 2

The three Rs: Revisit goals, review portfolio and rebalance your investments.Over time, our financial goals and needs may change. For example, you may want to set aside funds to cater to growing expenses when new members are added to the family. Your financial objectives will have to be reviewed to meet this need.

The components in your investment portfolio may also need to be readjusted to generate higher potential returns. You may do this by taking on more risks.Even if your financial objectives or risk profile remain the same, market movements may tilt the weightage of each investment in the portfolio, exposing the overall portfolio to more risks than intended.

A rebalancing of the portfolio is required to bring it back to its original risk-return parameters. Generally, you should review and rebalance your investment portfolio every eight to 12 months.

Investing tip 3

Spread out your risks, diversify.Diversification is important as most investors are not able to predict the performance or returns of one particular asset class. Equities, bonds, different geographic regions, sectors or even various investment styles react differently to market events and cycles. Hence, investing in multiple asset classes and types will help to buffer the impact of any non-performing investment in a portfolio. Diversifying your portfolio can also help you weather the ups and downs of the market cycle.

Investing tip 4

Invest in a balanced portfolio to better manage risks and returns. A balanced portfolio is designed to achieve higher returns than debt securities or cash, but at a lower risk than a pure equities portfolio.

A fund offering a balanced approach should include both equity and fixed-income components, which can help to provide cushioning when either one of the asset classes is down. Equities and bonds usually show low correlation to each other and behave in an opposite manner under the same market conditions. Hence, when equity prices are down, bond prices usually rise, and vice versa.

Investing tip 5

Market corrections can mean opportunities; use dollar cost averaging to smoothen price swings.

Market swings and volatility are part of stock market movements. They present opportunities for investors to buy on dips or enter into dollar-cost averaging (DCA).

With DCA, a set amount of money is invested at regular intervals over a long period of time. It can lower an investor's cost of investment and reduce the risk of investing at a peak.

For example, when prices are high, the set amount can buy fewer investment units or shares. Likewise, when prices are low, more units or shares can be bought with the same amount. It helps to smoothen the ups and downs in market volatility.

Most importantly, bear in mind one golden rule: The chain is as strong as its weakest link. Regardless of the size of your investments, be vigilant and disciplined when it comes to preserving, investing and growing your wealth.

The worst of the financial crisis may be over, but the global economy is not totally out of the woods yet. Lingering problems still exist, especially in the developed countries. However, opportunities exist even in the worst of times.

Governments outside the euro zone are also at risk of drawing flawed conclusions, especially on exchange rates and fiscal policy. China seems to think that the euro’s decline makes it less urgent to allow the yuan to appreciate. The opposite is true. With its biggest export market in a funk, China needs to accelerate the rebalancing of its economy towards domestic consumption, with the help of a stronger currency.

For much of the rich world, however, the most important consequences of Europe’s mess will be fiscal. Governments must steer between imposing premature austerity (in a bid to avoid becoming Greece) and allowing their public finances to deteriorate for too long. In some countries with big deficits, the fear of a bond-market rout is forcing rapid action. Britain’s new government spelled out useful initial spending cuts this week. But the emergency budget promised for June 22nd will be trickier: it needs to show resolve on the deficit without sending the country back into recession.

In America, paradoxically, the Greek crisis has, if anything, removed the pressure for deficit reduction, by reducing bond yields. America’s structural budget deficit will soon be bigger than that of any other OECD member, and the country badly needs a plan to deal with it. But for now, lower bond yields and a stronger dollar are the route through which American spending will rise to counter European austerity. Thanks to its population growth and the dollar’s role as a global currency, America has more fiscal room than any other big-deficit country. It has been right to use it.

The world is nervous for good reason. Although the fundamentals are reasonably good, the judgment of politicians is often unreasonably bad. Right now that is what poses the biggest risk to the world economy.

More to learn from the economic crisis....

A sober message for some of those whose businesses struggling to pull out of the financial crisis: Don't forget the hard lessons, don't let up on efforts to effect change, and don't think of short-term hoping there is a quick escape from facing the crunch.

For one thing, it's still far from plain sailing for many companies, the tough times are not over yet, many companies still have orders levels below those before the crisis. And capacity utilisation in a number of industries is still quite low. Obviously, Asia is growing faster again. But in Europe, with current Greece and some other euro zones in trouble, it may take 2-3 years more before we probably could reach pre-crisis levels.

It's very important to use the crisis to take on the structural challenges that many industries and companies are facing, and to really act upon them now, these could be legacy structures or activities that are not creating value. [ I think Keppel O&M has done a great deal in setting up research group to look into niche areas where potential offshore industry has not been yet developed or explored, eg. like the artic, this may take some time but once the feasibility of going into the area is close to reality, we will likely see the flooding of orders requiring special classed rigs with equipment capable of handling such extreme cold conditions in those places ]

The recent various crisis has created a window for change – in which most companies must grasp: This crisis made people more willing to accept change and to undertake those changes, so it could be very important opportunity to move. There are also very good opportunities for acquisitions, for driving consolidation within industries, for acquiring additional customers, new assets and top talent. We shouldn't say, let's protect the status quo. We should use the crisis to change the status quo - and maybe to change the business model. That is why some MBA schools are trying to adapt to the lesson learnt and making some curricula subjects change and relate more closer to the necessary understanding of business dynamics and some school topics may be too rigid without thinking through the respective sensitivity of the issues in the current crunch facing many big old wealthy companies. It is understandable that many companies cut costs during the downturn. Sales had plummeted, and in some cases survival was at stake. Cost cutting per se is not a bad thing, but the bad thing is when you cut talent even when you will need it again in the medium to long term. You have to be thoughtful about what to cut - and what not to.

Even with economies recovering from the worst of the crisis, companies should continue with restructuring efforts: It's very important to clean up balance sheets, not just for banks but also for other companies. It's also time to invest in marketing and advertising to increase sales, enter new markets or outsource certain operations. The opportunities to benefit from the uptick in the global economy are significant. One needs to reorientate. Going back to the old status quo will not work. If China is booming, go all out to entice and collaborate with them, know their culture and drink and handshake with them on deals and learn “kuan xi”, the non-relevant business theory but works in the chinese culture, of course, you need to watch your step with generating a closer “kuan xi” and do not get your pocket burn…. 

Not just business models, but corporate cultures, too, need to change, what we see is that institutions in general are regarded with more distrust than ever before as a result of the crisis.It is important not just to maximise shareholder value but also to maximise values, and to clearly adhere to the values we all claim to have one way or the other.

'I think the stress on values is not wrong if you think of long-term value creation. Long term, you'll find that the best value creators are those that have emphasised growth. These firms would have created jobs, paid their share of taxes and done well for their customers. They also play an important role in society. So in the long term, stakeholder and shareholders' values will be aligned.

Where there is a disconnect is when people focus on short-term value maximisation. The true long-term value creators are those that emphasise growth much more than profitability.

Companies need strong leaders with a clear idea of how they want to progress in creating value: It's very important that compensation be linked to long-term value creation and not just to short-term profitability. The key is to devise systems so that it is long-term value creation that is being measured.

Consultants provide ideas, support to implement these ideas, and act as coaches to strengthen the people within the client company.While some companies are reluctant to rock the boat, many are very successful companies that are self-critical, want to know more and want to change, these are the ones that could be a few steps ahead of those reluctant to make improvements.

According to CEO of BCG says, 'There are a lot of methods and tools you can apply. But in the end, it's the engagement with people that is important. So we need to find the right interaction. The chemistry must be right - and there must be respect and trust.'

Best Local companies graduates seeking jobs with...

SINGAPORE Airlines has emerged as the most sought after employer among business, engineering and science students here, beating big-name financial institutions to the top spot in a recent employer image survey.

While business graduates remained partial to the financial sector - banks dominated the top-10 - Google and Walt Disney Company ranked seventh and ninth, showing that a strong brand counts too.

These findings came from Swedish research firm Universum's online poll of 1,200 business and 1,500 engineering and natural sciences students from National University of Singapore, Nanyang Technological University, Singapore Management University and Singapore Institute of Management from February to April. Each student was asked to name five employers that they most wished to work for.

CEO of Universum APAC, thinks that it made 'perfect sense' that SIA took the top spot, given that it ranked 33rd on Fortune's World's Most Admired Companies last year, is Singapore's flagship carrier and one of the largest companies here strongly linked to innovation, safety and service excellence.

Business students naturally gravitate to the financial sector too, noting that since Singapore is one of the world's biggest foreign exchange trading hubs, the largest currency traders are in the top 10.

Even so, hints of the recent crisis' impact crept into this year's rankings. Goldman Sachs and Deutsche Bank, though still popular, slipped a few spots, while the Monetary Authority of Singapore rose to debut in the top 10 this year.  [ I believe it is not easy for graduates unless their grades are top, getting into MAS would be very slim chance ]

Management consulting seems to have become less popular with business graduates too. McKinsey & Company dropped out of the top 10 while others such as The Boston Consulting Group, Bain & Company each tumbled some 20 rungs from their placings last year.

Engineering and natural sciences students chose a more diverse set of ideal employers, spanning industries from oil & gas and IT to pharmaceuticals. Public service organisations made the list too, with the Ministry of Education's teaching jobs rising four spots to rank sixth. [ Probably the emphasis on teachers salary scale and adjusting to match market or industrial figure for graduates have helped pull in alot of job seekers into the teaching sector ]

Given the growing significance of petroleum refining and chemicals industries to Singapore's economy, it is no surprise that ExxonMobil and Shell ranked second and third after SIA. Keppel Corporation also rejoined the leader board as ninth most preferred employer of engineering and science students this year, after slipping to eleventh in 2009.  [ Keppel Corp has taken steps and alot of initiatives in promoting it's Corporation image and what lies ahead with the future prospect of marine and offshore industry. It has also tied up with universities to work on specialised field of studies relating to such industry and the efforts have surely reached the young minds into coming to this "no more a sunset" industry. Having interviewed so many fresh graduates, everyone of them walked in and tell me, with their facial expression full of sincerity, they wish to work in Keppel group of companies and they tell me Keppel is "Big and well-established" and hope to land a job here.  Keppel has also set up a research company KOMTech hiring many doctorates specialising and working on new areas of expertise and research in the offshore and marine arena, area like the artic sector. ]

Qualities in a potential employer which students gave most consideration to were a good reputation, financial strength and prestige, all of which are typically must-have employer characteristics for Asian Tigers.

And not unlike their global peers, having a work-life balance topped the career aspirations of students by a large margin, followed by job security and stability, and hopes for an international career.

Changing faces of MBA curricula ....

“VALUES” are all the rage at business schools nowadays. In May2010 around 300 graduating MBAs at Harvard Business School will take an oath, pledging to play a positive role in society once they graduate. At the last count, this is slightly fewer Harvard MBAs than took the oath when it was introduced last year. There are now over 3,000 signatories from more than 300 institutions.

It will be unsurprising if, this time next year, taking the oath is compulsory rather than voluntary at Harvard, given Nitin Nohria’s recent appointment as dean of its business school. Even if Mr Nohria decides not to pick a fight over the ethical pledge with the many sceptics on his faculty, he has made no secret of his support.

On the other side of the country, another dean of the Haas School of Business at Berkeley is making an audacious bid for leadership in the somewhat implausible crusade to turn business schools into moral wellsprings. The MBA students who arrive after the summer will take a course that has been thoroughly revamped, in an effort to achieve a cultural shift and will go much further than any MBA oath could achieve.

Business schools have trailed behind leading companies in managing their internal culture. These schools have long trailed behind leading companies in managing their internal culture. One camp aims to map the competitive landscape, and position their organisations at the point on the map that offers the greatest opportunity. The other camp prefers to focus inwardly on an organisation’s values and core abilities, and then to pursue success by playing to those strengths.

Haas already has a reputation for producing a different sort of MBA from other elite schools. “Business schools are known as breeding grounds for over-confidence, for hubris, for arrogance, for self-focus. But recruiters tell us that one of the defining features of our students is ‘confidence without arrogance’.” Indeed, a similar phrase, “confidence without attitude”, is now one of four core defining principles behind the redesign of the MBA course, along with “question the status quo”, “students always” and “beyond yourself” (ie, “considering the long-term impact of our actions and the facility for putting larger interests above our own”).

Yale has scrapped conventional subjects; Haas is trying to teach the old subjects in a new way

The reforms at Haas are being billed as one of the most radical shake-ups of an MBA programme since both Yale and Stanford changed theirs in 2006. But whereas Yale scrapped conventional subjects such as marketing, accounting and strategy in favour of more nebulous themes such as the customer, innovation and business and society, the Haas approach involves teaching the old subjects in a new way, by emphasising 15 specific skills, including experimentation, revenue-model innovation and risk-selection.

Only about a fifth of the curriculum will be different, but most of the changes will be at the beginning of each course, so students will feel a big change. There will be three new core courses, out of 12: problem framing, exerting influence without formal authority, and leading people. The other nine are being revamped. For instance, the focus of the statistics course will now be to get students to think about what data they would like to have to make a decision, and how they would get that data—to “turn them from consumers of data into experiment designers, producers of data.”

In marked contrast to the rumblings of discontent heard at Harvard, Haas’s changes seem to have gone down remarkably well with its faculty. When Mr Lyons put his redesign to a vote four months ago, 54 of his teaching staff approved, four abstained and no one was against. The changes have also been well-received by both alumni and incoming students, who will now be more rigorously assessed for compatibility with the culture to create. At the very least, this seems intelligent marketing for Haas in an increasingly competitive MBA marketplace. What difference it will make in practice to the quality and character of its MBA graduates, only time will tell. As with the MBA oath, talking the talk is a lot easier than walking the walk.

Elite MBA schools have recently been plagued by self-doubt and the financial crisis has dealt them with a double blow. It has damaged their reputations, because so many bankers are MBAs. It has also dented their market: Wall Street laid off 240,000 people in the 18 months from the middle of 2007.

The business-school boom depended largely on the idea that MBAs were entry tickets to the world’s two most lucrative professions: investment banking and consultancy. These trades not only consumed more than half the graduates of the leading schools. They also underwrote the schools’ finances: students were willing to pay $100,000 in fees and living expenses (and forgo even more in income) because they were all but guaranteed jobs in these high-paying industries.

But banks and consulting firms are could start to recruiting people without MBAs, particularly mathematicians and computer scientists. They are also getting keener on growing their own. Why lose a hard-working 25-year-old for a couple of years when you can train him internally and keep him at the coal face? Banks are increasingly dominated by traders who think MBAs are a waste of parchment.

Criticism of MBAs extends beyond consultancies and banks. People in many industries worry that business-school professors are more concerned with pure theory than with practical management (promotion is usually earned by publishing articles in academic journals rather than by teaching, advising businesses or gaining managerial experience). The professors themselves complain that their students are spending ever more time looking for jobs and ever less time studying.

These problems are already taking their toll on the two-year courses that once constituted the ideal of business education. Students are gravitating to one-year MBAs, which are offered by 70% of European business schools, and more specialised courses. Lower-ranked business schools are already finding it harder to fill their places. The elite worry that the trend will eventually catch up with them too.

Yet business schools have an important asset: they are remarkably flexible compared with the rest of academia. Even before the financial crisis they had begun to implement far-reaching changes. Both Stanford Business School and the Yale School of Management have changed their curricula radically in the past few years. Others will surely follow.

Business schools are facing the need to go globalisation. INSEAD led the pack by opening a second campus in Singapore: all its students have a chance to study in Asia as well as Europe. Almost everybody has leapt on the bandwagon. The Booth School has outlets in three continents. Most schools have research centres across the world.

Business schools have also struggled to make their courses less theoretical. Yale has replaced conventional subject-based courses (marketing and so forth) with “integrated” courses based on “constituencies” (such as investors, customers and employees). The University of Michigan’s Ross Business School gives students a chance to work with, say, hospitals in India and energy companies in Mozambique. Most schools are trying to employ more people with practical experience.

One problem is that these changes add to the already exorbitant costs of MBAs. Yale’s curriculum reform cost $2m-5m. Stanford’s entailed increasing the faculty by 10-15%. But in straitened times business schools will have to do more with less, drawing on professors from other faculties and on outside business people. In 2008-09 Harvard Medical School had a faculty of 10,884 to cope with an entering class of 165 students because it draws on such a wide range of talents. HBS looks unnecessarily exclusive by comparison.

The new generation of deans will undoubtedly preside over dramatic changes. But the changes already made have produced one huge benefit: a much more variegated environment. Business schools are offering a greater variety of courses taught in a greater variety of ways than ever before. Perhaps they are finally becoming as vibrant as the subject they study.

Cleaning up the GULF oil and legal mess ...

With the ill-fated Deepwater Horizon rig sunken in the Gulf, there are now two similar rigs, along with the Discoverer Enterprise, a drilling ship; the Viking Poseidon, which knows how to install things on the sea floor; four mother ships for remotely operated underwater vehicles; various barges and supply vessels; and the Q4000 ( built by our KeppelAMFELS yard in 2002, see below for more detail about this rig ), a rig that specialises in repairing and closing wells. If the well that the Deepwater Horizon was in the process of closing off four weeks ago continues to spray oil into the sea for months to come, it won’t be for a lack of expensive, sophisticated and improbable-looking hardware a mile up above it.

Deployment of vessel and WI rig to plug the leak -

Sketch of Well Intervention With Help of a Vessel and a Semi

It is that mile which is the problem. The oil industry has been fixing blowouts for more than a century. The challenge is doing it under 150 atmospheres of pressure ( i.e. 5000ft below sea level ) with the tools and lights of a robot mini-submarine that gets its power and instructions by way of a cable. Under such environmental conditions, even the well orchestrated planned can come hit a snag, as it did when icy methane hydrates that form when natural gas gets mixed up with cold water at high pressure foul the plan to funnel the leaking oil up to Discoverer Enterprise. The hydrates did not just clog the pipes, they also buoyed up the 125-tonne cofferdam that had been lowered over the leak, lifting it right off the sea bed. [ Well, this phenomenon was not even in the eyes or expectation of all the experts BP has supposedly mobilised to study the viability of the cofferdam method it seems ! ]

On May 16th, though, oil did start to be collected by applying a subtler intervention. Oil is currently escaping from two leaks, one at each end of the well’s riser. The riser connected Deepwater Horizon to its blowout preventer, a stack of valves on the sea floor which marked the top of the well proper. When the rig sank, the riser broke near the top while remaining attached to the blowout preventer at the bottom, bending itself like a pretzel in its subsequent collapse. Some oil is now flowing from where the riser and the blowout preventer meet; most is coming from the broken end of the riser, which has ended up about 300 metres away on the sea floor. It is from a tube slipped into that distal end that oil is now being pumped up to Discoverer Enterprise and its attendant barges.

The insertion device, about a fifth of the diameter of the riser itself, is not supposed to block the flow of oil completely. If it did, the pressure of the oil would blow it out of the riser like a cork in a hose. Instead it sucks at the oil flowing around it, but gauging how hard to suck is tricky. Without enough suction more oil than necessary would continue to leak out; too much and it will let in water which will make the formation of those pesky hydrates more likely. Other anti-hydrate measures include a small pipe feeding methanol, an antifreeze, into the maw of the riser, and hot water circulating through a sleeve to warm the pipe bringing the oil to the surface. According to Kent Wells, vice-president of BP, the oil company in overall charge of the project, the amount of oil coming up through the pipe had risen to 2,000 barrels a day by May 17th.

The next step is to try to staunch the flow proper with drilling mud, a mixture of water and clay minerals. The well is gushing because of the pressure the oil is under in its reservoir 4,300 metres below the sea bed. If drilling mud can be forced into the well under even greater pressure—a technique called “top kill”—it will eventually reach a depth where the weight of the column of drilling mud exerts enough pressure to stop any oil flowing upwards.  [ More about well kill when I start to upload from my archives ...]

To do this, BP has been replumbing and rewiring the blowout preventer, paying particular attention to its choke pipe and the kill pipe. These provide access to the central bore of the well underneath most of the heavy valves which should have closed off the flow of oil, but for some reason did not. The two pipes, which originally went up to the Deepwater Horizon, have been reconnected with heavyweight hoses to a metal framework called a manifold that has been installed nearby. Above it the Q4000 rig and three attendant vessels have 50,000 barrels of peculiarly heavy drilling mud and pumps capable of providing 30,000 horsepower ( ie. from the High pressure mud pumps ) with which to muscle that mud into the well.

Q4000 Well Intervention Rig

Q4000

The blowout preventer’s control pod, which was also originally connected to the lost rig, has been taken up to the Q4000, where it has been tested and attached to new cables. The pod should soon be on its way back down for reattachment to the preventer. The Q4000 will then have control over the valves that connect the choke and kill lines to the well proper. One reason why all this is taking time is that there are now up to 14 remotely operated underwater vehicles working around the well. A “simultaneous operations” unit is needed to choreograph the complex dance of vessels, submersibles and rigs.

Once the control pod has been reinstalled on the blowout preventer and the manifold is attached to the Q4000, the top kill could start. The control pod ( refer to my earlier blog article or do a quick search on this word ) will open the valves that allow the drilling mud to be forced into the well. At that point the fluid-dynamics equivalent of a titanic arm-wrestling match will get under way, with the surface vessels’ pumps trying to push the mud down the well while the rising oil tries to push it out.

If the oil wins, then the team will try a “junk shot”. The manifold has two containers full of various sorts of rubber and plastic that are particularly good at gumming things up. Open and close a few valves on the manifold and the drilling mud from the surface can squirt one of these junk shots down the pipes and into the blowout preventer. The oil pressure will force it up into the heart of the stack of valves. There, by making it harder for anything to get out of the top, the junk will give the drilling mud a better chance in a second bout of arm wrestling. The second container of junk provides another shot.

If both barrels fail there is the possibility of putting a new blowout preventer on top of the old one. That would mean cutting the existing riser, but now that the siphon inserted into it is bringing oil up to the barges it means risking a serious setback. So it may be wiser to wait for the relief wells that are being drilled to get down to the point, 4,000 metres below the sea bed, where they will intersect the existing well. At that depth stopping the flow with a deadweight of drilling fluid could create few problems, once the exceedingly difficult challenge of hitting the well is met. So far, the first relief well is only about 1,000 metres or so below the sea bed, and the second has only just been started.

Underwater spraying by ROV -

Not all the remotely operated vehicles at the site have been involved in replumbing kill lines, hooking up manifolds and supporting the relief wells. Some have been swanning around spraying chemical dispersants into the oily waters. If the top kills do not work this spraying may also help limit the damage done by the oil before the relief wells are finished.

The investigation team’s work thus far shows that this accident was brought about by the failure of a number of processes, systems and equipment. There were multiple control mechanisms— procedures and equipment—in place that should have prevented this accident or reduced the impact of the spill: the investigation is focused on the following seven mechanisms.


1. The cement that seals the reservoir from the well;
2. The casing system, which seals the well bore;
3. The pressure tests to confirm the well is sealed;
4. The execution of procedures to detect and control hydrocarbons in the well, including the use of the BOP;
5. The BOP Emergency Disconnect System, which can be activated by pushing a button at multiple locations on the rig;
6. The automatic closure of the BOP after its connection is lost with the rig; and
7. Features in the BOP to allow Remotely Operated Vehicles (ROV) to close the BOP and thereby seal the well at the seabed after a blow out

The procedure was intended to stem the flow of oil and gas and ultimately kill the well by injecting heavy drilling fluids through the blow-out preventer on the seabed, down into the well.
Despite successfully pumping a total of over 30,000 barrels of heavy mud, in three attempts at rates of up to 80 barrels a minute, and deploying a wide range of different bridging materials, the operation did not overcome the flow from the well.
The Government, together with BP, have therefore decided to move to the next step in the subsea operations, the deployment of the Lower Marine Riser Package (LMRP) Cap Containment System.

The operational plan first involves cutting and then removing the damaged riser from the top of the failed Blow-Out Preventer (BOP) to leave a cleanly-cut pipe at the top of the BOP’s LMRP. The cap is designed to be connected to a riser from the Discoverer Enterprise drillship and placed over the LMRP with the intention of capturing most of the oil and gas flowing from the well. The LMRP cap is already on site and it is currently anticipated that it will be connected in about four days.

The Lower Marine Riser Package (LMRP) Cap :

 •Installing a Lower Marine Riser Package (LMRP) Cap is a containment option for collecting the flow of oil from the MC252 well. The LMRP is the top half of the blow out preventer (BOP) stack.

•The installation procedure first involves removing the damaged riser from the top of the BOP.

•A remote operated hydraulic shear will be used to make two initial cuts and then that section will be removed by crane. A diamond wire saw will then be placed to cut the pipe close to the LMRP and the final damaged piece of riser will be removed.

•The LMRP Cap is designed to seal on top of the riser stub. The seal will decrease the potential of inflow of seawater as well as improve the efficiency of oil recovery. Lines carrying methanol also are connected to the device to help stop hydrate formation.

•The device will be connected to a riser extending from the Discoverer Enterprise drillship.

•The LMRP Cap is on site, and it is anticipated that this option would be available for deployment by the end of May.

Clearing the oil slick :
Dispersants consist of surfactants (which are like detergents) in a solvent. When applied to a slick of oil they are meant to break it up into tiny droplets which disperse widely and are broken down by bacteria. The use of dispersants reduces the chances of direct exposure to oil by birds, fish, sea animals and everything ashore, but it may increase the risks for things on the sea floor in some circumstances. This is why they cannot be used everywhere. They are also toxic, though a lot less so than oil itself.

Spraying dispersants in new ways, rather than using new formulations, may make more of a difference. BP thinks spraying dispersants into the oil plume where it leaves the riser may be 20 times more effective than waiting until it reaches the surface. If so, the 45,000 gallons so far sprayed at depth may have done more good than all the spraying at the surface. Three trials of this technique have been made by the EPA ( Environment Protection Agency ), the first two being inconclusive due to logistical difficulties.

There will be plenty of lessons to learn from the Deepwater Horizon disaster. Once the leaks have been stopped, the operation may try to get the failed blowout preventer to the surface so that it is at last possible to see what really went wrong. It is not just the engineering response to future oil spills that will be affected, but also working practices, safety systems and regulation. The future safety of offshore drilling for both the roughnecks and the environment will be shaped by what happens a mile below. 

[ And also the subsequent legal proceedings, if every of those involved wishes to wash their hands and pointing to the culprit of the cause....... ]

EVERY oil spill has a silver lining—if you are a lawyer, that is. More than 70 related lawsuits were filed in the two weeks after oil started leaking into the Gulf of Mexico on April 20th, most of them class actions that claim damages on behalf of many similar victims. Trial lawyers are dreaming of one of the biggest paydays since they feasted on tobacco litigation. Even more certain are the bumper fees for law firms defending BP, Halliburton and other firms involved. The most notable winner is Kirkland & Ellis, which will represent the British oil giant.

No one doubts that the BP lawsuits will dwarf those that followed the Exxon Valdez spill in Alaska in 1989.

However, actual damages could run into billions, even before fees. Less comforting is the $75m cap on liability for economic damages under the Oil Pollution Act (OPA) of 1990. Regardless of what happens to efforts in Congress to raise this cap to $10 billion, this legislation may not constrain tort lawsuits under state or common law. The point of the OPA was not to limit tort law but to supplement it. Legal damages could thus be in addition to other compensation that is paid voluntarily to victims by BP and others, an amount that has been estimated at anything from $3 billion to $8 billion.

A crucial contest is looming between BP and the trial lawyers over the extent to which various lawsuits will be consolidated, and where the trial will happen. The trial lawyers fancy Louisiana, with its long history of generosity to class-action litigants; BP would prefer oil-friendly Texas.

Litigation over the oil spill is helping to reverse a downward trend in class-action suits against business. The BP case may be just the sort of disaster that tort law exists to address. But the justification is less clear for some other high-profile litigation.

Cleaning the oil spill and impact to the Gulf environment and wildlife :
030610 Oil Spill Impact