What Obama Should Have Said to BP | The New York Review of Books

Jim Young/Reuters

Governor Charlie Crist and Barack Obama at Casino Beach, Pensacola, Florida, June 15, 2010

Barack Obama’s demand, in his June 15 speech, that the former British Petroleum Company create an escrow account, to guarantee the funds that will be needed to deal with the consequences of the continuing catastrophe in the Gulf of Mexico, should have been made weeks ago, and should surely have been framed more strongly than it was.

The President, in this matter, continues to demonstrate the quality, laudable in itself, but in politics extraordinarily dangerous, of assuming that those he is dealing with are as reasonable and well-intentioned as he is himself. In fact they are often driven by ruthlessly self-interested motives that leave him in a position of seeming weakness and unwillingness to defend not only national but his own political interests.

At the end of May one saw the President on international television walking on a Louisiana beach, accompanied—off-scene—by hundreds if not thousands of newsmen, broadcasters, and cameramen. He seemed abject. He bent over and picked up a handful of sand and let it run through his fingers. He shook his head in concern. A cutaway showed his speeches earlier in this affair declaring that his administration is in charge of the great effort to save America’s coast and waters from the terrible pollution that is spreading as a result of a volcano of oil erupting from the sea’s floor and meeting the sickly-colored, toxic chemicals being mixed into the water that are meant to disperse it.

In his June 15 speech, Mr. Obama finally insisted that BP would pay for all the damage and cleanup and would be held responsible for any illegalities; and the next day at the White House BP agreed to an independently administered $20 billion escrow fund, while the full costs to the Gulf region are far from clear.

In the press conferences given by the President and the BP chairman that followed the meeting it was clear that the American government still does not control this situation. BP alone will determine what is done with respect to the oil geyser and its promised closure. While it will make available the $20 billion compensation fund, the timing, terms, and ultimate worth of BP’s assurances of compensation and reparation remain open to interpretation and change.

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How can the President possibly say that his administration has “been in charge”? BP has been in charge from the start—it and its contract companies, all of them desperately trying to plug the hole in the bottom of the sea, and all defending corporate and fiscal interests of their own. The President’s associates and advisers have apparently decided that the agencies of the United States government are technically incompetent to give instructions to BP, which seems improbable. But they certainly can and must tell BP what priorities must be set, and they must establish goals to be met, and on what timescale.

BP’s lawyers and lobbyists have just as desperately been striving to allow BP to unload responsibility upon anyone or everyone else, including incompetent or irresponsible or compromised federal regulators.

Allow me, in the style of the metropolitan columnists who influence Washington, to draft what the President might have said in his June 15 speech:

“My friends:

“The American nation has suffered a grievous blow from the catastrophe produced in the Gulf by what formerly was known as the British Petroleum Company. This is the latest in a series of major accidents produced in this company’s American operations, causing loss of lives among its workers, unforgivable human suffering by private citizens, and great damage to private and public interests, continuing today in the Gulf.

“I have therefore today given orders that the American functions of this company be provisionally seized, or placed in temporary receivership, by the American government, as in recent months we have been forced to seize banks and corporations devastated by economic crisis, such as General Motors, AIG, and certain financial institutions.

“BP’s American management will be placed under public authority and will be instructed to terminate the oil emergency as rapidly as possible and in disregard of whatever costs must be incurred by the company. This effort will be conducted by BP through its own best efforts, closely supervised by officers of the United States Coast Guard and Navy, the Energy and Treasury Departments of our government, and will be accompanied by an investigation by the Justice Department and its executive agencies, including the FBI, for any possible evidence of fraud, malfeasance or profiteering, contributing to this disaster. None of these agencies of government will incur any responsibility whatever for the decisions and actions of BP while conducting its operations to terminate the oil blowout.

“In no circumstances will company, proprietary, or stockholder interest be given priority over measures to terminate this emergency and to safeguard the assets or interests of the United States public or government. No funds of this company shall be expended on political lobbying intended to influence Congress or the executive agencies of federal government until this emergency has formally been determined to have been ended.

“Clearly, losses to British pension funds and other British shareholders of BP should be of concern to the British government. However those individuals and institutions investing in companies with notoriously controversial histories assume the accompanying risks.

“The Oil Pollution Act signed into law in 1990 greatly expanded the US government’s ability and resources necessary to respond to oil spills; and it does not preempt state action to impose additional liability, which may be unlimited, with penalties and damages in addition to federal liabilities that may extend to prison sentences.

“I am instructing that all BP assets within the United States, or in its surrounding waters, including funds immediately at its disposal, and all other BP funds accessible to the United States government, be temporarily seized and sequestered so as to prevent the transfer of any funds or assets of this company outside United States jurisdiction and access. The disposition of those assets will eventually be determined by the courts or by a new independent federal agency, with priority given to the reimbursement of persons and property-holders victimized by this catastrophe, and the redressment of damage or destruction to public assets and municipal, state, and national interests for which the former British Petroleum corporation is deemed by the courts, or by the independent agency, to have been responsible.”

This is what the American people wanted to hear. President Obama wishes to be seen as decisive and a leader? Here was his opportunity. He wants a Democratic Congress elected in the fall? And a second presidential term for himself? This could have made a decisive contribution to those ambitions, as well as assuring necessary help to millions of people and repairing grave damage to the environment.

He then could have concluded his speech by saying to his political opponents that any Republican or Democrat who wishes to run for office in November as an opponent of these Obama administration crisis measures—and as a defender of BP corporate and stockholder interests, or its customary executive remuneration and financial practices—as against the national interest of the United States and redress of the damage that continues at this moment to be done to the United States and its citizens, would be more than welcome to do so.

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Obama and BP at Risk Over Oil Spill

Obama examines some of the effects of a spreading crisis Larry Downing/Reuters

As the Gulf spill threatens to sink BP and damage a Presidency, it's time for Obama to rally the U.S. around tough, fair regulation—for the good of capitalism

By Paul M. Barrett

With failure heaped upon failure in the Gulf of Mexico, the environmental disaster now threatens the viability of not only a vast corporation but also a U.S. Presidency. The buck stops with both—one financially, the other politically. Can either recover?

The markets sent ominous signals about BP's (BP) future once it became clear over the Memorial Day Weekend that the top-kill plugging maneuver had not worked. In the Gulf, hurricane season has arrived, bringing with it the prospect of fierce storms chasing rescue ships to shore and spreading the sickening oil slick farther along the southern coast. A long, grim summer seems all but certain.

Its shares sharply depleted, BP, the largest oil and gas producer in the U.S., suddenly seems vulnerable to a breakup or takeover. In Washington, the Obama team appears to be flailing. Trying to assert some form of authority, the President vowed to bring wrongdoers to justice. The promise seemed mostly like a distraction from frustrating reality: In the short term, President Obama can do little, if anything, to stanch the gushing well.

As much as any other challenge—Wall Street, health care, Afghanistan—the oil spill may define Obama as a leader. He either will find a way to rise to this occasion and make some broader use of the crisis in the Gulf, or it will permanently taint him.

Deficient Oversight

This is a moment to think big and creatively. As distant as risky drilling rigs off Louisiana may seem from the New York financial laboratories where wizard bankers synthesized subprime credit derivatives, Obama could explain the important connections: how, after decades of antiregulatory fundamentalism in Washington, the feckless Minerals Management Service became the Securities & Exchange Commission of the oil business.

It is no coincidence that staff members at both agencies watched pornography on government computers when they should have been monitoring their respective beats. Although corruption and incompetence seem to have run deeper at the soon-to-be-dismantled MMS, the zeitgeist of the two places was similar, according to investigations and congressional hearings: Industry was to be trusted, even when government overseers had no more idea what transpired on the trading floor at Lehman Brothers or Bear Stearns than they did on the ocean floor beneath the Gulf of Mexico.

The question is: What will Obama do about it?

One route to political rehabilitation would be to redefine how government interacts with business. The goal he should articulate is protecting capitalism—and the society it's intended to serve—from the tendency of the profit-minded to go to extremes.

Takeover Prospects

Profit-minded investors, meanwhile, have soured on BP. "We are very negative on the prospects for BP, and this situation has a real possibility of breaking the company," London-based investment bank Arbuthnot Securities said in a June 1 research note. That day the British energy giant's shares dropped as much as 17 percent in London, their biggest one-day decline in 18 years. The company's stock flattened on June 2, closing down 34 percent since the Deepwater Horizon exploded Apr. 20. That erased more than $58 billion (40 billion pounds) from BP's value.

Ivor Pether, who helps manage $9.2 billion at Royal London Asset Management, including BP stock, told Bloomberg News: "We're getting into share price territory where analysts speculate about takeover possibilities, because the loss of market value is much greater than the estimated 'worst case' costs." Buyers haven't surfaced yet, he added, "because the near-term uncertainty is so high." BP spokeswoman Sheila Williams declined to comment.

The company's woes grew worse when the Obama Administration announced June 1 that it will investigate potential criminal and civil violations related to the spill. "We will prosecute to the fullest extent of the law," U.S. Attorney General Eric Holder said. While Holder didn't get into particulars, troubling facts have already surfaced. The House Energy & Commerce Committee released internal BP e-mail showing that company employees had worried six weeks before the rig explosion that workers were struggling to control the well below. A criminal indictment of BP and other companies involved in the accident—perhaps for infractions of the Clean Water Act or other environmental laws—"is very likely," David M. Uhlmann, a former chief of the Justice Dept.'s environmental crimes section, told Bloomberg. Uhlmann, who now teaches at the University of Michigan Law School, pointed out that after the Exxon Valdez oil spill in Alaska in 1989, ExxonMobil (XOM) pleaded guilty to charges of that variety.

Another potential line of prosecutorial inquiry, and one that could have more severe effects on BP, would focus on whether executives lied in formal statements to the government. Depending on how high up the chain of command the probe went, a cover-up investigation could seal the fate of Chief Executive Tony Hayward and underscore questions about BP remaining independent. The company has said it will cooperate with investigators.

White House in Control?

While the FBI explores the nuances of pollution law, the White House promises daily to stem damage to the Gulf coastline and economy. "I'm confident people are going to look back and say this Administration was on top of what was an unprecedented crisis," Obama has told reporters. That seems increasingly doubtful. However the destructive gusher is stopped, Obama will have been the man in charge when we all realized that the White House isn't "on top of" much of anything when it comes to deep-sea oil.

The federal government that Obama inherited in 2009 had been more or less uninterested in keeping up with business over the course of three decades. "Industry has developed technology the government doesn't understand," says Richard B. Stewart, a professor of environmental law at New York University Law School.

As happened in the wake of the collapse of some of Wall Street's most storied investment banks, we are already beginning to learn that BP's internal communications show a reluctance to address what should have been dire warning signs. BP e-mail obtained by the House Energy Committee reveal that anxiety about the safety and soundness of the BP well was intensifying more than a month before the Apr. 20 blowout. This evidence, while fragmentary and inconclusive, may cast doubt on BP's contention after the explosion that the company was caught entirely by surprise.

A Mar. 10 e-mail from BP executive Scherie Douglas to Frank Patton, an MMS drilling engineer, said the company planned to sever the pipe connecting the well to the rig and then plug the hole. "We are in the midst of a well control situation on MC 252 #001 and we have stuck pipe," Douglas wrote, referring to the subsea area Mississippi Canyon 252. "We are bringing out equipment to begin operations to sever the drillpipe, plugback the well and bypass." BP received verbal approval from an unnamed MMS official at 11 p.m. on Mar. 11 to insert a cement plug at a shallower depth than normally would have been required after the hole caved in on the drilling equipment, the e-mail showed. Asked about these exchanges, a company spokesman said: "We have always said it was a complex accident. We await a full report."

The Myth of Industry Infallibility

As investigators reconstruct events leading up to Apr. 20, Sarah S. Elkind, an historian of politics and the environment at San Diego State University, warns against focusing on minutiae to the exclusion of the big picture. Within the MMS, she says, "The employees followed cues from political appointees during the Bush Administration and earlier Administrations, going back to 1980, and including Democrats as well as Republicans. The message was that government doesn't work, and industry always knows what it's doing. What did we expect the employees to do?"

Industry, of course, doesn't always know what it's doing, NYU's Stewart notes. He headed the Justice Dept.'s environmental division in March 1989, when the Exxon Valdez dumped 250,000 barrels of crude into Alaska's Prince William Sound. For 21 years, until BP, that was the record U.S. oil spill. After the Valdez ran aground, it became clear that the industry lacked the plans or equipment to contain a spill of that magnitude, Stewart says. "Government had delegated most cleanup responsibility to the oil companies, and their response capability was in mothballs."

Congress responded belatedly with legislation in 1990 that required safer supertankers and a mechanism for the U.S. Coast Guard and other agencies to coordinate a cleanup—on the water's surface. That didn't help prepare for a blowout a mile below. Once again, government had deferred to the oil industry, and the giant company in question wasn't ready for a monumental snafu.

Obama has spoken expansively about restoring respect for government service. His occasionally populist rhetoric aside, he has been solicitous of corporate interests, too. Recall the astonishing bailout of General Motors. Just three weeks before the Deepwater Horizon exploded, the President had proposed expanding offshore oil exploration, in part as a bid for Republican votes for stalled energy and climate legislation. At the time, Obama praised advances in drilling technology.

"Where I was wrong," he said on May 27, "was in my belief that the oil companies had their act together when it came to worst-case scenarios." By his own admission, this product of Harvard Law School and liberal South Side Chicago politics was mesmerized, along with everyone else, by the myth of industry omnipotence.

Interior Dept. Lapses

The President also acknowledged that his Interior Secretary, Ken Salazar, who oversees the MMS, hadn't moved quickly enough to root out favoritism and laxity. In 2009, BP was granted a "categorical exclusion" that allowed the Deepwater Horizon to operate without analysis required by the National Environmental Policy Act. Obama said changes had been planned at Interior. "If they were happening fast enough, [BP's safety glitches] might have been caught."

In congressional testimony, Salazar has blamed the environmental lapse on a statutory 30-day deadline on the permitting process. The Administration says it will seek to extend that time limit to 90 days. Salazar exacerbated his department's bumbling image by repeatedly boasting about having a "boot on the neck" of BP. He even suggested that the company would be pushed "out of the way" if it didn't move faster. The tough-guy talk wasn't convincing. The government lacks the necessary engineers, undersea robots, and scientific expertise. This remains BP's show.

The director of the MMS is gone, and the agency has been divided in three, so that its collection of oil royalties won't undermine its policing function. Obama has imposed a six-month moratorium on new permits for deepwater wells. The sale of exploration leases in the Gulf of Mexico and off Virginia has been suspended. A big Arctic energy project will be delayed. The government will require tougher certification of the sort of equipment—the notorious "blowout preventer"—that failed on the Deepwater Horizon.

That's not stopping some Republicans from equating Obama's response to the crisis to President George W. Bush's lack of urgency in reacting to Hurricane Katrina in 2005. The National Republican Senatorial Committee is running a Web video juxtaposing candidate Obama's words about Katrina—"Never again"—with those of liberal commentators castigating him for acting "lackadaisical" about the Gulf crisis and seeming as ineffective as "a Vatican observer."

More measured critics recognize that neither party has covered itself with glory. "The truth of the matter is nobody knows how to fix this damned thing," Senator Lindsey Graham, a South Carolina Republican, told reporters, "and if they know how, they need to step up."

The Case for Better Regulation

Until someone figures out how to fix BP's leak, the idea the President should stress is how to reframe the debate about oil, investment banking, and other technologically sophisticated industries. Obama should argue that we need better government oversight of business, not to harm it, but to nurture it. He could invoke the memory of the New Deal regulatory revolution, which shielded industry and finance from calls for socialism after the Great Depression.

He won't win over Tea Partiers who see the New Deal (and the income tax and civil rights laws) as constitutional infringements. But a majority in America may well be receptive to an appeal that Democratic pollster Douglas E. Schoen described this way in a roundtable on the politics of the spill on washingtonpost.com: "We are all in this together—not as corporations or populists, not as Democrats or Republicans, but as Americans working to solve the problem collectively." In a speech in Pittsburgh on the afternoon of June 2, Obama started in this direction, then swerved toward partisanship. The Republican agenda, he said, "basically offers two answers to every problem we face: more tax breaks for the wealthy and fewer rules for corporations."

For the foreseeable future, we need an oil industry. It should be one that worries about tough inspections so it avoids another Deepwater Horizon. For the longer term, as Obama argued in Pittsburgh, we need a comprehensive climate and energy bill that will create incentives to find alternatives to oil retrieved at great expense from the ocean depths or purchased from pernicious foreign sources.

In the same spirit, pending financial reform legislation aims to insulate Wall Street from its worst instincts and make it less of a threat to the rest of us. Bills waiting to be reconciled by the House and Senate would give regulators more authority to monitor complex securities, simple mortgages, and all manner of transactions in between. Financial firms would come under pressure to reduce debt and hold more capital in reserve. If a financial outfit began to fail, regulators would have more tools to disassemble it before a traumatic collapse.

Obama ran for President emphasizing results. Businesspeople like to talk about results, too. After a generation of operating according to a simplistic notion that defined government oversight as essentially poisonous to corporate success, now would be an opportune time to rally the country around an ideal of tough, fair regulation for the good of business and the customers it serves.

Barrett is an assistant managing editor at Bloomberg Businessweek. With reporting by Stanley Reed, Brian Swint, Joe Carroll, Jim Efstathiou Jr., and Justin Blum.

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Oil could spew until August, officials say

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Top Kill Fails; BP Trying other options

BP's 'top kill' operation has failed to plug the oil leak in the Gulf. The company is now planning to cut off the damaged riser from which the oil is leaking and cap it with a containment valve. (May 29)

By Steven Mufson and David S. Hilzenrath
Monday, May 31, 2010; A01

As BP readied its latest fallback plan to stop oil gushing from one of its wells in the Gulf of Mexico, the Obama administration and the company warned that the crude could continue flowing until August, compounding threats to coastal wetlands, fisheries and beaches.

White House energy and climate adviser Carol M. Browner said Sunday that the oil spill was "probably the biggest environmental disaster we've ever faced in this country" and that "we are prepared for the worst." On the CBS show "Face the Nation," she said that the "American people need to know that it is possible we will have oil leaking from this well until August when the relief wells will be finished."

Those two wells, which BP began drilling early this month, are expected to intersect the damaged one and seal it near the reservoir far below the seafloor. The first has reached 7,000 feet below the seafloor, and the second has reached 3,500 feet below the floor, but progress gets slower the deeper the wells go. With the arrival of hurricane season Tuesday, the drilling could be slowed if the rigs need to be evacuated during storms.

The grim assessment came in the wake of the failure last week of BP's "top kill" effort to stop the flow of oil from the damaged well by shooting heavy drilling mud into the hole.

BP managing director Bob Dudley, who also made the rounds of Sunday-morning shows, said on ABC's "This Week" that "the next step is to make sure that we minimize the oil and pollution going into the gulf." He added: "The main thing now is to contain it."

BP plans to saw off a bent and broken pipe attached to the five-story tall blowout preventer that sits over the well. The company will then lower a new apparatus that would funnel oil and gas to vessels on the sea surface. But until the new apparatus is in place, cutting the riser pipe will temporarily increase the flow of oil into the sea by 10 to 20 percent, because the procedure will remove a section of pipe where a kink is limiting the flow, Browner said.

4th fallback plan so far

Dudley expressed optimism about the latest fallback plan -- the fourth so far -- saying on CBS, "With this, we think we can contain the majority of the oil and gas."

BP and the Obama administration were also trying to contain the rising tide of public frustration as the oil spill comes to the end of its messy sixth week.

Drilling experts said they feared that BP's effort last week to stop the flow of oil and gas with heavy drilling mud might have done further damage to the well and the blowout preventer, possibly complicating the next effort to capture the oil and gas and bring them to surface vessels.

Some drilling experts said that the "top kill" effort failed over the weekend because the force of the oil and gas pushing up from the reservoir 13,000 feet below the seafloor was so great that it had shoved most of the drilling mud through the blowout preventer and into the sea.

Tadeusz W. Patzek, chairman of petroleum and geosystems engineering at the University of Texas at Austin, said it was the "equivalent of six or seven fire hoses blasting oil and gas up, while two fire hoses were used to blast the drilling mud down. They never stood much of a chance."

Sources at two companies involved with the well said that BP also discovered new damage inside the well below the seafloor and that, as a result, some of the drilling mud that was successfully forced into the well was going off to the side into rock formations.

"We discovered things that were broken in the sub-surface," said a BP official who spoke on the condition of anonymity. He said that mud was making it "out to the side, into the formation." The official said he could not describe what was damaged in the well.

Documents released Sunday by the House Committee on Energy and Commerce point to problems BP was having drilling the Macondo well, although some of them date to 2009 when BP was using a different rig with different equipment. Some documents describe previously reported trouble BP was having controlling the well. The company later drilled a new well section, costing it more than $20 million.

The longer oil seeps out of the ground, the more politics are seeping into the public debate as people question why the oil industry and the government were so ill-prepared.

In an echo of the counting of days during the politically debilitating Iranian hostage crisis during President Jimmy Carter's administration, Jake Tapper on ABC introduced his program as "Day 41 of the Gulf oil spill."

Sen. David Vitter (R-La.) said BP "made enormous mistakes and probably cut corners." Appearing on CNN's "State of the Union," Vitter also said the federal government has failed in its response to the crisis, "particularly with the effort to protect our coast and our marsh."

Last week, Minnesota Gov. Tim Pawlenty (R) questioned the administration's reliance on BP's estimates of the volume of oil, which has been flowing into the gulf since a blowout set fire to the Deepwater Horizon drilling rig, which sank, killing 11 people.

Browner conceded on CBS that "BP has a financial interest in these numbers" on the volume of the leak. "They will pay penalties at the end of the day, a per-barrel, per-day penalty," she said. But she said the latest, increased estimates of oil flowing from the well were produced by an independent government review panel.

"At the end of the day, the government tells BP what to do, and at the end of the day, we will hold BP accountable for all of this," she said.

She also sought to portray the administration as in charge and engaged. She said an administration "brain trust" led by Energy Secretary Steven Chu urged BP to stop adding pressure to the well through the top-kill maneuver because "things could happen that would make the situation worse."

But she stopped short on CBS of saying that Chu ordered an end to the top-kill maneuver.

Pressed to give an example of administration influence, Browner cited the drilling of two relief wells instead of one. A BP official said that it was "not unusual" to drill a second relief well and that it "very likely" would have been done anyway.

But Browner said that "BP said we're going to drill one relief well. These are expensive wells for them to drill. We said that's not good enough. You're going to drill a second one."

BP has said it would take responsibility for damage from the spill, but BP chief executive Tony Hayward on Sunday disputed claims by scientists that large undersea plumes have been set adrift by the gulf oil spill.

The Associated Press reported that during a tour of a company staging area for cleanup workers, Hayward said BP's samples showed "no evidence" that oil was suspended in large masses beneath the surface.

"The oil is on the surface," Hayward said. "Oil has a specific gravity that's about half that of water. It wants to get to the surface because of the difference in specific gravity."

Scientists from several universities have reported plumes of what appears to be oil suspended in clouds stretching for miles and reaching hundreds of feet beneath the gulf's surface.

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Obama struggling to show he's in control of oil spill

Image by tsevis via Flickr

By Karen Tumulty
Washington Post Staff Writer
Friday, May 28, 2010; A01

A defensive President Obama sought Thursday to quell doubts about his handling of the Gulf of Mexico oil spill, insisting that his administration has been "in charge" from the moment it began and bristling that critics who accuse it of being sluggish to react "don't know the facts."

But at times during a 63-minute news conference in the East Room of the White House, the president seemed to undercut his own argument. He enumerated a litany of fumbles and lapses: that the government lacks resources and "superior technology" to respond to the disaster; that he personally had assumed oil companies "had their act together when it came to worst-case scenarios"; that his administration "fell short" with its acceptance of BP's inaccurate estimate of the size of the gusher; that reforms of the corruption-plagued government agency that oversees offshore drilling "weren't happening fast enough."

At one point, Obama said he did not know whether Elizabeth Birnbaum -- the director of the Minerals Management Service he blamed for allowing the oil industry to overrule environmental and safety concerns -- had resigned or been fired hours before.

The news conference marked a sharp departure in tone from the first days after an oil rig explosion caused the spill, when the White House seemed determined to fix the blame and keep the public outrage directed at the oil company involved. "In case you were wondering who's responsible, I take responsibility," Obama said Thursday. "It is my job to make sure that everything is done to shut this down."

This is the familiar Obama: resolute and in charge. But six weeks after the spill began, those words seemed to highlight the difficulty he has had in convincing the country that he is on top of the situation. As oil continues to foul the gulf, the conflicting signals coming from the president and his team have imperiled his reputation for competence and coolness in the face of crisis.

Only three weeks before the explosion, Obama had proposed opening up 167 million acres to offshore oil exploration, as a means of finding more oil and more votes on Capitol Hill for comprehensive energy and climate legislation. In defending that plan, he had cited advances in drilling technology that he said made it significantly safer than it had been in the past.

White House aides say that as oil continued to spew from the floor of the gulf, the president -- who described himself as "angry and frustrated" -- privately expressed dismay about the faulty assurances he received from the oil industry that exploration was safe. "For so long, we didn't have accidents in the gulf, and we took the oil and gas industry maybe a little too much at their word," said one official, who spoke on the condition of anonymity.

Obama announced new steps that he said would help "ensure that a catastrophe like this never happens again." Deep and far-reaching reform will come, he promised, after a commission he is appointing finishes a six-month investigation of the causes of the April 20 explosion of BP's Deepwater Horizon rig and measures that might have prevented it.

In the early weeks after the rig sank, polls showed the public saw a clear villain -- BP -- and approved of the administration's approach to the situation, which emphasized ensuring that the oil company would bear the cost of stopping the spill, cleaning it up and repairing the damage. Some in the White House were so confident of their ability to stay ahead of the crisis that they welcomed comparisons with George W. Bush's bungling of the response to Hurricane Katrina in 2005.

But the latest surveys show that public confidence in Washington's handling of the spill has dropped sharply. And there has also been a fraying of what had begun as a relatively smooth working relationship among the government, BP, and state and local officials in the region. "The president has not been as visible as he should have been on this," Sen. Mary Landrieu (D-La.) told Politico, "and he's going to pay a political price for it, unfortunately."

Gulf Coast residents are furious; images of the oil's sheen on the water have given way to ones of black beaches and dead animals.

On cable news broadcasts of Obama's news conference, he had to share the screen with a live shot of that painfully familiar underwater pipe spitting out brown gunk.

Even as the president laid greater claim to the handling of the disaster, he distanced himself from Interior Secretary Ken Salazar's frequent boast that the administration has a "boot on the neck" of BP.

"I think Ken Salazar would probably be the first one to admit that he has been frustrated, angry and occasionally emotional about this issue, like a lot of people have," Obama said. He added: "I would say that we don't need to use language like that."

Indeed, Obama seemed most sensitive to suggestions -- made with increasing frequency by such critics as Democratic strategist James Carville -- that the oil company is calling the shots.

BP is the "responsible party," with access to resources, technology and expertise that the government lacks, Obama said. But all its actions, he insisted, are done "under our supervision, and any major decision that they make has to be done under the approval of Thad Allen, the national incident coordinator."

Although he acknowledged that the government's performance before and since the spill began has been far from perfect, Obama insisted that it should not be faulted for lack of effort. "This has been our highest priority since this crisis occurred," he said, and later added, "We are relying on every resource and every idea, every expert and every bit of technology, to work to stop it."

Obama spoke of the toll the crisis has taken on him, an unusual turn for a president who is sometimes faulted for being too intellectual and aloof.

"This is what I wake up to in the morning, and this is what I go to bed at night thinking about," he said. He cannot escape questions about the spill, even at home. As he was shaving Thursday morning, he said, 11-year-old daughter, Malia, peeked in and asked, "Did you plug the hole yet, Daddy?"

Staff writers Anne E. Kornblut and Scott Wilson contributed to this report.

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BP: Iraq Oil Deal is Start of Something Big

By Stanley Reed

The June 30 auction in Baghdad for development rights to oil and gas fields in Iraq has been portrayed as a dud. That's understandable. After all, the Iraqis managed to award only one of the eight fields up for bid.

But the .125 batting average is somewhat deceptive. The field the Iraqis did award, Rumaila, is a monster, producing 960,000 barrels per day now—nearly half of Iraq's current output. The winners, BP (BP) and China's CNPC, plan to bring the field to plateau production of 2.85 million barrels per day within six years. That would make it one of the most prolific fields in the world. However, the companies may have deliberately made high estimates so as to try to win the contracts.

While the fiscal terms are demanding, BP is enthusiastic. In an interview, the company's exploration and production chief, Andy Inglis, said the deal gives BP "a presence in the Middle East working on the biggest" Iraqi field.

BP Has a Plan

BP thinks the Rumaila deal, which is not yet signed, will give it first-mover advantage that can be parlayed into other Iraqi projects. BP also thinks it understands Rumaila well, having originally discovered the field in the 1950s and having worked on it with the Iraqis during the past five years. BP also thinks Rumaila closely resembles the giant Samatlor field in western Siberia, which it has successfully managed through its TNK-BP Russia subsidiary. Finally, through CNPC the partners will have access to a Chinese supply chain to bring in the low-cost equipment needed, including onshore drilling rigs. An Iraqi state company will have a 25% stake, while BP and CNPC will share a 75-25 split of the rest.

Inglis said BP already has a plan for Rumaila. It will include modernizing, such as drilling new wells, renovating old ones, adjusting the level of pumps, and investing in and optimizing the massive water injection programs needed to maintain pressure and boost production.

A lot could go wrong. Rumaila will stretch the companies' resources and capabilities. And there are huge risks that come with working in Iraq, including security and political hazards. Many Iraqis, among them oil-field workers and some officials, don't want foreign oil companies working in their fields. BP and CNPC will have to soothe such concerns if they are to succeed.

Tough Terms for BP

Considering the risks, the financial rewards will not be all that great. BP will be working under a service contract that in simple terms provides for payment of $2 per barrel for the oil BP produces above an agreed baseline—believed to be current production, adjusted by a 5% yearly decline rate for output. BP and CNPC initially bid for a $3.99-per-barrel payment, but the Iraqis persuaded them to reduce that. A consortium of ExxonMobil (XOM) and Malaysia's Petronas (PETR.KL) offered the Iraqis a higher target—3.1 million barrels per day—but walked away from Iraq's tough terms. BP will be penalized if it does not hit its 2.85 million-barrel target.

In an indication of how stiff the terms are, Edinburgh consultants Wood Mackenzie estimate that the BP consortium will receive fees amounting to only 1% of the estimated $1.2 trillion total revenues from the project. An additional 4% or so will go to recovering the $10 billion to $20 billion investment and costs required over the 20-year life of the contract. Wood Mackenzie figures the value of the project to the consortium is just $3 billion. "This is quite modest for a field which should produce 16 billion barrels at least," Wood Mackenzie says.

BP points out that the terms are not so different from those on offer for some other projects in the region. In Abu Dhabi, for instance, BP is paid $1 per barrel. Inglis says the deal, which has not been finalized, will give BP a stable supply of what he calls "long, flat barrels" over a substantial period of time.

In the Same League as the Saudis

From the Iraqi point of view, getting Rumaila under way comes close to making the bid round a success. Rumaila is Iraq's flagship field. If BP hits its targets, it will nearly double Iraq's production, to the 4 million barrel-per-day range, over the next seven years. That would likely make Baghdad a major player in OPEC and the organization's No. 2 producer after Saudi Arabia.

One other aspect of the bid round was encouraging for the Iraqis. The top production targets bid by the international oil community on the six oil fields on offer add up to 8.2 million barrels per day. If achieved, that level of output would put Iraq in a rarefied league with Saudi Arabia as a major oil exporter.

Potential is one thing, of course, and actual production is another. Since the overthrow of Saddam Hussein in 2003, Iraq has had close to zero success in raising its production, meaning it has missed out on oceans of cash it could have gained from recent high oil prices. On several of the fields in the bid round a huge gap emerged between the remuneration the companies were willing to accept and what the Iraqis wanted to pay. Both sides, but perhaps especially the Iraqis, have some serious thinking to do if Iraq's oil and gas program is to move forward.

Reed is London bureau chief for BusinessWeek.