By Mollie Hemingway October 14, 2014
As the Ebola situation in West Africa continues to deteriorate, some U.S. officials are claiming that they would have been able to better deal with the public health threat if only they had more money.
Dr. Francis Collins, who heads the National Institutes of Health (NIH), told The Huffington Post, “Frankly, if we had not gone through our 10-year slide in research support, we probably would have had a vaccine in time for this that would’ve gone through clinical trials and would have been ready.” Hillary Clinton also claimed that funding restrictions were to blame for inability to combat Ebola.
Conservative critics have pointed out that the federal government has spent billions upon billions of dollars on unnecessary programs promoting a political agenda rather than targeting those funds to the fight against health threats.
Other limited government types point to the Progressive utopian foolishness seen in opposing political factions, both sides of which seem to agree humanity could somehow escape calamity if only we had a properly functioning government. People who don’t want an all-powerful government shouldn’t blame it for not having competence when crisis strikes.
What’s particularly interesting about this discussion, then, is that nobody has even discussed the fact that the federal government not ten years ago created and funded a brand new office in the Health and Human Services Department specifically to coordinate preparation for and response to public health threats like Ebola. The woman who heads that office, and reports directly to the HHS secretary, has been mysteriously invisible from the public handling of this threat. And she’s still on the job even though three years ago she was embroiled in a huge scandal of funneling a major stream of funding to a company with ties to a Democratic donor—and away from a company that was developing a treatment now being used on Ebola patients.
Before the media swallow implausible claims of funding problems, perhaps they could be more skeptical of the idea that government is responsible for solving all of humanity’s problems. Barring that, perhaps the media could at least look at the roles that waste, fraud, mismanagement, and general incompetence play in the repeated failures to solve the problems the feds unrealistically claim they will address. In a world where a $12.5 billion slush fund at the Centers for Disease Control and Prevention is used to fight the privatization of liquor stores, perhaps we should complain more about mission creep and Progressive faith in the habitually unrealized magic of increased government funding.
Lay of the Land
Collins’ NIH is part of the Health and Human Services Department. Real spending at that agency has increased nine-fold since 1970 and now tops $900 billion. Oh, if we could all endure such “funding slides,” eh?
Whether or not Dr. Collins’ effort to get more funding for NIH will be successful—if the past is prologue, we’ll throw more money at him—the fact is that Congress passed legislation with billions of dollars in funding specifically to coordinate preparation for public health threats like Ebola not 10 years ago. And yet the results of such funding have been hard to evaluate.
See, in 2004, Congress passed The Project Bioshield Act. The text of that legislation authorized up to $5,593,000,000 in new spending by NIH for the purpose of purchasing vaccines that would be used in the event of a bioterrorist attack. A major part of the plan was to allow stockpiling and distribution of vaccines.
Just two years later, Congress passed the Pandemic and All-Hazards Preparedness Act, which created a new assistant secretary for preparedness and response to oversee medical efforts and called for a National Health Security Strategy. The Act established Biomedical Advanced Research and Development Authority as the focal point within HHS for medical efforts to protect the American civilian population against naturally occurring threats to public health. It specifically says this authority was established to give “an integrated, systematic approach to the development and purchase of the necessary vaccines, drugs, therapies, and diagnostic tools for public health medical emergencies.”
Last year, Congress passed the Pandemic and All-Hazards Preparedness Reauthorization Act of 2013 which keep the programs in effect for another five years.
If you look at any of the information about these pieces of legislation or the office and authorities that were created, this brand new expansion of the federal government was sold to us specifically as a means to fight public health threats like Ebola. That was the entire point of why the office and authorities were created.
In fact, when Sen. Bob Casey was asked if he agreed the U.S. needed an Ebola czar, which some legislators are demanding, he responded: “I don’t, because under the bill we have such a person in HHS already.”
The Invisible Dr. Lurie
So, we have an office for public health threat preparedness and response. And one of HHS’ eight assistant secretaries is the assistant secretary for preparedness and response, whose job it is to “lead the nation in preventing, responding to and recovering from the adverse health effects of public health emergencies and disasters, ranging from hurricanes to bioterrorism.”
In the video below, the woman who heads that office, Dr. Nicole Lurie, explains that the responsibilities of her office are “to help our country prepare for, respond to and recover from public health threats.” She says her major priority is to help the country prepare for emergencies and to “have the countermeasures—the medicines or vaccines that people might need to use in a public health emergency. So a large part of my office also is responsible for developing those countermeasures.”
Or, as National Journal rather glowingly puts it, “Lurie’s job is to plan for the unthinkable. A global flu pandemic? She has a plan. A bioterror attack? She’s on it. Massive earthquake? Yep. Her responsibilities as assistant secretary span public health, global health, and homeland security.” A profile of Lurie quoted her as saying, “I have responsibility for getting the nation prepared for public health emergencies—whether naturally occurring disasters or man-made, as well as for helping it respond and recover. It’s a pretty significant undertaking.” Still another refers to her as “the highest-ranking federal official in charge of preparing the nation to face such health crises as earthquakes, hurricanes, terrorist attacks, and pandemic influenza.”
Now, you might be wondering why the person in charge of all this is a name you’re not familiar with. Apart from a discussion of Casey’s comments on how we don’t need an Ebola czar because we already have one, a Google News search for Lurie’s name at the time of writing brings up nothing in the last hour, the last 24 hours, not even the last week! You have to get back to mid-September for a few brief mentions of her name in minor publications. Not a single one of those links is confidence building.
So why has the top official for public health threats been sidelined in the midst of the Ebola crisis? Only the not-known-for-transparency Obama administration knows for sure. But maybe taxpayers and voters should force Congress to do a better job with its oversight rather than get away with the far easier passing of legislation that grants additional funds before finding out what we got for all that money we allocated to this task over the last decade. And then maybe taxpayers should begin to puzzle out whether their really bad return on tax investment dollars is related to some sort of inherent problem with the administrative state.
The Ron Perelman Scandal
There are a few interesting things about the scandal Lurie was embroiled in years ago. You can—and should—read all about it in the Los Angeles Times‘ excellent front-page expose from November 2011, headlined: “Cost, need questioned in $433-million smallpox drug deal: A company controlled by a longtime political donor gets a no-bid contract to supply an experimental remedy for a threat that may not exist.” This Forbes piece is also interesting.
The donor is billionaire Ron Perelman, who was controlling shareholder of Siga. He’s a huge Democratic donor but he also gets Republicans to play for his team, of course. Siga was under scrutiny even back in October 2010 when The Huffington Post reported that it had named labor leader Andy Stern to its board and “compensated him with stock options that would become dramatically more valuable if the company managed to win the contract it sought with HHS—an agency where Stern has deep connections, having helped lead the year-plus fight for health care reform as then head of the Service Employees International Union.”
The award was controversial from almost every angle—including disputes about need, efficacy, and extremely high costs. There were also complaints about awarding a company of its size and structure a small business award as well as the negotiations involved in granting the award. It was so controversial that even Democrats in tight election races were calling for investigations.
Last month, Siga filed for bankruptcy after it was found liable for breaching a licensing contract. The drug it’s been trying to develop, which was projected to have limited utility, has not really panned out—yet the feds have continued to give valuable funds to the company even though the law would permit them to recoup some of their costs or to simply stop any further funding.
The Los Angeles Times revealed that, during the fight over the grant, Lurie wrote to Siga’s chief executive, Dr. Eric A. Rose, to tell him that someone new would be taking over the negotiations with the company. She wrote, “I trust this will be satisfactory to you.” Later she denied that she’d had any contact with Rose regarding the contract, saying such contact would have been inappropriate.
The company that most fought the peculiar sole-source contract award to Siga was Chimerix, which argued that its drug had far more promise than Siga’s. And, in fact, Chimerix’s Brincidofovir is an antiviral medication being developed for treatment of smallpox but also Ebola and adenovirus. In animal trials, it’s shown some success against adenoviruses, smallpox, and herpes—and preliminary tests show some promise against Ebola. On Oct. 6, the FDA authorized its use for some Ebola patients.
It was given to Ebola patient Thomas Eric Duncan, who died, and Ashoka Mukpo, who doctors said had improved. Mukpo even tweeted that he was on the road to recovery.
Back to that Budget
Consider again how The Huffington Post parroted Collins’ claims:
Money, or rather the lack of it, is a big part of the problem. NIH’s purchasing power is down 23 percent from what it was a decade ago, and its budget has remained almost static. In fiscal year 2004, the agency’s budget was $28.03 billion. In FY 2013, it was $29.31 billion—barely a change, even before adjusting for inflation.
Of course, between the fiscal years 2000 and 2004, NIH’s budget jumped a whopping 58 percent. HHS’s 70,000 workers will spend a total of $958 billion this year, or about $7,789 for every U.S. household. A 2012 report on federal spending including the following nuggets about how NIH spends its supposedly tight funds:
- a $702,558 grant for the study of the impact of televisions and gas generators on villages in Vietnam.
- $175,587 to the University of Kentucky to study the impact of cocaine on the sex drive of Japanese quail.
- $55,382 to study hookah smoking in Jordan.
- $592,527 to study why chimpanzees throw objects.
Last year there were news reports about a $509,840 grant from NIH to pay for a study that will send text messages in “gay lingo” to meth-heads. There are many other shake-your-head examples of misguided spending that are easy to find.
Indeed. The Progressive belief that a powerful government can stop all calamity is misguided. In the last 10 years we passed multiple pieces of legislation to create funding streams, offices, and management authorities precisely for this moment. That we have nothing to show for it is not good reason to put even more faith in government without learning anything from our repeated mistakes. Responding to the missing Ebola Czar and her office’s corruption by throwing still more money, more management changes, and more bureaucratic complexity in her general direction is madness.
Thursday, January 30, 2014 by Reuters – John Kemp
LONDON, Jan 30 (Reuters) – Cutting the cost of everything from salaries and steel pipes to seismic surveys and drilling equipment is the central challenge for the oil and gas industry over the next five years.
The tremendous increase in exploration and production activity around the world over the last ten years has strained the global supply chain and been accompanied by a predictable increase in operating and capital costs.
When oil and gas prices were rising strongly, petroleum producers and their contractors could afford to absorb cost increases.
But as oil and gas production have moved back into line with demand, and prices have stabilized, the focus is switching once again to cost control.
“Operational excellence,” a euphemism for doing more with less, is back in fashion and set to dominate industry thinking for the rest of the decade.
Paal Kibsgaard, chief executive of Schlumberger, one of the largest service companies, has been emphasising “smart fracking” and other ways to raise output and cut costs for two years.
Speaking as long ago as March 2012, Kibsgaard warned: “In the past ten years, exploration and production spend has grown fourfold in nominal terms, while oil production is up only 11 percent.”
“In this environment, we believe our customers will favour working with companies that can help them increase production and recovery, reduce costs, and manage risks,” he added.
Schlumberger’s website and those of its main competitors Halliburton and Baker Hughes all prominently feature technologies and processes intended to cut costs, such as dual-fuel diesel-natural gas drilling and pumping engines.
It is just a small example of profound industry shift from an emphasis on increasing production to controlling spending.
Issuing a shocking profit warning on January 17, Royal Dutch Shell ‘s new chief executive pledged to focus on “achieving better capital efficiency and on continuing to strengthen our operational performance and project delivery.”
On Thursday, the company cut its capital budget for 2014, and announced it was suspending its controversial and expensive Arctic drilling programme.
Shell is catching up with peers like BP and Chevron , as well as perennially tight-fisted Exxon, in promising to stick to a tighter spending regime and return more value to shareholders .
The problem is not unique to oil and gas producers. Miners like BHP Billiton, Rio Tinto and Anglo American have all axed projects and pledged to tighten capital discipline after costs spiralled out of control.
The worst over-runs have been on so-called megaprojects – investments costing over $1 billion, sometimes much more. In fact, the bigger project, the worse the cost overruns and delays have tended to be.
Pearl, Shell’s enormous gas to liquids project in Qatar, is now regarded as a success, but was seriously delayed and went wildly over-budget.
Other megaprojects like Chevron’s Gorgon LNG in Australia and the Caspian oil field Kashagan – which is being developed by an industry consortium including ENI, Shell, Total, Exxon and Conoco – have been similarly late and bust their original cost estimates.
It is convenient, but wrong, to blame poor project management for all the days and cost overruns. Some decisions have been flawed, but on projects of this size and complexity, at least some errors are to be expected.
Megaproject managers in 2013 were not, on the whole, worse than in 2003. Unfortunately, the economic and financial environment has become much less forgiving. When projects start to go wrong it has proved much harder to limit the delays and damage to the budget.
By their nature, megaprojects are so big they strain the global construction and engineering supply chain and pool of skilled labour. Megaprojects create their own adverse “weather,” pushing up the cost of specialist labour and materials worldwide.
Attempting to complete even one or two megaprojects with similar characteristics at the same time can strain the global supply chain to the limit. Attempting to complete several simultaneously is a recipe for severe cost escalation and delays. The multi-commodity boom over the last decade created a “perfect storm” for the megaproject industry.
While there is not an exact overlap, massive offshore oil fields like Kashagan, LNG facilities like Gorgon, floating LNG platforms like Prelude (destined for Australia), gas to liquids plants and even simple onshore shale plays like North Dakota’s Bakken, are all competing for the same limited pool of skilled engineers, construction workers and speciality steels.
The result has been a staggering increase in costs and wages. And once a project falls behind, there is no slack in the system to hire extra workers or procure additional or replacement components to get it back on track.
Supply Chain Responds
Rampant inflation and delays have been worst on megaprojects because they require a much higher proportion of very specialist components and the supply chain is least-elastic.
But even simpler projects like shale oil and gas have been plagued by a rapid rise in costs as they stretch the availability of drillers, rigs and pressure pumping equipment, as well as fracking sand, fresh water and guar gum.
Between the end of 2003 and the end of 2013, the number of employees engaged in oil and gas extraction in the United States increased by 70 percent, from 117,000 to 201,000, according to the U.S. Bureau of Labor Statistics.
Soaring demand for specialised workers has produced an entirely predictable surge in wages.
Employees in North Dakota’s oil, gas and pipeline sectors were taking home an average monthly salary of $9,000 in the fourth quarter of 2012, and staff at support firms were making an average of more than $8,000, according to the latest data from the U.S. Census Bureau.
Their colleagues in Texas were doing even better: average salaries in the oil and gas extraction industry were over $15,000 per month, and $11,000 in pipeline transportation.
That made them some of the best-paid employees in the United States. Only financial services employees in New York ($28,000), Connecticut ($25,000), California ($17,000) and a few other states were routinely making more.
Rising wages and other prices were the only means to ration scarce workers and raw materials. But they were also the only way to attract more workers and supplies into the industry.
It takes a long time to train new drillers, petroleum engineers and construction specialists, and give them the experience needed before they can assume positions as experts and team leaders.
Similarly, the expansion of specialist construction facilities and manufacturing firms for items like oil country tubular goods takes years; and companies will only expand or enter the industry if they are convinced the upturn in demand will be durable rather than fleeting.
While the boom in oil and gas prices dates from around 2003 or 2004, the big expansion of exploration and production spending started much later, around 2006 or even 2007, and it has only filtered down to the labour pool and the rest of the supply chain much more slowly.
It is the long delay between an increase in demand for oil and gas, an increase in production and exploration activity, and an expansion of the whole supply chain, which explain the deep cyclicality of the petroleum industry and mining.
Extreme cyclicality is hard-wired into oil, gas and mining markets. Companies like Shell which have tried to ride through the cycle by ignoring short-term price and cost changes to focus on the long term have eventually been compelled by their investors to fall into line.
In the next stage of the cycle, oil and gas prices are set to remain relatively high but are unlikely to rise much further. For exploration and production companies, increasing shareholder value therefore means increasing efficiency and bearing down on costs, including compensation and payments to suppliers and contractors.
For the supply chain and oil-industry workers, capacity and the availability of skilled labour will continue to expand, while demand is set to stabilise or taper off. Major oil companies and miners have already cancelled some projects. Costs, wages and employment will fall, or at least start rising much more slowly.
Fincantieri, one of the world’s largest shipbuilders, has launched a video showing its drillship design: The Overdrill.
The vessel is the next generation drillship which will enable the drilling contractors to drill to a maximum depth of 50.000 feet.
The design has been developed by joint effort of Fincantieri and Aker Solutions. The OVERDRILL design was first introduced to the public last month during the Offshore Technology Conference in Houston, USA.
During the event, Giuseppe Coronella, EVP of Fincantieri Offshore, stated: “The offshore drilling market is driven, on the one hand, by demand for traditional standard systems and, on the other, by ultra-deepwater exploration demanding innovative solutions. With support from Aker Solutions, Fincantieri has produced a rig design that provides solutions to both these needs”.
- OVERDRILL: The Next Generation of Drillship from Fincantieri (mb50.wordpress.com)
Emilio Lozoya Austin, CEO of Mexico’s state-controlled oil company PEMEX, has visited Keppel Fels shipyard in Singapore, where the company’s two jack-up rigs are under construction, said PEMEX in a press release issued on Wednesday.
The rigs, of KFELS B Class jackup design, are scheduled for delivery in 2015. The two jack-ups, able to operate in water depths of up to 400 feet and drill to depths of 30,000 feet, will be deployed in the shallow waters of the Gulf of Mexico.
During his visit, Lozoya Austin said that PEMEX is undergoing the most ambitious drilling program in decades. He said that the Mexican oil company is working to become an oil company with the world’s highest number of jack-up rigs in operation.
Lozoya Austin also added that, as a part of Pemex’s rig fleet expansion program, eight to twelve new offshore jack-up rigs will be constructed. Pemex currently operates 41 offshore drilling rigs, five of which are semi-submersibles and 36 of those are jack-ups.
The head of PEMEX, the world’s fourth-largest crude producer at 2.5 million barrels per day, also visited the Jurong shipyard SembCorp and SembCorp PPL.
- Keppel Expands Foothold in Mexican Offshore Market with Two Jackup Orders Worth US$420 Million (maritime-executive.com)
- Seadrill’s West Pegasus Sets Deepwater Drilling Record Off Mexico (gcaptain.com)
- McDermott announces $230 million deal with Pemex (fuelfix.com)
- Mexico’s Leftist Party Plans Campaign to Protect State-Owned Pemex (hispanicallyspeakingnews.com)
With the heightened expectations of stakeholders in the aftermath of the Deepwater Horizon incident, Hyundai Heavy Industries (HHI) has listened to its drilling operator clients and designed a new generation of drillship. The new 80k class, heavy duty, wide beam drillship design, HD12000, can drill up to depths of 12,000 feet.
It has greater versatility, strength and more available deck space than its predecessors and has been developed drawing on previous experience of drillships. The HD12000 has an increased beam, which allows for larger and more variable load capacity (up to 24,000 metric tonnes) and reserve buoyancy for heavy duty – with compartment arrangement improvements – as well as being able to accommodate a cylinder rig concept that could be used for bigger derrick load requirements.
The JDP put the wide beam drillship design through design review, ship motion analysis, fatigue and FE analysis. Throughout, and on a global basis, Lloyd’s Register experts in hull structures, marine, mechanical, electrical and drilling systems worked in co-operation with HHI’s lead engineers to review and give feedback on the design development.
At the closing meeting at HHI’s Ulsan shipyard, Gyung-Jin Ha, Executive Vice President, Hyundai Heavy Industries, commented: “HHI and Lloyd’s Register have strong advantages in their own specialised fields, and it is therefore desirable to share experiences with each other and have cooperation between the two companies. HHI will never stop innovating to meet new market demands.”
Lloyd’s Register Drilling Integrity Services specialists in Moduspec were able to provide 25 years of valuable ‘people, systems and equipment’ insight and perspective regarding the drilling systems arrangements, when considering the operational integrity of the proposed design. At 223 metres long, 40 metres wide and 18.5 metres deep, the HD12000 drillship can probe a depth of 40,000 feet below the rotary table and is designed to accommodate the increasing complexity, pressures and sizes of drilling equipment and their handling needs. In addition, the arrangement of mud pumps and riser hold storage inside the hull envelope provides for a large free deck area for tube storage and other equipment, as well as greater flexibility and versatility of operations.
It has fully dynamic, positioning-compliant, station-keeping capabilities, with sufficient power to allow it to maintain position in emergency situations. Efficient The HD12000’s innovative hull form design is based on HHI’s longstanding and accumulated technology on merchant vessels. It enables a high transit speed of 11.5 knots (reduced form resistance with integrated thruster pod to hull) with a reported 40% less fuel consumption, enhanced sea-keeping performance (reduced roll angle by 20%), reduced interaction and thruster efficiency improvement and enhanced DP capability (reportedly 20% less fuel consumption).
A patented thruster canister design allows for in-site inspection and maintenance of the thruster without the need for docking, with reduced non-productive time.
Alan Williams, Lloyd’s Register’s Korea Marine Operations Manager, said: “Lloyd’s Register has been able to clearly demonstrate to a significant customer for drillship construction how it can support them, drawing upon the pool of expertise from across the organisation for that segment. Korea represents the technological coalface for drillship construction, gaining momentum for innovation, and we will continue to play our part. Lloyd’s Register is positioned to fully support the drilling operators and building yards through integrated marine and drilling system specialist teams, working closely with these clients to develop and offer solutions.”
The latest revision of LR’s rules for Mobile Offshore Units utilises the specialist drilling integrity capabilities of Moduspec and WEST, and will incorporate new classification notations for mobile offshore drilling units. These will be released in February.
- South Korea: STX O&S Wins Mega Project Award (worldmaritimenews.com)
- Pacific Drilling: A Growing, Well-Capitalized Offshore Drilling Company (seekingalpha.com)
Helix Energy Solutions Group today announced an oil discovery at the Wang exploration well in the Phoenix Field located in Green Canyon Block 237, approximately 93 miles off the Louisiana coast. The Wang exploration well encountered more than 100 feet of high quality net oil pay.
Johnny Edwards, President of Energy Resource Technology GOM (ERT), a wholly owned subsidiary of Helix, stated, “Preliminary data from down-hole test tools confirmed oil in the Wang well with over 11,800 psi of bottom-hole pressure. We are moving ahead to complete the well.”
The Wang exploration well was drilled to a total depth of approximately 18,300 feet, in water depths of approximately 2,300 feet. The well is currently being completed and will be developed via a subsea tie back system to our Helix-owned Helix Producer I floating production unit. First production from Wang is expected early second quarter of 2013.
The Company recently disclosed it has entered a definitive agreement to sell ERT to Talos Production LLC, a wholly owned subsidiary of Talos Energy LLC, for a base purchase price of $610 million plus contingent consideration. The ultimate success of the Wang exploration well is the primary component of the transaction’s contingent consideration.
ERT (Operator) holds a 70% working interest in the exploration well jointly with Sojitz Energy Venture, Inc., who owns the other 30% working interest.
- Helix Energy sells oil and gas subsidiary to Talos (bizjournals.com)
- Helix to sell oil & gas assets (fuelfix.com)
- Noble Energy Makes Oil Discovery at Big Bend Prospect in U.S. Gulf (mb50.wordpress.com)
Pacific Drilling S.A. has reached an agreement with South Korea’s Samsung Heavy Industries to extend an option to construct an eighth ultra-deepwater drillship until January 18, 2013, on the same commercial terms, including delivery scheduled for the first quarter of 2015.
Pacific Drilling currently operates four recently delivered drillships under customer contract and has three drillships under construction at Samsung, two of which are under customer contract.
Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), Plains Exploration & Production Company (NYSE: PXP) and McMoRan Exploration Co. (NYSE: MMR) announced today that they have signed definitive merger agreements under which FCX will acquire PXP for approximately $6.9 billion in cash and stock and FCX will acquire MMR for approximately $3.4 billion in cash, or $2.1 billion net of 36 percent of the MMR interests currently owned by FCX and PXP. Upon closing, MMR shareholders will also receive a distribution of units in a royalty trust which will hold a 5 percent overriding royalty interest on future production in MMR’s existing shallow water ultra-deep properties.