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This Day in History: The Deepwater Horizon Disaster and Reagan's Social Security Rescue

Saturday - 4/20/2013, 6:00pm  ET

On this day in economic and business history ...

A thick, black cloud of smoke rose from the Gulf of Mexico on the evening of April 20, 2010. A fierce explosion had ripped through the Deepwater Horizon oil rig parked near the Mississippi River Delta, engulfing the rig in a fireball seen 35 miles away and killing 11 of the 126 crewmen on board. The burning rig would continue to burn for 36 hours, resisting all attempts to extinguish it, before finally sinking into the sea on April 22. By this point, BP , the primary rig operator, was already anticipating a leak of 1,000 barrels of crude per day into the Gulf. Other authorities offered much higher estimates -- a Coast Guard officer gave CNN an 8,000 barrel-per-day figure for the leak.

It was not the first time that BP's Macondo well (the site Deepwater Horizon was drilling) ran into problems. The previous fall, rig owner Transocean was forced to replace a different drilling platform with Deepwater Horizon after Hurricane Ida left it too damaged to continue work. By the start of April, the Macondo project had already turned up several concerns. An accident had damaged part of the rig's blowout preventer -- an essential part of any drilling operation, designed to prevent catastrophic eruptions -- in March. Services contractor Halliburton had warned BP that its methods ran counter to established drilling practices, and some of BP's own engineers expressed concern over the "nightmare well." BP and Halliburton had several major arguments, since well documented by the press, over the former's safety practices and fail-safe efforts. Even so, it's unlikely that any but the gloomiest engineer could have foreseen the catastrophe that would occur on April 20.

The Deepwater Horizon disaster captured America's (and the world's) attention for months. Within days of the rig's sinking, an oil slick hundreds of square miles in size had spread across the Gulf of Mexico. Cleanup efforts raced against the clock to contain the uncontrolled flow of oil away from ecologically sensitive coasts, and President Obama issued a moratorium on new Gulf drilling. Several efforts to cap and control the leak failed, and BP executives (particularly then-CEO Tony Hayward) created a self-inflicted public relations disaster by saying the wrong things at the wrong times, over and over. By mid-May, the leak was thought far larger than previously estimated, and new spill projections ranged from 20,000 to 100,000 barrels per day.

It was not until mid-September that the Macondo spill was considered permanently closed, although oil continued to appear on the surface of the water for nearly three more years -- and may still appear in the future before all is said and done. Nearly 5 million barrels of oil are thought to have spilled from the damaged Macondo well, which makes it by far the largest accidental offshore oil spill in human history.

From the time Deepwater Horizon caught fire to the time the spill was brought under control in July, Halliburton lost 15% of its value and both BP and Transocean saw their shares slide more than 35% lower. Only Halliburton has since seen its share price recover in the three years following the first day of the disaster. Thus far, BP has agreed to billions of dollars in penalties and settlements, including a $4.5 billion settlement for criminal obstruction of justice that ranks as the largest corporate criminal penalty in U.S. history, and a nearly $8 billion settlement for damage done to Gulf Coast businesses. If BP is found liable for all the violations it's charged with, it could wind up paying out $90 billion for the spill -- but by most estimates, BP will pay less than half that amount before all is said and done.

The other side of the oil-drilling coin
More than a century before Deepwater Horizon, on April 20, 1893, a pair of Los Angeles prospectors discovered one of the West Coast's largest oilfields. The discovery was right in the middle of Los Angeles -- in fact, it's near the current site of Dodger Stadium -- and it created one of the earliest California oil booms. Four years later, the Los Angeles skyline looked very industrial indeed, with more than 500 oil wells dotting the landscape. By the time the Roaring '20s came around, the Los Angeles oilfield was one of the largest producers in the world, contributing the lion's share of the oil that went toward making California a supplier of half the world's crude.

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