Conclusions by the National Commission on the BP Deepwater Horizon Oil Spill, released yesterday, failed to account for changes BP ordered to the cement just before the April 20 blast, the Houston-based company said in a statement. Halliburton rose in New York trading, after falling 8 percent yesterday spurred by concerns the report may subject the company to increased liability for the spill.
Halliburton, the world’s second-largest provider of oilfield services, has drawn less scrutiny than BP and Transocean Ltd., owner of the rig that blew up, killing 11 workers and setting off the biggest U.S. oil spill. The report may increase Halliburton’s legal risks, said J. David Anderson, an oil-industry analyst with J.P. Morgan Securities LLC in New York.
“Up to now, we didn’t see a significant liability to Halliburton with respect to the blowout, but that may change if the report has a widespread impact,” Anderson said in a note to investors yesterday calling the stock “overweight” based on the new information.
Halliburton rose 18 cents, or 0.6 percent, to $31.86 at 4:15 p.m. in New York Stock Exchange composite trading after yesterday falling the most in five months.
The company was ordered by a federal judge in New Orleans to turn over the cement used on the Deepwater Horizon to investigators from the U.S. Chemical Safety and Hazard Investigation Board. The Oct. 27 order was made public today.
The staff of the presidential commission investigating the blowout released preliminary conclusions based on a review of Halliburton’s documents. Halliburton conducted at least three tests of a mixture, in February and April, showing the recipe wasn’t stable.
“Halliburton and BP both had results in March showing that a very similar foam slurry design to the one actually pumped at the Macondo well would be unstable, but neither acted upon that data,” according to the letter sent to the commissioners from the panel’s chief counsel Fred Bartlit and other staff members.
Separate tests by Chevron Corp., using material supplied by Houston-based Halliburton, couldn’t generate a stable mixture in a laboratory, according to the staff’s letter. Chevron had agreed to conduct the tests for the commission.
In a response to the commission, Halliburton said it got a stable test result on a recipe in April using a formula agreed upon with BP. Later, BP ordered Halliburton to add more of a chemical used to increase the time for cement to thicken before reaching the proper location in the well, Halliburton said. That formula, which wasn’t subjected to a foam stability test, was poured into the well.
“Halliburton believes that significant differences between its internal cement tests and the commission’s test results may be due to differences in the cement materials tested,” the company said yesterday in a statement.
The commission had Chevron test off-the-shelf cement and additives, while Halliburton tested the “unique blend” of cement and additives that existed on the rig at the time Halliburton’s tests were conducted, the company said.
“Further comment on Chevron’s tests is premature and should await careful study and understanding of the tests by Halliburton and other industry experts,” according to the statement.
The evidence that Halliburton knew its cement showed instability before the blowout indicates multiple companies will be liable for damages, said Mike Stag, a New Orleans environmental lawyer suing BP, Halliburton and Transocean.
“This is one of those gotcha moments,” Stag said. “It’s the kind of evidence you hope will show that someone absolutely knew there was a significant problem.”
The evidence may also mean criminal fines for Halliburton if the U.S. Justice Department reaches the same conclusions, said David Uhlmann, former head of the department’s environmental crimes division.
“They don’t face the same level of fines as BP does,” Uhlmann said. “BP will likely pay billions in criminal penalties and billions more in civil penalties, while Halliburton’s penalties may run into hundreds of millions, at most $1 billion or $2 billion.”
Credit-default swaps on Halliburton surged 27.9 basis points to 115.13 at 12:35 p.m. in New York, the most since June, according to data provider CMA. Investors use credit-default swaps to protect from losses on corporate debt or to speculate on creditworthiness.
Halliburton has said BP’s well design, rather than the composition of its cement, was at fault in the blowout that sank a $365 million vessel and spewed almost 5 million barrels of crude into the sea.
“The fact that BP and Halliburton knew this cement job could fail only solidifies their liability and responsibility for this disaster,” Representative Edward Markey, chairman of the House Energy and Commerce Committee’s Energy and Environment Subcommittee, said in a statement yesterday.
“This is like building a car when you know the brakes could fail, but you sell the cars anyway,” said Markey, a Massachusetts Democrat who asked BP’s new chief executive officer, Robert Dudley, to testify at a House hearing. Dudley has declined to appear.
The national commission is headed by former U.S. Senator Bob Graham, a Florida Democrat, and William Reilly, a former chief of the U.S. Environmental Protection Agency. The panel will hold hearings on the preliminary findings of its investigation in Washington Nov. 8 and Nov. 9.
Two tests Halliburton conducted in February using slightly different slurry recipes and a different well design showed the cement would be unstable, the commission staff said. While Halliburton provided data from one of these tests to BP in March, there’s “no indication that Halliburton highlighted to BP the significance of the foam stability data,” the staff said.
The company used slightly different lab protocols in a test seven days before the blowout and once again found it was unstable, the staff said.
A final test using a modified testing procedure showed the cement would be stable, the staff said. It’s not certain whether Halliburton discussed these results internally or whether any changes were made before the blowout, and BP didn’t have the findings before the evening of April 19, according to the letter.
Halliburton has stated publicly that tests conducted on the Macondo well cement before pumping it on April 19 and April 20 indicated it would be stable, according to the letter.
Halliburton probably fulfilled its contractual duty by alerting BP that one of the tests failed, even if it withheld or neglected to mention the two other failures, said Jeffrey Spittel, an oil-industry analyst at Madison Williams & Co. in Houston. The finding may show BP acted carelessly by ignoring the bad test result the company did receive, Spittel said.
“It’s damning evidence regarding BP’s conduct,” Spittel said yesterday in a telephone interview. “It’s ultimately up to the operator to make the final go or no-go decision on the cement job.”
BP’s internal investigation of the disaster reached conclusions almost identical to yesterday’s report concerning the instability of Halliburton’s cement. In a Sept. 8 report on the probe, BP said tests conducted by CSI Technologies on a similar recipe found the cement “was likely unstable.”
The BP report criticized the company’s own engineers and managers for failing to properly test the cement after it was poured to ensure the well had been sealed off from surrounding oil-soaked rock.
Halliburton is the second-largest oilfield-services company after Schlumberger Ltd.