Transocean Ltd. (RIG) said its internal investigation found BP Plc (BP/) was largely responsible for last year’s fatal drilling catastrophe in the Gulf of Mexico and reiterated its refusal to help BP pay claims stemming from the worst U.S. offshore oil spill.
Transocean, owner of the Deepwater Horizon rig that was destroyed in the April 2010 blowout of BP’s Macondo well, said today in a statement that the disaster resulted from BP’s faulty decision-making and inadequate attention to risk management.
BP employed a risky well design and skimped on heavy drilling fluids needed to hold back high-pressure natural gas surrounding the hole more than a mile (1.6 kilometers) beneath the Gulf, Vernier, Switzerland-based Transocean said. BP and contractor Halliburton Co. (HAL) failed to ensure that cement poured around the steel pipe inside the well properly sealed off the formation, Transocean said.
The report demonstrates that Transocean remains steadfast in its refusal to help London-based BP cover tens of billions in dollars in lawsuit claims, environmental fines and other penalties, Phil Adams, a senior debt analyst at Gimme Credit LLC in Chicago, said in a telephone interview.
“If anything, these findings bolster Transocean’s position that it is indemnified from liability in the contract” with BP, Brian Kennedy, a Transocean spokesman, said in a telephone interview.
In response, BP released a statement describing the report as “an advocacy piece” and said Transocean “cherry-picked” facts to support its legal strategy. “Unlike BP, which has stepped up to its responsibilities and cooperated with all official investigations regarding the accident, Transocean continues to take every opportunity to avoid its responsibilities,” the company said.
Passing the Blame
MOEX Offshore 2007 LLC, a part owner of the well, and equipment provider Weatherford International Ltd. already have settled with BP. Halliburton and Anadarko Petroleum Corp. (APC), which also owns a stake in the well, have rebuffed BP’s demands for payment.
The report is the latest salvo between Transocean and BP over who was to blame for the catastrophe 40 miles off the Louisiana coast that killed 11 rig workers, sank the $365 million vessel and fouled the Gulf of Mexico with more than 4 million barrels of crude.
Deep-water exploratory drilling was halted for 10 months in a region that accounted for 29 percent of U.S. crude production in 2009, and prompted a government overhaul of offshore safety rules.
‘Grain of Salt’
“Investors should take any internal report a company puts out with a huge grain of salt,” Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston, said today. “What companies say about each other should be seen as inherently biased. That’s not to say their conclusions are necessarily wrong, but the market isn’t going to place a lot of credibility in them.”
BP Chief Executive Officer Robert Dudley said at a conference in London earlier today that a June 20 agreement by Weatherford International Ltd. (WFT) to pay $75 million to cover its liability for the disaster shows BP was not solely responsible. Weatherford, based in Geneva, provided pressure-control valves and other equipment used in the well.
BP in September issued an internal report that said most of the fault for the catastrophe laid with Transocean, Halliburton and Weatherford. BP managers had direct involvement in just one of eight judgment errors and equipment failures that led up to the explosion, the company said in its report.
MOEX, owner of a 10 percent stake in the well, agreed last month to pay BP $1.07 billion to settle claims from the explosion and spill. Mitsui & Co. owns a 69.91 percent stake in MOEX’s parent, with the rest held by Japan’s government and 13 Japanese companies.
Anadarko, based in The Woodlands, Texas, has said it’s “prepared to come to the table under the right circumstances” to resolve liability claims.
Halliburton’s work on the well was completed in accordance with BP’s specifications, Teresa Wong, spokeswoman for the Houston-based company said in an e-mail today.
“Deep-water operations are inherently complex and a number of contractors are involved which routinely make recommendations to a single point of contact, the well owner,” she said.
Transocean faulted BP for changing its plans for Macondo five times in the two weeks preceding the blowout. The revisions were prompted by concern the rock formation was growing increasingly unstable and that the “geological window” for safe drilling was narrowing, according to the statement.
“The precipitating cause of the Macondo incident was the failure of the downhole cement to isolate the reservoir, which allowed hydrocarbons to enter the wellbore,” Transocean said in today’s statement. “Without the failure of the cement barrier, hydrocarbons would not have entered the well or reached the rig.”
Even with a Transocean bias, the report is “pretty convincing,” Adams said today in a note to clients. The assertion that BP was worried the well could collapse, threatening future oil production, “seems particularly compelling.”
The National Commission on the BP Deepwater Horizon Oil Spill, the president’s group investigating the cause of the accident, said in January that bad decisions by BP and its main contractors, including Transocean, along with lax government oversight, caused the incident.
“What matters are the findings of independent, outside investigators,” said Molchanov, who has an “outperform” rating on BP’s shares and doesn’t own any. The findings of a joint U.S. Coast Guard-Interior Department panel, scheduled to be released by July 27, will be closely watched by investors, he said.
Transocean said its report doesn’t represent the company’s legal position, nor does it “attempt to assign legal responsibility or fault.”
Transocean rose 19 cents to $62.08 at 4:15 p.m. in New York Stock Exchange composite trading. BP fell less than a pence to 445.3 pence on the London Stock Exchange at 4:50 p.m.
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