BP Must Cover Some Halliburton Gulf Spill Costs, Judge Says

BP Plc (BP) must cover some of any direct damage claims awarded against Halliburton Co. (HAL) for the $40 billion in cleanup costs and economic losses caused by the 2010 oil-well blowout and Gulf of Mexico spill.

BP must indemnify Halliburton for compensatory damage claims under its drilling contract, U.S. District Judge Carl Barbier in New Orleans ruled today. London-based BP sued Halliburton, which provided cementing services for the project, in April to recover a share of any damages and costs from the spill. Any punitive damages awarded against Halliburton don’t have to be paid by BP, the judge said.

“BP is required to indemnify Halliburton for third-party compensatory claims that arise from pollution or contamination that did not originate from the property or equipment of Halliburton located above the surface of the land or water, even if Halliburton’s gross negligence caused the pollution,” Barbier wrote.

Any civil penalties under the Clean Water Act against Houston-based Halliburton also won’t have to be covered by BP, Barbier said. The judge said he wouldn’t express an opinion on whether Halliburton would be held liable for punitive damages or Clean Water Act fines.

Barbier has scheduled a nonjury trial to begin Feb. 27 to determine fault for the explosion. Trials to determine damages haven’t been scheduled yet.

Today’s decision follows an earlier ruling that BP must indemnify Transocean Ltd. (RIG), owner of the Deepwater Horizon rig that exploded and sank. The Transocean ruling also didn’t cover fines or punitive damages.

Fraud Claim

Barbier said he wouldn’t rule yet on BP’s claim that Halliburton committed fraud by concealing material information about the cement tests it conducted. A ruling against Halliburton on this issue may put the company back on the hook for damages.

“Fraud could void an indemnity clause on public policy grounds, given that it necessarily includes intentional wrongdoing,” Barbier said. “There are material issues of fact that preclude summary judgment on this issue.”

The two indemnity rulings “should put an end to the attempts by Transocean and Halliburton to avoid their obligations,” BP said in a statement.

Punitive Damages

“Halliburton is, at a minimum, responsible for any punitive damages as well as civil penalties to the extent that they may apply under the Clean Water Act,” BP said. “Moreover, the court determined that if Halliburton is found to have committed fraud, then the indemnity could be void.”

BP said it has paid more than $7.8 billion in claims, advances and other payments to individuals, businesses and government.

“Halliburton agrees with the ruling to the extent that it requires BP to honor its contractual indemnity obligations,” Beverly Stafford, a spokeswoman for Halliburton, said in an e-mail.

BP rose $1.77 to $45.91 at 3:54 p.m. in New York Stock Exchange composite trading. Halliburton climbed 11 cents to $36.78. Earlier the shares rose as much as 3.5 percent to $37.95.

The April 2010 Macondo well blowout and the explosion that followed killed 11 workers and set off the worst offshore oil spill in U.S. history. The sinking of Transocean’s Deepwater Horizon drilling rig and the spill led to hundreds of lawsuits against BP and its partners and contractors.

Gulf Property

Thousands of property owners and businesses along the Gulf of Mexico are claiming economic and environmental harm from the spill. The coastal states of Louisiana, Alabama and Mississippi have also sued the companies. The lawsuits are consolidated for pretrial processing by Barbier in New Orleans.

Halliburton asked Barbier in November to find that the drilling contract required BP to indemnify the company “for any and all claims related to a blowout or uncontrolled well condition and for any and all claims relating to pollution and/or contamination from the reservoir.”

BP (BP/) called Halliburton’s motion for indemnity “fatally premature.” Claims about Halliburton’s conduct “remain to be resolved at trial,” including whether the company “was grossly negligent or committed fraud by making false statements and concealing test results before it used a defective cement slurry on the Macondo well,” BP said in a Dec. 21 filing.

‘Intentional Torts’

The terms of the indemnity provisions in the contract between the companies “do not cover intentional torts or willful misconduct such as fraudulent concealment,” BP said.

“Halliburton denies that it committed fraud, but also argues that BP’s allegations are merely breach of contract claims cloaked as fraud,” Barbier said in today’s ruling. Failure to perform contractual obligations as promised isn’t fraud, Barbier said.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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