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Halliburton Spill Deal Turns Focus on Future BP Decision

Halliburton Co. (HAL)’s agreement to settle most of the lawsuits stemming from its role in the worst offshore oil spill in U.S. history refocuses attention on the still-awaited court ruling that will decide the extent of BP Plc (BP/)’s liability.

U.S. District Judge Carl Barbier, who conducted a nonjury trial over fault for the Gulf of Mexico disaster, is weighing whether BP and its co-defendants Transocean Ltd. (RIG) and Halliburton acted with gross negligence in the 2010 Macondo disaster, which killed 11 men and set back efforts to develop deep-water resources by years. Barbier also is expected at some point to rule on the size of the spill.

The rulings will help define the scale of future payments, which could reach as high as $18 billion, as well as the limits. BP has taken a $43 billion charge for spill cleanup costs and fines and Transocean settled some government claims for $1.4 billion last year. With the settlement announced today, Halliburton resolved most of its liability before Barbier’s decision.

“BP’s done an amazing job at surviving, so I wouldn’t count them out,” said Amy Myers Jaffe, executive director of energy and sustainability at the University of California, Davis. “If something were to dramatically change and their prospects for the future didn’t look good, people would be waiting for a fire sale for a lot of their assets.”

Photographer: Derick E. Hingle/Bloomberg

Smoke billows from controlled oil burns near the site of the BP Plc Deepwater Horizon oil spill in the Gulf of Mexico off the coast of Louisiana, on June 19, 2010. Close

Smoke billows from controlled oil burns near the site of the BP Plc Deepwater Horizon... Read More

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Photographer: Derick E. Hingle/Bloomberg

Smoke billows from controlled oil burns near the site of the BP Plc Deepwater Horizon oil spill in the Gulf of Mexico off the coast of Louisiana, on June 19, 2010.

Halliburton today announced that it would pay $1.1 billion to settle lawsuits in which spill victims asserted that the Houston-based company’s work on the Macondo well was defective. The accident sparked hundreds of lawsuits against London-based BP, Houston-based Halliburton and Vernier, Switzerland-based Transocean, the rig’s owner.

Halliburton’s agreement with plaintiffs underscores “that the fire and explosion aboard the Deepwater Horizon was an accident resulting from multiple causes, involving multiple parties,” a London-based BP spokesman said in an e-mailed statement today. “This settlement marks the very first time -- despite three years of official investigations and litigation implicating the company -- that Halliburton has acknowledged that it played a role in the accident.”

The U.S. government contended BP’s well spewed 4.2 million barrels of oil into the Gulf before it was capped almost three months later. BP estimated the flow at 2.45 million barrels.

If Barbier decides BP acted with gross negligence, and accepts the U.S. estimate of the size of the spill, the company faces a maximum fine for violation of the Clean Water Act of $18 billion. If Barbier rejects gross negligence and accepts the BP estimate, the maximum fine would be $2.7 billion.

Punitive Damages

A gross negligence finding would also expose the company to unspecified punitive damages to claimants who weren’t part of the $9.2 billion settlement BP reached with most non-government plaintiffs in 2012.

Barbier conducted two trial phases in 2013, one on fault and gross negligence, the other on the size of the spill and efforts to contain it. A third penalty phase is set for January to determine the amount of fines.

The Clean Water Act provides a maximum fine of $4,300 per barrel spilled under a finding of gross negligence. The maximum fine facing BP if Barbier rejects gross negligence is $1,100 per barrel. Barbier has already determined that BP is liable under the Clean Water Act for the oil spilled into the Gulf as the owner of the well, triggering the maximum $1,100 per barrel fines even before he ruled on gross negligence.

BP Reserve

BP has reserved $3.5 billion for civil penalties under the Clean Water Act, using its own estimates on oil spilled and based on its “conclusion, among other things, that it did not act with gross negligence or engage in willful misconduct,” the company said in its 2013 annual report.

BP hasn’t increased the reserve, the company said in its most recent quarterly filing.

“The amount and timing of the amount to be paid ultimately is subject to significant uncertainty since it will depend on what is determined” by the New Orleans court on multiple issues, including gross negligence and the amount of oil spilled, BP said in the filing.

The amount will also depend on how Barbier applies penalty factors set in the Clean Water Act, BP said.

Barbier will consider eight criteria in setting the fine, including the seriousness of the violation, the degree of culpability, any history of prior violations, any other penalties for the same incident, and what BP has done to minimize or mitigate the effects of the spill. Under the law, Barbier also has to consider the possible economic impact of any penalty on the company.

BP began an asset sale campaign in 2010 to raise money for the costs and streamline the company, disposing of oil fields in Alaska, natural gas developments in Vietnam and refineries in Texas and California.

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 reporters on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net; Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; Michael Hytha at mhytha@bloomberg.net Steven Frank, Patrick Oster

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