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BP Can’t Collect Part of Gulf Spill Costs From Transocean

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BP Must Indemnify Transocean for Some Damages in Gulf Spill
Transocean Ltd.'s Development Driller III rig, left, and Development Driller II rig work to drill relief wells at the BP Plc Macondo site in the Gulf of Mexico off the coast of Louisiana, U.S in 2010. Photographer: Derick E. Hingle/Bloomberg

Jan. 27 (Bloomberg) -- BP Plc can’t collect from Transocean Ltd. part of the $40 billion in cleanup costs and economic losses caused by the 2010 oil well blowout and Gulf of Mexico spill, a judge ruled. Transocean shares rose on the news.

BP must indemnify Transocean for pollution-related economic damage claims under its drilling contract, U.S. District Judge Carl Barbier in New Orleans ruled yesterday. London-based BP sued Transocean in April to recover a share of its damages and costs from the spill.

Any awards for punitive damages against Transocean or civil penalties under the U.S. Clean Water Act won’t have to be covered by BP, the judge wrote in his 30-page decision. He didn’t say whether Transocean will be liable for punitive damages or Clean Water Act penalties. Transocean has already accepted responsibility for equipment losses and paying personal injury and death claims, citing contract provisions.

“This confirms that BP is responsible for all economic damages caused by the oil that leaked from its Macondo well, and completely discredits BP’s ongoing attempts to evade both its contractual and financial obligations,” Transocean said in an e-mailed statement. “Transocean is pleased to see its position affirmed, consistent with the law and the long-established model for allocating risks in the offshore oil and gas industry.”

Transocean’s Risk

The decision leaves Transocean at risk for Clean Water Act penalties and possible punitive damages. The U.S. sued BP and Transocean in December 2010, alleging violations of the Clean Water Act, and seeking penalties for each barrel of oil spilled.

“Under the decision Transocean is, at a minimum, financially responsible for any punitive damages, fines and penalties flowing from its own conduct,” BP said in a statement. “Transocean cannot avoid its responsibility for this accident.”

Transocean, based in Vernier, Switzerland, rose as much as 9.3 percent in Zurich, the most intraday in more than five months. The stock was 2.3 percent higher at 44.46 francs at 4:43 p.m. Swiss time.

BP fell 2.3 percent in London to 465.6 pence as of 3:52 p.m. local time.

Halliburton Co., which is seeking a similar indemnification ruling, climbed $1.20, or 3.3 percent, to $37.36 at 11:01 a.m. in New York Stock Exchange composite trading.

Transocean asked Barbier to find that its drilling contract with BP promised indemnification for damages from oil spilled below the surface of the Gulf of Mexico and should be enforced for claims over the Deepwater Horizon accident.

BP argued that Transocean’s conduct voided the agreement.

Deferred Ruling

“BP is required to indemnify Transocean for compensatory damages asserted by third parties against Transocean related to pollution that did not originate on or above the surface of the water, even if the claim is the result of Transocean’s strict liability” or negligence or gross negligence, Barbier wrote in yesterday’s decision.

Transocean said that contract required indemnification even if there was gross negligence. BP disagreed.

Barbier said he would defer ruling on “BP’s arguments that Transocean breached the drilling contract or committed an act that materially increased BP’s risk or prejudiced its rights.”

Eleven Killed

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 spill led to hundreds of lawsuits against BP and its partners and contractors.

Halliburton, which provided cementing services for the project, is also seeking indemnification for compensatory damages. Barbier hasn’t ruled on Halliburton’s request.

“Halliburton has a similar motion pending in the litigation and we look forward to the ruling on that motion,” Beverly Stafford, a company spokeswoman, said yesterday in an e-mail.

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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