Bloomberg News

BP Praised Halliburton Work on Gulf Oil Rig, E-Mails Show

February 27, 2013

BP Plc (BP/) officials praised Halliburton Co. (HAL:US)’s cement work on the Deepwater Horizon oil rig just hours before the drilling platform exploded and sent oil spilling into the Gulf of Mexico in 2010, according to e-mails made public in court.

BP supervisors overseeing the Macondo well off the coast of Louisiana said the Halliburton crew’s work cementing the drilling line in place “went well,” according to an e-mail sent in the early hours of April 20, 2010. An uncontrolled surge of natural gas caused the Deepwater Horizon drilling rig to blow up more than 15 hours later, court filings show.

In another e-mail, BP officials said Halliburton’s “cement team did a great job,” according to the note made public as part of a trial over claims tied to spill. Halliburton’s lawyers introduced the e-mails to counter BP’s arguments that the cement contractor’s actions contributed to the rig’s failure.

After hearing evidence in the trial, U.S. District Judge Carl Barbier in New Orleans will decide who is liable for damages tied to the largest offshore spill in U.S. history and whether BP, Transocean or other companies that worked on the project were grossly negligent in their handling of the rig and well. His ruling on that issue will affect how much each company may have to pay.

Gross Negligence

The Deepwater Horizon explosion rig killed 11 workers and sent more than 4 million barrels of oil spewing into the Gulf. The accident sparked hundreds of lawsuits against London-based BP, Vernier, Switzerland-based Transocean Ltd. (RIG:US), owner of the rig, and Houston-based Halliburton Co., which handled cement work on the well.

For BP, the well’s owner, a finding of gross negligence would mean the company is liable to the U.S. for as much as $17.6 billion in Clean Water Act fines, as well as unspecified punitive damages to claimants who weren’t part of the $8.5 billion settlement the company reached last year. For Transocean and Halliburton, a gross negligence finding would mean they could be held liable for punitive damages.

Lawyers for the government and spill victims contend that BP was overbudget and behind schedule for the Macondo well and that prompted officials to cut corners and ignore safety tests that showed the well was unstable.

Inadequate Training

They also alleged Halliburton’s cement job was defective and Transocean officials disabled safety systems on the rig, failed to properly maintain the platform and never adequately trained its well crew to handle crisis situations.

BP sued its contractors, claiming Transocean employees’ miscues on the rig were the main cause of the explosion and that Halliburton concealed flaws with cement work done on the drilling line. Transocean and Halliburton pointed fingers back at BP.

Donald Godwin, one of Halliburton’s lawyers, asked Lamar McKay, the former head of BP’s U.S. unit, whether the oil company was seeking to shift responsibility for the explosion to Halliburton.

“I don’t think we were blaming anybody,” said McKay, who is now the head of BP’s oil exploration and production around the world.

An investigation of the disaster “found 8 key factors” that played a role in the explosion, McKay said. Investigators cited the work of some of the contractors, including Halliburton, as playing a role, he said. “I would not say that is blame. I would say that is what the investigation came up with,” McKay added.

Defective Cement

McKay also said the e-mails cited by Halliburton related to the crew’s pumping of the cement into the well, but not the material’s formulation. BP contends the cement mix was defective and didn’t provide the proper barrier to help stop gas surges.

Experts who reviewed the rig explosion at the behest of spill victims pinpointed a cost-cutting push by BP as contributing to safety system failures that allowed the disaster to occur. That prompted BP crews to forgo standard safety tests on rigs, the plaintiffs’ contend.

Kevin Lacy, a former BP official who oversaw drilling operations, testified there were repeated “directives to cut costs” for two years prior to the explosion of the Gulf rig.

‘Tremendous Pressure’

“I was never given a directive to cut corners or deliver something unsafe, but there was tremendous pressure to cut costs,” Lacy said in a video deposition. BP managers encouraged him to cut as much as $350 million in costs in 2009 alone, he said.

Tony Hayward, BP’s former chief executive officer, acknowledged that he started a cost-cutting effort when he took over in 2007. Hayward said he emphasized “reducing overhead” and changing “overly complicated” business operations.

Still, the former CEO said that he continued to emphasize the oil company must engage in “safe and reliable operations” while keeping a closer eye on costs.

Hayward stepped down in September 2010 as part of the fallout from the rig explosion and oil spill. The executive faced public anger in the U.S. and criticism from lawmakers over his handling of Deepwater Horizon disaster. The executive drew the ire of spill victims after he told a reporter “I’d like to have my life back” weeks after the incident.

The trial, initially set to begin last March, was rescheduled after BP reached a settlement with most individual and other so-called private-party plaintiffs.

Claims Excluded

The settlement, which isn’t capped, is estimated at $8.5 billion by BP and excludes claims of financial institutions, casinos, private plaintiffs in parts of Florida and Texas, and residents and businesses claiming harm from the deep-water drilling moratorium.

It also didn’t cover federal government claims and Gulf Coast states Louisiana and Alabama, or lawsuits against defendants. BP has said the states are claiming at least $34 billion in damages.

The U.S. government sued BP and Transocean in 2010 for violations of the Clean Water Act and the Oil Pollution Act, seeking fines, cleanup costs and natural-resources damages.

Last month, Transocean pleaded guilty to a misdemeanor Clean Water Act violation and agreed to pay $1.4 billion, including $400 million in criminal penalties. The company said then it hadn’t settled natural-resource damages claims.

Guilty Plea

BP pleaded guilty to 14 federal charges, including 11 manslaughter charges over the death of the rig workers as part of the plea. It also admitted it misinterpreted a critical safety test just before the explosion. It agreed to pay $4 billion in fines and penalties, plus $525 million to settle a U.S. Securities and Exchange Commission claim that the company underestimated the size of the spill.

Barbier ruled Feb. 21 the plaintiffs couldn’t use some documents spelling out federal prosecutors’ allegations against BP and indictments of three company employees as evidence in the civil case.

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: Jef Feeley in New Orleans federal court at jfeeley@bloomberg.net; Allen Johnson Jr. in New Orleans federal court.

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


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Companies Mentioned

  • HAL
    (Halliburton Co)
    • $54.43 USD
    • -1.23
    • -2.26%
  • RIG
    (Transocean Ltd)
    • $29.42 USD
    • -1.06
    • -3.6%
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