Bloomberg News

BP Battles U.S., Transocean Over Gulf Spill Rate Claims

March 01, 2013

Transocean Ltd. (RIG:US), seeking to avoid liability in the Gulf of Mexico spill trial, claimed BP Plc (BP/) misrepresented the amount of oil that gushed from its blown-out Macondo well, prolonging the catastrophe by 60 days.

The claim by BP’s codefendant came after the first week of a three-month trial, and one day after BP sought to bar the U.S. government from seeing related communications with its lawyers. The April 2010 blow-out caused the Deepwater Horizon oil rig to explode, killing 11 workers. Transocean, the rig’s owner, claimed in a filing yesterday in New Orleans federal court that BP’s misrepresentations of the spill-rate breached its drilling contract. The U.S., meanwhile, wants some BP lawyer files that are tied to the U.K.-based company’s spill-rate calculations.

BP’s liability in the case will turn in part on the size of the offshore spill, the worst in U.S. history, and whether its conduct was negligent or grossly negligent. If the latter is determined by the judge, the company may be liable to the U.S. for as much as $17.6 billion and unspecified punitive damages to claimants not part of an $8.5 billion civil accord last year.

For Transocean and Halliburton Co. (HAL:US), which was responsible for cement services at the well, a similar finding in the trial would mean they could face punitive damage awards.

Also yesterday, the U.S. Court of Appeals in New Orleans reversed a decision by U.S. District Judge Carl Barbier barring BP from using $750 million of Transocean’s insurance coverage to pay costs from the spill. Barbier had ruled that the drilling contract between the companies for the Macondo well precluded BP from seeking coverage under the Transocean policies for pollution-related liabilities.

Civil Claims

BP is in negotiations to settle the civil case with the U.S. and Gulf states affected by spill, according to a person familiar with the situation who asked not to be named because they aren’t authorized to discuss the talks. BP pleaded guilty last year to 14 criminal counts, including one charge of lying to Congress about the size of the spill. The company agreed to pay $4 billion in fines and penalties.

Transocean, in yesterday’s filing, is seeking to avoid liability by placing the blame on BP. During the accident, BP recommended a series of well-control measures to U.S. regulators that were prioritized in part on BP’s estimates of how much oil and gas was flowing from the well. BP’s allegedly faulty estimates caused workers to attempt a so-called “top kill” plan, which failed, before they implemented an alternative plan that ultimately succeeded in stopping the well, Transocean said.

‘BOP-on-BOP’

“Had the alternative source control approach -- known as the BOP-on-BOP -- been attempted instead of the doomed top kill effort, the well could have been capped in mid-May, rather than in mid-July,” Transocean’s lawyers said in the filing. “In short, BP’s tortuous and criminal conduct caused the oil spill to last for two months longer than necessary.”

Scott Dean, a spokesman for BP, declined to comment on the case. Wyn Hornbuckle, a spokesman for the Justice Department, declined to comment on Transocean’s filing. But in an e-mail yesterday, he pointed to BP’s guilty plea where the company admitted that a senior executive publicly downplayed flow-rate estimates at 1,000 to 5,000 barrels a day while having access to “significantly higher” calculations generated internally by BP’s engineers.

A team of government experts later concluded the well was leaking more than 60,000 barrels per day. In documents produced in various BP criminal cases tied to the spill, company engineers discuss the odds that “top-kill” will fail if the flow rate exceeded 15,000 barrels daily.

‘Core Breach’

Transocean claimed BP’s misrepresentations about the volume of the spill “constitutes a core breach” of the Deepwater Horizon’s drilling contract. That breach, company attorneys said in the filing, “as a matter of law nullifies BP’s defenses and limitations to damages under the contract.”

Transocean seeks recovery of direct damages, including “loss of profits and loss of the vessel and its equipment and reimbursement of settlements paid to or on behalf of its employees,” according to the filing.

BP, in its filing Feb. 28, asked the court to block a government request to make public internal communications with the company’s lawyers.

The documents, which BP said are protected by attorney- client privilege, detail oil spill flow-rate calculations the U.S. claimed are related to BP’s guilty plea.

The energy company claimed the documents don’t relate to the specific criminal conduct admitted in its plea. BP said that turning the documents over would give the U.S. “unwarranted tactical advantages from BP’s acceptance of responsibility.”

Preparing Report

“Just because a lawyer is part of the process of preparing a report that includes false or fraudulent statements does not mean the attorney’s professional services were rendered in furtherance of fraudulent purposes,” BP’s lawyers said in the filing. The privilege can’t be automatically stripped “every time a lawyer is involved in a process of providing information to the government that might later turn out to be false.”

The government asked Barbier, who presides over the case, to use the so-called crime-fraud exception to force the company to hand over documents. They relate to three U.S. Securities and Exchange Commission filings BP made shortly after the April 2010 spill.

The government also seeks internal papers concerning BP’s communications with Congressional investigators and U.S. Coast Guard officials overseeing BP’s attempts to stop, and clean up, the spill.

“Because BP used its attorneys to aid in its wrongdoing, it can no longer claim privilege with respect to communications related to developing the flow-rate information and communications forming the basis of BP’s false and misleading statements,” the U.S. said in a Jan. 29 filing.

Active Participation

BP said the government may be entitled to company e-mails and reports that were sent with the active participation of former BP Exploration Vice President David Rainey, who has been charged with two counts of obstruction. Rainey has pleaded not guilty and is awaiting trial.

The company agreed to give the judge sealed copies of communications in which Rainey “is an active participant and that relate to the matters in BP’s guilty plea allocution.”

BP also will provide Barbier with sealed copies of additional communications the government seeks which BP said aren’t directly linked to Rainey or to the conduct the company admitted in its plea.

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: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

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


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Companies Mentioned

  • RIG
    (Transocean Ltd)
    • $25.52 USD
    • 0.16
    • 0.63%
  • HAL
    (Halliburton Co)
    • $49.21 USD
    • 0.78
    • 1.59%
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