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Deepwater Horizon: Anatomy Of A Disaster

How Will BP's Macondo Lawsuits Change The Relationship Between Operators And Service Companies?

Contributor: Tim Haïdar, EIC
Posted: 05/26/2011
How Will BP's Macondo Lawsuits Change The Relationship Between Operators And Service Companies?
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On the first anniversary of the blow out at the Macondo well – which led to the death of 11 workers and leaked 4.9 million barrels of oil into the Gulf of Mexico – BP launched no fewer than three lawsuits against its contractors.

From Transocean, the company which owned the Deepwater Horizon rig, BP is looking to gain $40 billion (£24.3 billion), over claims that it acted negligently.

Services firm Halliburton, which provided the cement for the well, and Cameron International, manufacturer of the blow-our preventer, have also had law suits filed against them, although no specific sums have been named.

In response, Transocean and Halliburton both launched cross claims against BP, unleashing a torrent of litigation which is likely to take years to resolve and change the relationship between operators and service companies forever.

Allegations, negligence and name-calling

In its filing against Transocean, BP alleges negligence, claiming the company "materially breached its contractual duties in its actions and inactions", which led to the deaths and resulting oil spill. It says that Transocean failed to spot signs that gas was rising up the drill pipe.

However, this is a point that Transocean disputes, claiming in a statement on its website that this is not in line with arrangements made within its contract.

"Under the drilling contract for Deepwater Horizon, BP has agreed, among other things, to assume full responsibility for and defend, release and indemnify Transocean from any loss, expense, claim, fine, penalty or liability for pollution or contamination, including control and removal thereof, arising out of or connected with operations under the contract," the statement claims.

Halliburton is similarly being accused of negligence. BP claims "improper conduct, errors and omissions, including fraud and concealment" from the company with regard to the cement used, as well as claiming it was "unstable".

Yet, once again, Halliburton said liability was covered in the contract and was simply launching its cross-suit "to enforce the indemnity BP provided to Halliburton in our contract with them."

Completing the trio, Cameron, which is accused of manufacturing a faulty blow-out preventer, said it was "unsurprised" companies are "are filing to protect their indemnity rights (except in the case of BP)."

Implications, reparations and commiserations

The heavy emphasis being placed on the indemnity clauses within their contracts by the three firms suggest the relationship between operators and services companies is likely to be explored in substantial detail during the case.

Analysis by Moody, examined by IHS Insights, suggested that under the United States legal system it's likely that responsibility will be attributed "mainly to those companies that had final decision-making capacity."

If this route is indeed followed, it suggests services companies and operators may do much wrangling in the future over the ultimate decision maker and where liability in this area lies.

Credit Suisse also highlighted it was as yet unknown how the responsibility and the $4.5 billion cost under the Clean Water Act would be shared or charged individually, but the results would have serious future implications.

A note from the company was quoted by Platts as saying: "Clearly, if this latter approach is taken, it will have major implications for activity in the Gulf of Mexico and the operator agreements that currently govern that activity.

"Ultimately, the route taken will become political, given the importance of GoM reserves to United States energy security and jobs."

Much of the lawsuits relating to the spill hinge on who the ultimate responsibility for the incident lies with, which is something which will not be finally determined until the various investigations into the causes are completed.

Anadarko and Mitsui & Co, which both have an interest in the well, have filed a lawsuit against BP in relation to the invoices they received for what the company believes is their proportion of the cleanup costs.

The former has expressed it believes the spill was wholly the fault of BP, and it has clauses in its contract limiting liability in the event of gross negligence, but suggested it would be willing to negotiate on the costs.

Regardless of the outcome, it is clear liability will be high on the agenda with regard to relationships between oil and gas companies in the future and it is too early to understand the complete nature of this change.

Tim Haidar
Contributor: Tim Haïdar, EIC