Firms in gulf drilling are working to limit liability in spill

By David S. Hilzenrath and Kimberly Kindy
Friday, June 25, 2010; A03

As BP opens its checkbook to pay damages related to the Gulf of Mexico oil spill, it is beginning to do battle over a high-stakes question: Who else bears liability?

Some of the companies involved in the drilling operation are laying the groundwork to argue: Not us.

In recent regulatory filings and other statements, they deflect responsibility, setting the stage for what is likely to be a years-long legal battle over corporate liability. The potential disputes have been percolating even as experts rush to contain the well, which late Wednesday was recapped after an earlier mishap forced removal of a containment device used to stem the flow.

Halliburton, a project contractor, says in its public statements about the rig disaster that it was following instructions from the well owner, a group led by BP. Transocean, which leased the rig to BP, says it was liable only for surface spills -- not those emanating from the sea bottom. Venture partner Anadarko Petroleum implies that it might be off the hook because BP probably engaged in "gross negligence or willful misconduct." Schlumberger, another contractor, says it is figuring out if it is contractually insulated from liability.

"The responsibility for this event will be debated for some time, and there is a lot of confusion around where liabilities begin and end," said Bart Nash, a spokesman for the London-based Lloyd's marketplace, whose insurance syndicates face hundreds of millions of dollars of losses.

Those in line for payment include workers who escaped when the Deepwater Horizon rig burned April 20 -- and survivors of the 11 crew members who perished. Disclosures from several firms sued alongside BP indicate that their insurance coverage pales beside the potential costs.

Robert P. Hartwig, president of the Insurance Information Institute, said companies involved in the project had "limited insurance in place" and estimated total coverage of $1.5 billion to $3.5 billion. BP was essentially uninsured for disasters such as the gulf blowout, relying on its formidable profits and cash reserves to cover its costs.

Looking beyond BP

Early maneuvers are underway in federal courts to sort out liability, and lawyers representing spill victims say they will look beyond BP for compensation.

"There are dozens of companies that played a role in this disaster and hundreds of people who may be liable," said Florida lawyer Mike Papantonio, who represents fishermen, beach-rental owners and other businessmen.

Although BP has vowed to clean up the mess and has set up a $20 billion victim-compensation fund, it also has signaled that it isn't letting others off the hook.

An early legal test involves Transocean, the Swiss company that owned the Deepwater Horizon rig and helped run it. BP sent correspondence last month staking claims to Transocean's insurance, but the insurers have asked a federal judge in Houston to declare that they are beyond BP's reach. They say that under the contract, Transocean's reponsibility involves leaks "originating above the surface of the land or water."

Transocean took a similar position after the Coast Guard served notice April 28 that one of its subsidiaries was a "responsible party." Transocean said in a securities filing that it has no such responsibility because discharges "are occurring nearly a mile below the surface of the water."

The insurers contesting BP's claims in the Houston court have written policies for Transocean totaling $750 million. The company has about $1 billion of liability insurance.

Potential defenses

Several companies linked to the operation have disclosed their connection in investor reports, describing to varying degrees their potential defenses, insurance coverage and loss exposure.

Halliburton, an oil services company, said in a securities filing that its work was "in accordance with the well owner's instructions."

Halliburton, which carries about $600 million in insurance, said its contracts indemnify it against "all potential claims and expenses" -- except those for its employees and property. In an investor briefing, a Halliburton executive qualified that explanation, saying the company faces damages if proved grossly negligent.

Cameron, manufacturer of the rig's critical blowout preventer, reported that it has insurance totaling about $500 million. Cameron said in a securities filing that it was too early to measure potential liability.

BP's partners in the venture were Anadarko, with a 25 percent stake, and a subsidiary of Mitsui, with a 10 percent stake.

Mitsui said in a regulatory filing that it is too soon to gauge the spill's impact.

Anadarko fired a rhetorical shot at BP last week, saying the tragedy resulted from BP's recklessness.

BP's contract with Anadarko says the companies bear responsibility for damages in proportion to their stake. But it adds that each party bears sole responsibility for damages resulting from its own "gross negligence or willfull misconduct."

Anadarko said BP's actions probably met that test, but BP countered that the partners agreed to share the cost of cleaning up "any spill."

Anadarko chairman and chief executive James T. Hackett said in a statement "that ultimately we have obligations under federal law" but that his company "will look to BP to continue to pay all legitimate claims."

The Moody's debt rating agency has downgraded Anadarko, citing the company's "relatively small liability coverage of $178 million." Anadarko's ultimate liability "rests on its yet-untested ability to prove that BP was negligent, and that Anadarko should be held blameless," Moody's wrote.

Weatherford International, which helped place piping in the well, has been named as a defendant in lawsuits and as a "party-in-interest" in an investigation by the Coast Guard and the Bureau of Ocean Energy. It has made no explicit reference to the disaster in recent securities filings, and a Weatherford spokesman said the company declined to comment.

As companies argue over responsibility, they could be providing ammunition for lawyers pursuing suits on behalf of spill victims. Sidney Jackson, an Alabama lawyer who has sued BP, Transocean, Halliburton Energy Services, and Cameron, said recent congressional testimony by company executives will become a part of lawsuits.

"I don't think they were thinking about how their finger pointing could play out," Jackson said. "They were under oath, and that is admissive evidence."

Research editor Alice Crites contributed to this report.

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