Halliburton: BP Contract Offers Gulf Oil Spill Liability Protection, Analysts Say
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Halliburton Co. should be protected by its contract with BP from having to pay for most damages for the Gulf oil spill despite new concerns about the cement mix used to seal BP's ill-fated well, two analysts said Friday.
Shares of Halliburton gained 18 cents to close at $31.86 a share, a day after they plunged 8 percent when the oil services company acknowledged skipping a critical test of the cement.
Argus Research analyst Phil Weiss said investors may have seen the previous day's plunge – and Friday's lower opening – as an opportunity to buy the stock.
The cementing process Halliburton used on BP's well is part of the investigation into what caused it to rupture April 20, killing 11 workers and causing an environmental disaster in the Gulf.
The president's oil spill commission said Thursday that Halliburton conducted four tests on the cement to be used on the Deepwater Horizon rig. Only one showed the mix would hold.
Halliburton, which has blamed BP's well design and operational decisions for the disaster, acknowledged it never tested the final mixture of cement for stability after BP made a last-minute change to the mix.
The new information could bring more lawsuits and further complicate efforts to place blame for the disaster, the analysts and an attorney said.
The terms of Halliburton's contract with BP indemnifies the Houston company from liability for spill damages, unless it is found to have been grossly negligent, Weiss and Oppenheimer & Co. analyst Scott Burk said.
Legal terms and definitions will figure in lawsuits over the spill. BP may try to prove Halliburton was guilty of gross negligence to void the indemnity contract that protects Halliburton, according to Fred Kuffler, a Philadelphia maritime lawyer who has handled oil-spill lawsuits.
Negligence is defined as conduct that would be unreasonable compared to what an ordinary person would do in similar circumstances. Gross negligence is a more serious kind of carelessness.
"It is certainly a very unwelcome complication for BP," Kuffler said. "I would think it raises a lot of questions about their supervision of their contractors."
Meanwhile, a federal judge in New Orleans has ordered tests to be conducted soon as possible on the actual cement Halliburton used. The judge said he was concerned that some component may deteriorate over time while the investigations and lawsuits are pending.
Halliburton's shares fell about 37 percent in the weeks after the April 20 explosion but have since rebounded and Wednesday were up 3.3 percent since the blast. Meanwhile, BP shares were down 34 percent in the same time period. Shares of Transocean and Anadarko, the rig owner and BP's minority partner in the well, were still down 29 percent and 15 percent respectively.
BP and others have said the cement's failure to keep oil and gas from entering the well was one of the causes of the accident.
BP's independent tests that showed the cement mix was flawed, but its analysis was criticized by Halliburton, which said it was not the correct formula.
Argus' Weiss expects that once the cementing revelations "gets put a little more in the rear-view mirror" the stock will move higher.
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Associated Press writer Dina Cappiello contributed to this report.
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SANDY SHORE 10/29/10 07:00 PM ET Associated Press