Halliburton’s BP Defense Hurt By Criticism of Cement Work

New criticism of Halliburton Co.’s work on BP Plc’s blown-out Gulf of Mexico well could make it harder for the world’s second-largest oilfield services company to escape significant responsibility for the disaster.

Lawyers for the government and spill victims gained ammunition after the National Commission on the BP Deepwater Horizon Oil Spill said Halliburton knew of, but did not address, flaws in the cement used in the doomed well before the April 20 disaster.

While Houston-based Halliburton might face less overall liability than BP and rig owner Transocean Ltd , its shares slid 8 percent on Thursday following the report’s release, wiping out $2.5 billion of market value.

“The report shines a harsher light on Halliburton’s role,” said David Uhlmann, a University of Michigan Law School professor and former chief of the Justice Department’s environmental crimes section.

“Halliburton had a much smaller role than BP or Transocean, but is likely to face at the very least penalties of hundreds of millions of dollars, and possibly as much as $1 billion to $2 billion,” he said. “This is also good evidence for any plaintiffs pursuing civil lawsuits against Halliburton.”

Halliburton defended its actions Thursday, saying that “significant differences between its internal cement tests and the Commission’s test results may be due to differences in the cement materials tested.”

BP had hired Halliburton to perform cementing operations to seal the well. Halliburton has argued that BP bears responsibility for having failed to test the integrity of the cement job.

SHARE OF BLAME

The findings might nonetheless increase Halliburton’s relative share of the blame for the disaster, which killed 11 workers and is expected to result in tens of billions of dollars in federal penalties.

BP has set up a $20 billion fund overseen by former Obama administration executive pay czar Kenneth Feinberg to pay victims including fishermen, restaurants and resort owners.

Several hundred spill-related lawsuits remain pending in state and federal courts, mainly in states bordering the Gulf.

“The report indicates that Halliburton bears a larger share of responsibility,” said Robert Gordon, a partner at Weitz & Luxenberg PC in New York who represents 500 commercial fishermen, hotels, and other spill-related clients.

“This is additional evidence demonstrating Halliburton’s callous disregard for safety of workers on the rig, and those who rely on Gulf waters for their livelihoods,” he added.

More evidence about the quality of the cement may surface after the New Orleans federal judge overseeing much of the oil spill litigation signed an order releasing cement that had been subpoenaed by federal investigators.

“No destructive testing on the cementing components will be conducted without further order of the court,” Judge Carl Barbier wrote in his order, released Friday.

J. David Anderson, an analyst at JPMorgan, had not foreseen significant liability for Halliburton, but said “that may change” if Thursday’s commission report has wide impact.

“Importantly, BP chose the cement, tested it, and then signed off on it,” he wrote in a research report. “According to the contract with BP, Halliburton is indemnified even in the case of gross negligence. Then again, that doesn’t preclude the Department of Justice from pursuing criminal indictments.”

NEGLIGENCE?

Mary Wood, a University of Oregon law professor and director of the school’s environmental and natural resources law program, said Halliburton would be vulnerable if its activities rose to the level of negligence.

“A company could be held negligent if it did not act as a reasonable person would,” she said. “BP is responsible for natural resource damages regardless of fault. But if I were Halliburton’s lawyers, I would consider this (report) very bad news indeed.”

Halliburton could ultimately face criminal charges under the Clean Water Act, along with BP and Transocean, as well as civil penalties, said Uhlmann of the University of Michigan.

But he said liability to victims could be limited, depending on how many chose to tap the $20 billion victims fund.

“They might be better off going to the fund, where money will be available within several months, rather than litigate, where money may not be available, if at all, for several years.”

(Reporting by Jonathan Stempel in New York; Additional reporting by Anna Driver in Houston)