BP Must Cover Some Transocean Oil Spill Damages

A federal judge on Thursday said BP Plc must indemnify Transocean Ltd for some compensatory damage claims over the 2010 Gulf of Mexico oil spill.

U.S. District Judge Carl Barbier, who oversees multistate litigation over the spill, agreed with Transocean that the Swiss driller was not responsible for compensatory damage claims raised by third parties for oil spilled below the ocean surface.

He also ruled, however, that London-based BP need not indemnify Transocean for punitive damages, or civil penalties imposed by the U.S. government under the federal Clean Water Act.

Thursday’s decision reduces the potential liability Transocean faces over the April 20, 2010 Deepwater Horizon drilling rig explosion that caused 11 deaths and the largest offshore oil spill in U.S. history.

Transocean owned the rig, while BP owned a majority of the Macondo well whose blowout led to the spill.

Shares of Transocean rose 8.9 percent in after-hours trading, and BP shares fell 0.6 percent.

“Indemnification from compensatory damages is key for Transocean,” whose litigation exposure is now “materially diminished,” UBS Securities LLC analyst Angie Sedita wrote in a research note. She has a “buy” rating on Transocean.

Sedita said BP has estimated its Clean Water Act liability at $3.5 billion, but that other estimates are as high as $6 billion. She also said Transocean has $950 million of insurance coverage for personal injury and third-party claims.

Barbier oversees several hundred cases related to the spill, including a $40 billion lawsuit that BP filed against Transocean last April.

Both companies welcomed parts of the judge’s decision.

“This confirms that BP is responsible for all economic damages caused by the oil that leaked from its Macondo well, and discredits BP’s ongoing attempts to evade both its contractual and financial obligations,” Transocean spokesman Lou Colasuonno said in an email.

BP spokesman Daren Beaudo said in an emailed statement that the decision “holds Transocean financially responsible for any punitive damages, fines and penalties flowing from its own conduct. As we have said from the beginning, Transocean cannot avoid its responsibility for this accident.”

Transocean had argued that its drilling contract obligated BP to defend it from claims over subsurface pollution, even if Transocean was found grossly negligent or “strictly liable.”

BP countered that its responsibility to indemnify Transocean did not extend that far.

Barbier did not decide whether Transocean will be liable for punitive damages or the civil penalties, or rule on BP’s claim that Transocean breached its drilling contract.

The New Orleans-based judge has set a Feb. 27 start date for a trial to apportion blame.

Transocean shares rose $4.19 to $51.45 in after-hours trading in New York, after closing regular trading down 10 cents at $47.26.

BP’s American depositary receipts fell 27 cents to $44.50 after hours, after dropping 13 cents to $44.77 during the day.

The case is In re: Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on April 20, 2010, U.S. District Court, Eastern District of Louisiana, No. 10-md-02179.

(Reporting By Jonathan Stempel)