BP Must Pay Part of Rig Owner Transocean's Eventual Gulf Costs

Jan. 27, 2012
Mixed ruling arising from Deepwater Horizon disaster set to run into billions of dollars.

British oil giant BP must cover some of the eventual claims against rig owner Transocean arising from the Gulf of Mexico oil spill, a U.S. judge ruled Thursday, with any bill set to run into billions of dollars.

The mixed ruling found BP must indemnify the Swiss drilling rig operator from "compensatory damages" related to the 2010 spill even if the pollution and its impacts are the result of Transocean's "gross negligence."

But BP does not need to cover any punitive damages or civil penalties that may be assessed under the U.S. Clean Water Act, nor is it responsible for covering the costs of Transocean's legal fees, Judge Carl Barbier ruled.

An explosion on the BP-leased Deepwater Horizon rig killed 11 people on April 20, 2010. The rig then sank and the Macondo well gushed oil into the ocean for 87 days, blackening the southern U.S. shoreline and crippling the local tourism and fishing sectors.

By the time the exploratory well was capped, some 4.9 million barrels (206 million gallons) of oil had spilled out of the runaway well 5,000 feet (1,500 meters) below the surface of the Gulf of Mexico.

BP posted a $40 billion charge to cover the cost of the massive cleanup, compensation to fishermen and thousands of others affected by the spill and various government fines.

It has been locked in legal battles with Transocean and Halliburton -- which was responsible for the runaway well's faulty cement job -- in order to shift some of the huge costs to its subcontractors.

Various government probes have spread the blame for the massive spill and the next -- and far more complex -- step in the legal battle is to determine how much each party should pay.

Barbier stipulated that he has not expressed an opinion "as to whether Transocean will be held strictly liable, negligent, or grossly negligent" for the disaster or whether Transocean will be ultimately be liable for punitive damages or civil penalties.

BP hailed the ruling saying it meant "Transocean cannot avoid its responsibility for this accident."

"While all official investigations have concluded that Transocean played a causal role in the accident, the contractor has long contended it is fully indemnified by BP for the liabilities resulting from the oil spill," BP said in a statement.

"Today's ruling makes clear that contractors will be held accountable for their actions under the law."

Transocean also hailed the ruling as a victory as BP will be responsible for what are expected to be the heaviest costs.

"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 said in a statement.

"Transocean is pleased to see its position affirmed, consistent with the law and the long-established model for allocating risks in the offshore oil and gas industry."

Morgan Stanley estimated BP will end up paying $20 to $25 billion to the U.S. government in order to settle a host of civil and criminal lawsuits arising out of the 2010 disaster.

That includes fines assessed under various environmental regulations and possible manslaughter charges.

However, Transocean will likely end up picking up a significant chunk.

Penalties under the Clean Water Act -- for which Transocean would be partially liable -- could range from a minimum of around $4.5 billion to $18 billion should BP be found "grossly negligent."

Morgan Stanley estimated that punitive damages could range from $2 billion to $5 billion.

Barbier -- who has consolidated scores of spill-related cases into a single trial set to begin on Feb. 27 -- has not yet ruled as to whether Halliburton's contract with BP fully indemnifies the contractor from liability. "We look forward to the ruling on that motion," Halliburton spokeswoman Beverly Blohm Stafford told AFP.

Copyright Agence France-Presse, 2012

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