Coverage: Halliburton pays $1.1 Billion

It’s been four years coming, but Halliburton has finally reached an agreement to settle claims related to the oil rig explosion in the Gulf of Mexico. While $1.1 billion might seem like a lot, it will be interesting to see how far it actually goes.

USA Today’s Kevin McCoy and Rick Jervis had these details about the settlement:

Halliburton (HAL) has reached a $1.1 billion agreement aimed at settling most claims filed against the company related to the 2010 Deepwater Horizon oil rig explosion in the Gulf of Mexico, the oil-field services giant said Tuesday.

The settlement comes just over a year after Houston-based Halliburton admitted destroying evidence and agreed to plead guilty to a criminal charge for its role in the oil spill disaster that occurred at an offshore well of British energy giant BP (BP).

The tragedy, the worst offshore oil disaster in U.S. history, killed 11 workers.

Halliburton shares closed down fractionally at $67.49 after recovering from a steeper drop earlier Tuesday.

Daniel Gilbert wrote for The Wall Street Journal that the settlement was less than the company had set aside to cover it:

The amount is less than the $1.3 billion Halliburton has set aside for its costs stemming from the largest offshore oil spill in U.S. history. Some legal analysts say the settlement will eliminate most of the oil-field-services company’s liability from the incident.

The deal comes as Halliburton, BP PLC and Transocean Ltd. await a ruling from U.S. District Judge Carl Barbier in New Orleans on the degree to which each was negligent in the explosion and resulting oil spill. In settling, Halliburton avoids the risk of higher damages if it is found to be grossly negligent.

“This lifted the uncertainty and eliminated the impact of a potential negative ruling from Judge Barbier,” said Tom Claps, a litigation analyst at Susquehanna Financial Group.

Houston-based Halliburton performed the oil-well cementing on the Deepwater Horizon rig, which was owned by Transocean and operated by BP. Regulators and government investigative panels have found that deficient cementing was a direct cause of the well blowout, which set the rig ablaze and left 11 workers dead.

Halliburton has defended its cement work on the Deepwater Horizon rig, saying the mix was prepared to BP’s specifications and that BP and Transocean failed to test the integrity of the cement. All three firms deny they were grossly negligent.

Bloomberg’s David Wethe, Margaret Cronin Fisk and Laurel Calkins reported that this doesn’t settle everything for Halliburton:

Today’s agreement doesn’t resolve certain state lawsuits that have been filed against Halliburton, which has taken a $1.3 billion reserve for costs related to the incident, according to a July 25 earnings statement. Halliburton said it has incurred legal fees and expenses of about $294 million, with $263 million of this reimbursed or expected to be covered by insurance.

Halliburton rose 0.7 percent to $68.06 at 9:16 a.m. in New York, before the start of regular trading in U.S. markets. The shares have gained 33 percent this year before today.

The settlement will be paid into a trust in three installments during the next two years until all appeals have been resolved. A certain level of claimants must participate in the settlement or Halliburton can terminate it. The company didn’t immediately respond to a request for comment on terms of the settlement.

Bloomberg Businessweek’s Paul M. Barrett said that the timing could signal that BP’s liability decision could be pending:

First off, the timing of the settlement announcement may signal that U.S. District Judge Carl Barbier is nearing a decision on the Big Question of how to apportion overall blame for the spill—and, more specifically, what kind of additional legal bill faces BP (BP) as the main operator of the well. The British company has already paid out more than $28 billion and faces additional liability that could total an additional tens of billions. How much more is the issue before Barbier.

The $1.1 billion settlement represents Halliburton’s biggest payout yet in the disaster, according to Bloomberg News. Transocean (RIG), owner of the drilling rig, settled a batch of claims last year for $1.4 billion. Absent Tuesday’s settlement, Barbier could have found that Halliburton acted with “gross negligence,” opening the company to punitive damages. That’s the looming danger BP faces: a judicial determination that its conduct was worse than mere carelessness and merits a truly stupendous additional penalty.

Underlying the latest settlement—and explaining its relatively modest dollar value—was an earlier Barbier ruling that interpreted the contract between BP and Halliburton. According to the judge, that contract required BP to cover any compensatory damages assessed against Halliburton. His interpretation, in effect, shifted risk to BP and made it easier for Halliburton to reach a truce with the consortium of plaintiffs’ attorneys pressing claims on behalf of victims throughout the Gulf region.

Clifford Krauss wrote for The New York Times that Halliburton would be able to move past the spill:

Legal scholars following the case said that Halliburton was making a calculated judgment that it was preferable to agree to pay the relatively modest $1.1 billion than face larger liabilities in the future. They said the settlement should resolve most of Halliburton’s remaining liability for the spill, even if the company is found to have been grossly negligent by Judge Carl J. Barbier of Federal District Court in New Orleans.

“It also allows Halliburton to put the oil spill — especially its litigation costs, uncertainty and adverse publicity — behind the company,” said Carl Tobias, a law professor at the University of Richmond, “so that it can concentrate efforts on creating innovative technology and increasing market share.”

David Uhlmann, a law professor at the University of Michigan and a former chief of the Justice Department’s environmental crimes section, said that while Halliburton “does not admit liability in the settlement, the company would never have agreed to pay more than a billion dollars unless there was substantial evidence that it was negligent.”

The settlement, which is subject to approval by the federal court in Louisiana, will be paid into a trust in installments over the next two years.

BP could potentially face up to $18 billion in penalties under the Clean Water Act depending on how much oil Judge Barbier decides was spilled and whether he rules that the company was grossly negligent. BP has acknowledged responsibility but said it shared that responsibility with the other companies and was not negligent.

No matter who’s at fault, the glaring piece missing from most of the stories is who will get the money and if it even begins to come close to compensating families and businesses harmed by the spill. While the Gulf is recovering, many are still reeling from their losses. The $1.1 billion is a start, but will it ever be enough?