Now that the oil leak in the Gulf of Mexico has finally been halted, the spotlight will turn to assessing responsibility for the disaster that spewed 4.9 million barrels of crude oil into the Gulf. Transocean Ltd. (NYSE: RIG), the owner of the Deepwater Horizon rig that exploded and sank, has said that its contract with operator BP plc (NYSE: BP) protects the company from most lawsuits and damage claims. Transocean’s position is that BP contractually agreed to indemnify the rig owner from any loss.
Transocean’s Form 10-Q includes the following, interminable sentence stating its position on its obligations related to the blow-out:
“Under our drilling contract for Deepwater Horizon, the operator has agreed, among other things, to assume full responsibility for and defend, release and indemnify us from any loss, expense, claim, fine, penalty or liability for pollution or contamination, including control and removal thereof, arising out of or connected with operations under the contract other than for pollution or contamination originating on or above the surface of the water from hydrocarbons or other specified substances within the control and possession of the contractor, as to which we agreed to assume responsibility and protect, release and indemnify the operator.”
Transocean goes on to say, “Given the potential amounts involved in connection with the Macondo well incident, the operator may seek to avoid its indemnification obligations.”
Something that Transocean’s claim doesn’t cover, however, is negligence and possible improper safety practices on the part of Transocean. The New York Times reports that Transocean commissioned an assessment of its safety practices a month before the Macondo well explosion. The Times obtained copies of the assessment, which single out three Gulf of Mexico rigs in addition to the Deepwater Horizon.
About the exploded rig, the report identifies deficient equipment, including the Deepwater Horizon’s blow-out preventer, and other deficiencies that are said to be “critical equipment items that may lead to loss of life, serious injury or environmental damage as a result of inadequate use and/or failure of equipment.” The report also referred to unspecified “previous incidents and near-hits” with Transocean equipment, but identified 36 pieces of equipment as being in need of repair.
A Transocean spokesman told the Times that “[o]verall maintenance on the Deepwater Horizon met or exceeded regulatory and industry standards, and the company’s proactive review process helped the Deepwater Horizon log seven consecutive years without a single lost time incident or major environmental event prior to this incident.”
If the Deepwater Horizon had been in perfect working order, and the explosion had happened anyway, Transocean’s claim for indemnity might be stronger. As it is, though, the Times’s story might undercut that claim.
Transocean shares are up about +6% today following its disclosure of its contract terms with BP. For some reason, the revelation of the company’s safety practices hasn’t had an impact on Transocean shares yet. Go figure.
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