The CEO of Transocean Ltd. (NYSE: RIG), Steven Newman, will be testifying in front of the US Senate Committee on Energy & Natural Resources later this morning. But don’t think RIG is the only stock in the hot seat. Newman names a number of other crude oil companies as responsible parties: Transocean was the offshore drilling contractor for BP plc (NYSE: BP); the mud sub-contractor was a joint venture between Smith International, Inc. (NYSE: SII) and Schlumberger Ltd. (NYSE: SLB) which are in the process of merging; the casing sub-contractor was Weatherford International, Ltd. (NYSE: WFT); and the cementing sub-contractor was Halliburton Co. (NYSE: HAL).

Transocean, for its part, was the offshore drilling contractor for BP at the Macondo well that exploded on April 20th, leaving 11 workers missing and presumed dead and a leaking oil well that is pumping an estimated 5,000 b/d of crude into the Gulf of Mexico. As the guys with the drill, it’s easy to throw Transocean under the bus …  but that’s not the whole story.

In a prepared statement, Newman says it is “premature to reach definitive conclusions,” but that he feels “compelled to respond to some of [the] speculation” about the cause of the explosion. Newman describes briefly the process of drilling a well in the Gulf and then reminds lawmakers that BP, SII, SLB, WFT and HAL all played an active role.

BP, as the operator, is the general contractor on the well and specifies the plan for drilling, casing, and cementing. The Macondo well had been completed on April 17th and cemented. BP had essentially put a cork in the well which it could remove at a later time if the company wanted to put the well into production.

At the time of the explosion, Transocean was replacing the drilling mud with sea water when, according to Newman, “there was a sudden, catastrophic failure of the cement, the casing, or both.” Newman poses several questions about what caused the failure and says that these questions are what the investigation will try to answer.

The blow-out preventer (BOP) which failed to operate properly was not the cause of the explosion, according to Newman. In fact, the BOP was scheduled to be removed in a few days and the casing and the cement were “responsible for controlling any pressure from the reservoir.” In any event, “the BOPs were clearly not the root cause of the explosion,” Newman says.

The root cause of the failure is important for assigning liability for the damage that is being done to the Gulf coast and its residents. BP is responsible for cleaning up the oil, and there is no limit on how much that will cost the company. However, if Weatherford or Halliburton can be proved to have done inferior work or work not to specification, the loss of 11 lives, the loss of the rig, and many of the costs associated with the recovery will shift, at least partially, to the sub-contractors. Transocean also gets some public relations relief if it can defend itself by implying that it had followed BP’s instructions to the letter and that other contractors should be scrutinized as well.

Of course proving responsibility for something that happened 5,000 feet below the surface is going to be tricky. It will depend mostly on best guesses and the deductive work that would follow recovery of some debris from the ocean floor. The finger-pointing is officially starting today.

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