Halliburton 2011 Annual Report Download - page 23

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Item 1(a). Risk Factors.
The statements in this section describe the known material risks to our business and should be
considered carefully.
We, among others, have been named as a defendant in numerous lawsuits and are the subject
of numerous investigations relating to the Macondo well incident that could have a material adverse
effect on our liquidity, consolidated results of operations, and consolidated financial condition.
The semisubmersible drilling rig, Deepwater Horizon, sank on April 22, 2010 after an explosion
and fire onboard the rig that began on April 20, 2010. The Deepwater Horizon was owned by Transocean
Ltd. and had been drilling the Macondo exploration well in Mississippi Canyon Block 252 in the Gulf of
Mexico for BP Exploration & Production, Inc. (BP Exploration), the lease operator and indirect wholly
owned subsidiary of BP p.l.c. (BP p.l.c., BP Exploration, and their affiliates, collectively, BP). There were
eleven fatalities and a number of injuries as a result of the Macondo well incident. Crude oil escaping from
the Macondo well site spread across thousands of square miles of the Gulf of Mexico and reached the
United States Gulf Coast. We performed a variety of services for BP Exploration, including cementing,
mud logging, directional drilling, measurement-while-drilling, and rig data acquisition services.
We are named along with other unaffiliated defendants in more than 400 complaints, most of
which are alleged class-actions, involving pollution damage claims and at least nine personal injury
lawsuits involving four decedents and at least 21 allegedly injured persons who were on the drilling rig at
the time of the incident. Another six lawsuits naming us and others relate to alleged personal injuries
sustained by those responding to the explosion and oil spill. BP Exploration and one of its affiliates have
filed claims against us seeking subrogation and contribution, including with respect to liabilities under the
Oil Pollution Act of 1990 (OPA), and direct damages, and alleging negligence, gross negligence, fraudulent
conduct and fraudulent concealment. Certain other defendants in the lawsuits have filed claims against us
seeking, among other things, indemnification and contribution, including with respect to liabilities under
the OPA, and alleging, among other things, negligence and gross negligence. See Part I, Item 3, “Legal
Proceedings.” Additional lawsuits may be filed against us, including criminal and civil charges under
federal and state statutes and regulations. Those statutes and regulations could result in criminal penalties,
including fines and imprisonment, as well as civil fines, and the degree of the penalties and fines may
depend on the type of conduct and level of culpability, including strict liability, negligence, gross
negligence, and knowing violations of the statute or regulation.
In addition to the claims and lawsuits described above, numerous industry participants,
governmental agencies and Congressional committees have investigated or are investigating the cause of
the explosion, fire, and resulting oil spill. According to the January 11, 2011 report (Investigation Report)
of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling (National
Commission), the “immediate causes” of the incident were the result of a series of missteps, oversights,
miscommunications and failures to appreciate risk by BP, Transocean, and us, although the National
Commission acknowledged that there were still many things it did not know about the incident, such as the
role of the blowout preventer. The National Commission also acknowledged that it may never know the
extent to which each mistake or oversight caused the Macondo well incident, but concluded that the
immediate cause was “a failure to contain hydrocarbon pressures in the well,” and pointed to three things
that could have contained those pressures: “the cement at the bottom of the well, the mud in the well and in
the riser, and the blowout preventer.” In addition, the Investigation Report states that “primary cement
failure was a direct cause of the blowout” and that cement testing performed by an independent laboratory
“strongly suggests” that the foam cement slurry used on the Macondo well was unstable. The Investigation
Report also identified the failure of BP’ s and our processes for cement testing and communication failures
among BP, Transocean, and us with respect to the difficulty of the cement job as examples of systemic
failures by industry management.