Halliburton 2011 Annual Report Download - page 24

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In September 2011, the Bureau of Ocean Energy Management, Regulation and Enforcement
(BOEMRE) released the final report of the Marine Board Investigation regarding the Macondo well
incident (BOEMRE Report). A panel of investigators of the BOEMRE identified a number of causes of the
Macondo well incident. According to the BOEMRE Report, “a central cause of the blowout was failure of a
cement barrier in the production casing string.” The panel was unable to identify the precise reasons for the
failure but concluded that it was likely due to: “(1) swapping of cement and drilling mud in the shoe track
(the section of casing near the bottom of the well); (2) contamination of the shoe track cement; or (3)
pumping the cement past the target location in the well, leaving the shoe track with little or no cement.”
Generally, the panel concluded that the Macondo well incident was the result of, among other things, poor
risk management, last-minute changes to drilling plans, failure to observe and respond to critical indicators,
and inadequate well control response by the companies and individuals involved.
The BOEMRE Report also stated, among other things, that BP failed to properly communicate
well design and cementing decisions and risks to Transocean, that BP and Transocean failed to correctly
interpret the negative-pressure test, and that we, BP, and Transocean failed to detect the influx of
hydrocarbons into the well. According to the BOEMRE Report, the panel found evidence that we, among
others, violated federal regulations relating to the failure to take measures to prevent the unauthorized
release of hydrocarbons, the failure to take precautions to keep the well under control, and the failure to
cement the well in a manner that would, among other things, prevent the release of fluids into the Gulf of
Mexico. In October 2011, the Bureau of Safety and Environmental Enforcement (BSEE) issued a
notification of Incidents of Noncompliance (INCs) to us for violating those regulations and a federal
regulation relating to the failure to protect health, safety, property, and the environment as a result of a
failure to perform operations in a safe and workmanlike manner. According to the BSEE’ s notice, we did
not ensure an adequate barrier to hydrocarbon flow after cementing the production casing and did not
detect the influx of hydrocarbons until they were above the blowout preventer stack. We understand that
the regulations in effect at the time of the alleged violations provide for fines of up to $35,000 per day per
violation. We have appealed the INCs to, and the appeal was accepted by, the Interior Board of Land
Appeals (IBLA). In January 2012, the IBLA, in response to our and the BSEE’ s joint request, has
suspended the appeal and has ordered us and the BSEE to file notice within 15 days after the conclusion of
the multi-district litigation (MDL) and, within 60 days after the MDL court issues a final decision, to file a
proposal for further action in the appeal. The BSEE has announced that the INCs will be reviewed for
possible imposition of civil penalties once the appeal period has ended. The BSEE has stated that this is the
first time the Department of the Interior has issued INCs directly to a contractor that was not the well’ s
operator. We have not accrued any amounts related to the INCs.
Various other investigations have or may be critical of the services we provided on the Deepwater
Horizon. In addition, as part of its criminal investigation, the Department of Justice (DOJ) is examining
certain aspects of our conduct after the incident, including with respect to record-keeping, record retention,
post-incident testing, securities filings, and public statements by us or our employees, to evaluate whether
there has been any violation of federal law.