Halliburton 2011 Annual Report Download - page 26

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Certain matters relating to the Macondo well incident, including increased regulation of the
United States offshore drilling industry, and similar catastrophic events could have a material adverse
effect on our liquidity, consolidated results of operations, and consolidated financial condition.
Results of the Macondo well incident and the subsequent oil spill have included offshore drilling
delays and increased federal regulation of our and our customers’ operations, and more delays and
regulations are expected. For example, the Investigation Report and other investigative reports
recommended, among other things, a review of and numerous changes to drilling and environmental
regulations and, in some cases, the creation of new, independent agencies to oversee the various aspects of
offshore drilling. Two new, independent agencies, the BSEE and the Bureau of Ocean Energy Management
(BOEM), replaced the BOEMRE effective October 2011. Since the Macondo well incident, the BSEE has
issued guidance and regulations for drillers that intend to resume deepwater drilling activity. The BSEE’ s
regulations focus in part on increased safety and environmental issues, drilling equipment, and the
requirement that operators submit drilling applications demonstrating regulatory compliance with respect
to, among other things, required independent third-party inspections, certification of well design and well
control equipment and emergency response plans in the event of a blowout. The BSEE has also proposed
additional regulations with respect to increased employee involvement in certain safety measures and third-
party audits of an operator’ s safety and environmental management system program. The BSEE has stated
that it will also make available for public comment additional proposed regulations based on the BOEMRE
Report. In addition, the BSEE has stated that it has concluded that it has the legal authority to extend its
regulatory reach to include contractors, like us, in addition to operators, as evidenced by the INCs. In
addition, the BSEE has suggested that a legislative increase of the maximum rate for applicable civil
penalties is necessary.
The increased regulation of the exploration and production industry as a whole that arises out of
the Macondo well incident has and could continue to result in higher operating costs for us and our
customers, extended permitting and drilling delays, and reduced demand for our services. We cannot
predict to what extent increased regulation may be adopted in international or other jurisdictions or whether
we and our customers will be required or may elect to implement responsive policies and procedures in
jurisdictions where they may not be required.
In addition, the Macondo well incident has negatively impacted and could continue to negatively
impact the availability and cost of insurance coverage for us, our customers and our and their service
providers. Also, our relationships with BP and others involved in the Macondo well incident could be
negatively affected. Our business may be adversely impacted by any negative publicity relating to the
incident, any negative perceptions about us by our customers, any increases in insurance premiums or
difficulty in obtaining coverage, and the diversion of management’ s attention from our operations to focus
on matters relating to the incident.
As illustrated by the Macondo well incident, the services we provide for our customers are
performed in challenging environments that can be dangerous. Catastrophic events such as a well blowout,
fire, or explosion can occur, resulting in property damage, personal injury, death, pollution, and
environmental damage. While we are typically indemnified by our customers for these types of events and
the resulting damages and injuries (except in some cases, claims by our employees, loss or damage to our
property, and any pollution emanating directly from our equipment), we will be exposed to significant
potential losses should such catastrophic events occur if adequate indemnification provisions or insurance
arrangements are not in place, if existing indemnity or related release from liability provisions are
determined by a court to be unenforceable or otherwise invalid, in whole or in part, or if our customers are
unable or unwilling to satisfy their indemnity obligations.
The matters discussed above relating to the Macondo well incident and similar catastrophic events
could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated
financial condition.