Halliburton 2013 Annual Report Download - page 21

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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 there have been 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 the lease operator, BP Exploration (BP Exploration),
an 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 1,800 complaints, most of which are alleged class-
actions, involving pollution damage claims and at least eight personal injury lawsuits involving four decedents and at least 10
allegedly injured persons who were on the drilling rig at the time of the incident. At least six additional lawsuits naming us and
others relate to alleged personal injuries sustained by those responding to the explosion and oil spill. Other defendants in the
lawsuits have filed claims against us seeking subrogation, indemnification, including with respect to liabilities under the Oil
Pollution Act of 1990 (OPA), contribution and direct damages, and alleging negligence, gross negligence, fraudulent conduct,
willful misconduct, and fraudulent concealment. See Note 8 to the consolidated financial statements. Additional lawsuits may be
filed against us, including civil actions under federal statutes and regulations, as well as criminal and civil actions under 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, several regulatory agencies and others have investigated or are
investigating the cause of the explosion, fire, and resulting oil spill. Reports issued as a result of those investigations have been
critical of BP, Transocean, and us, among others. For example, one or more of those reports have concluded that primary cement
failure was a direct cause of the blowout, cement testing performed by an independent laboratory “strongly suggests” that the
foam cement slurry used on the Macondo well was unstable, and that numerous other oversights and factors caused or
contributed to the cause of the incident, including BP's failure to run a cement bond log, BP's and Transocean's failure to
properly conduct and interpret a negative-pressure test, the failure of the drilling crew and our surface data logging specialist to
recognize that an unplanned influx of oil, natural gas, or fluid into the well was occurring, communication failures among BP,
Transocean, and us, and flawed decisions relating to the design, construction, and testing of barriers critical to the temporary
abandonment of the well.
In October 2011, the Bureau of Safety and Environmental Enforcement (BSEE) issued a notification of Incidents of
Noncompliance (INCs) to us for allegedly violating federal regulations relating to the failure to take measures to prevent the
unauthorized release of hydrocarbons, the failure to take precautions to keep the Macondo well under control, the failure to
cement the well in a manner that would, among other things, prevent the release of fluids into the Gulf of Mexico, and 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 the Interior Board of Land Appeals (IBLA). In January 2012, the IBLA, in response to
our and the BSEE's joint request, suspended the appeal pending certain proceedings in the multi-district litigation (MDL) trial.
Once the MDL court issues a final decision in the trial, we expect 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 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.