Halliburton 2013 Annual Report Download - page 71

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Note 8. Commitments and Contingencies
Macondo well incident
Overview. 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 &
Production, Inc. (BP Exploration), an indirect wholly owned subsidiary of BP p.l.c. We performed a variety of services for BP
Exploration, including cementing, mud logging, directional drilling, measurement-while-drilling, and rig data acquisition
services. Crude oil flowing from the well site spread across thousands of square miles of the Gulf of Mexico and reached the
United States Gulf Coast. Efforts to contain the flow of hydrocarbons from the well were led by the United States government
and by 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.
We are currently unable to fully estimate the impact the Macondo well incident will have on us. The multi-district
litigation (MDL) proceeding referred to below is ongoing. We cannot predict the outcome of the many lawsuits and
investigations relating to the Macondo well incident, including orders and rulings of the court that impact the MDL, the results
of the MDL trial, the effect that the settlements between BP and the Plaintiffs' Steering Committee (PSC) in the MDL and other
settlements may have on claims against us, or whether we might settle with one or more of the parties to any lawsuit or
investigation. The first two phases of the MDL trial have concluded, and the MDL court could begin issuing rulings at any time.
A determination that the performance of our services on the Deepwater Horizon constituted gross negligence could result in
substantial liability to the numerous plaintiffs for punitive damages and potentially to BP with respect to its direct claims
against us.
As of December 31, 2013, our loss contingency reserve for the Macondo well incident, relating to the MDL, remained
at $1.3 billion, consisting of a current portion of $278 million and a non-current portion of $1.0 billion. This reserve represents
a loss contingency that is probable and for which a reasonable estimate of a loss can be made, although we continue to believe
that we have substantial legal arguments and defenses against any liability and that BP's indemnity obligation protects us as
described below. This loss contingency reserve does not include potential recoveries from our insurers.
We have participated in intermittent discussions with the PSC regarding the potential for a settlement that would
resolve a substantial portion of the claims pending in the MDL trial. BP, however, has not participated in any recent settlement
discussions with us. Reaching a settlement involves a complex process, and there can be no assurance as to whether or when we
may complete a settlement. In addition, the settlement discussions we have had to date do not cover all parties and claims
relating to the Macondo well incident. Accordingly, there are additional loss contingencies relating to the Macondo well
incident that are reasonably possible but for which we cannot make a reasonable estimate. Given the numerous potential
developments relating to the MDL and other lawsuits and investigations, which could occur at any time, we may adjust our
estimated loss contingency reserve in the future. Liabilities arising out of the Macondo well incident could have a material
adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.
Investigations and Regulatory Action. Several regulatory agencies and others, including the specially constituted
National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling (National Commission), conducted
investigations of the Macondo well incident, and 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, that 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. The U.S. Chemical Safety and Hazard Investigation Board is also conducting an investigation of the incident.
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 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 within