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Moody's: Legal Outcome for Macondo Principals 'Far from Certain'

One year after the Macondo well blowout in the deepwater Gulf of Mexico (GOM) the legal outcome remains "far from certain" for three of the five principal companies involved, Moody's Investors Service said Tuesday.

"Authorities have yet to determine and apportion blame or impose legal and financial penalties," said Moody's Steven Wood, managing director for Oil and Gas. "Our analysis suggests that the accident may result in financial penalties of between $40 billion and $60 billion, which includes $20 billion that BP will place in escrow by 2013."

A trial is set to begin next February, one year after it was announced by a U.S. District Court, and the first trial "could prove pivotal, since it could allocate responsibility to the parties involved," Wood said.

The five principals are forever etched in memory for those who watched the 87-day tragedy unfold: BP plc operated the development project and held a 65% working interest; Anadarko Petroleum Corp. was a 25% minority owner; Transocean Ltd. owned and operated the Deepwater Horizon drilling rig; Halliburton Co. conducted cementing operations; and Cameron International made the blowout preventer (BOP) for the well.

Of the five, BP, Anadarko and Transocean face the most legal uncertainties, while "we expect little long-term financial fallout for Halliburton and Cameron," said Wood.

"We still do not know the total cost and penalties from the spill, but our analysis suggested the figure would be roughly $40-60 billion, which includes $20 billion that BP has agreed to set aside in the Deepwater Horizon Oil Spill Trust."

If BP were to be found grossly negligent, Moody's said the finding would significantly increase the producer's penalties under the Clean Water Act to $4,300/bbl from $1,100/bbl. An estimated 5 million bbl of crude oil was released by the blowout, which would put BP's responsibility above $20 billion.

BP contends that Anadarko and minority partner Mitsui Ltd. together owe about $6 billion, but that figure "gives little hint about what Anadarko might eventually pay for its financial stake," said Wood. Moody's analysts believe Anadarko "can manage its liability for Macondo, provided its share does not exceed its cash on hand plus its annual cash flow."

For Transocean, there may be "significant" financial obligations, according to Moody's. "Although Cameron built the BOP used at Macondo, Transocean was responsible for its maintenance," and a recently published forensic report "indicates that the BOP was properly maintained and did not malfunction..." Transocean's "pre-accident agreement" with BP "appears to release it from all damage claims, but it seems possible, if not likely, that BP would challenge that agreement in court."

Meanwhile, charges of gross negligence against Halliburton "seem more remote" and the company "is showing stronger financial results in the oil service upturn" (see Daily GPI, April 19). Cameron's exposure also "appears limited and manageable," said Moody's.

For now, court watchers will have to bide their time. According to Moody's, it could be mid- or late 2012 "before we know anything about the outcome."

In any case, the "traditional" GOM work that the smaller oilfield service (OFS) groups conducted before Macondo "will be more limited and more competitive," Wood said. "This will tend to push smaller OFS companies -- like the smaller exploration and production companies -- toward onshore work, or partnerships with bigger companies."

Analyst Robert A. Kessler of Tudor, Pickering, Holt & Co. Inc. said GOM output was peaking before Macondo and has fallen 14% from the peak in September 2009. Although there has been a "resurgence" in the Lower Tertiary of the deepwater GOM, "the incremental production benefit was already going to be spread out over a number of years."

Federal officials estimated that in January GOM output was down 10% year/year. The decline can be attributed to the moratorium, said Kessler. However, production from some of the big projects -- Thunder Horse, Tahiti, Shenzi, Blind Faith and Atlantis -- already was beginning to decline. GOM production in March 2010, a month before the blowout, already had fallen 9% from September 2009, he noted.

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