Street beats up Halliburton, but industry observers not convinced it's a fair fight*(update)

A Federal investigator’s conclusion that Halliburton and BP may have started the final cement job on the doomed Macondo well before ever receiving a good test of the cement mix was read by Wall Street as bad news for the oil field services giant. (see letter below)

Shares of Halliburton dropped as much as 10 percent in the minutes after the news of the letter hit the web on Thursday, an indication investors thought the company was exposed to greater liability in the accident. The stock ended the day down nearly 8 percent, or $2.74, at $31.68. Halliburton credit default swaps (a measurement of the cost of insuring the firm’s debts) jumped as well.

BP stock didn’t take much of a hit at all and ended up 50 cents, or 1.24 percent, for the day at $40.60. This likely reflects the idea that investors had previously assumed the worst when it came to BP and its role in the accident.

Halliburton came out with a lengthy statement late last night (apparently the report caught them blind-side). They note the two early tests were long before the final well conditions were known, the third involved the wrong cement mix from what was actually used and that the final test was good. The company points to the many other possible factors, including the decision to displace the riser with seawater and questions about the interpretation of the negative pressure tests

But industry sources say it’s not unusual for companies to move forward with a well even if they don’t have perfect cement samples.

A number of industry consultants we talked to (who asked their names not be used because of their ongoing work) said there are many ways to test the integrity of a cement job, be it pressure tests or a cement bond log, and to later “fix it” by “squeezing” more cement in.

“A bad cement job does not necessarily equal a blowout,” said Bob Cavnar, an energy industry executive who also just released a book on the Deepwater Horizon accident.

Cavnar, who has worked as a driller for a number of onshore projects, said bad cement jobs occur regularly, but there are many ways to fix those problems with remedial techniques, like adding more cement.

“That’s likely the reason [BP] went ahead with the cement job before having good samples, because they thought they could fix it later if there was a problem,” Cavnar said.

(BTW: for the Cavnar skeptics out there, he wasn’t the only one saying these things — just one of the few willing to go on the record)

And while investors may have taken the letter to mean bad news for Halliburton, David Pursell, an analyst with Tudor Pickering & Holt, didn’t see it that way.

The fourth and final test on the cement was OK, Pursell said, and it’s not unusual for companies to have to run several lab tests before obtaining the right recipe for a cement job.

And if there were questions or concerns it was still up to BP to make everything was right, said Pursell.

“This is their well. They’re the professional athlete and can’t pull a Duane Brown and say ‘I didn’t know what was in the supplement I took,'” Pursell said.

Gene Beck, an Associate Professor of Petroleum Engineering at Texas A&M University concurs.

“That’s the operator’s responsibility to confirm what you put into the well is the right thing,” Beck said. “I still maintain that the well blew out because barriers were insufficiently tested – had the cement barrier been properly tested after placement the blowout would probably not have happened.”

Pursell said the timing of the letter struck him as politically motivated, coming just a few days before mid-term elections.

It helps build-up the idea of the Federal government getting to the bottom of things with the investigation while also putting Halliburton in a bad light, he said. Since many voters still connect Halliburton with former Vice President Dick Cheney, it might be an effective way to motivate Democratic voters.

“Maybe I’ve just got black helicopters flying around my head, but it’s interesting timing,” he said.

Letter to Commissioners