Halliburton in settlement talks to resolve Gulf spill claims

Oil field services firm Halliburton said Monday it has recently entered into settlement discussions and offered cash and stock to resolve a substantial portion of private claims related to the 2010 Gulf of Mexico oil spill. It said the deal it is discussing is in an advanced stage.

“We are working hard to come to a reasonable settlement that will be in the best interest of our shareholders,” CEO Dave Lesar said in a conference call with analysts and investors.

The news came as Halliburton reported an $18 million loss in the first quarter, or 2 cents a share, compared to a profit of $627 million, or 68 cents a share, a year earlier. Gulf operations in the first quarter were impacted by maintenance activity on blowout preventer stacks, executives said. Revenue in the quarter ended March 31 rose to $6.97 billion from $6.87 billion a year earlier.

In its earnings release, the company, which is based in Houston and Dubai, also said it took a $637 million after-tax charge in the first-quarter to increase its reserve related to litigation stemming from the disaster. The charge amounts to $1 billion before tax.

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“With respect to the ongoing Multi-District Litigation trial regarding the Macondo well incident, we have recently participated in court-facilitated settlement discussions with the goal of resolving a substantial portion of private claims,” Lesar said in a statement.

He added, “Our most recent offer includes both stock and cash, with the cash components payable over an extended period of time.”

The company said the settlement discussions do not cover all possible parties and claims relating to the Macondo incident, and there are additional reasonably possible losses relating to the Macondo incident for which “we cannot reasonably estimate at this time.”

“A settlement of this magnitude is complex and requires the other settling parties to be reasonable,” Chief Financial Officer Mark McCollum said in the investor call.

The company did not elaborate, and executives said during the conference call they would not take questions about the talks. The private claims the company faces are from individuals and businesses harmed by the spill. The company also faces claims from Gulf states harmed by the spill. Florida and Mississippi in recent days joined Alabama and Louisiana in suing the companies involved in the disaster.

McCollum said the company was unable to buy back a significant amount of shares in the first quarter because of the increase to its Gulf spill litigation reserve.

“Putting the issue behind Halliburton would be a good thing, but pricier than we’d thought,” Tudor, Pickering, Holt & Co. analysts Jeff Tillery and Byron Pope said in a research note after the earnings release was issued.

The first phase of a civil trial over the oil spill ended last week. Halliburton, which provided the cement for BP’s undersea well that blew out, faces the potential of billions of dollars in punitive damages.

Photos: The Gulf oil spill impact

Testimony during the eight-week trial put Halliburton and Transocean under the microscope more than they have been at any time since the blowout.

Halliburton acknowledged not turning over cement samples that plaintiffs argue should have been available more than two years ago, and a worker admitted he was instructed to destroy records of cement testing that he did after the accident.

And a maritime expert testifying for BP as the first phase wound down Wednesday created uneasy moments for Transocean.

The drilling contractor’s lawyer, Brad Brian, was unable to shake the expert, Andrew Mitchell, from his assertion that the captain of Transocean’s rig made critical mistakes after it became clear the well was out of control, mistakes the witness argued exacerbated the situation.

BP owned the well that blew out off the coast of Louisiana on April 20, 2010, triggering an explosion on the Transocean-owned Deepwater Horizon that killed 11 rig workers and set off the worst offshore oil spill in U.S. history.

U.S. District Judge Carl Barbier has not yet ruled on whether BP, Halliburton and Transocean committed gross negligence.

The talks involving Halliburton, based on the company’s statement, appear to be solely between Halliburton and the Plaintiffs Steering Committee, which represents individuals and businesses who suffered economic and health damages from the oil spill.

British oil giant BP, the Justice Department and Swiss drilling contractor Transocean do not appear to be involved in those talks, but could be involved in their own. At various times over the last year, the sides have engaged in settlement talks.

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A presidential commission that investigated the spill concluded that tests performed before the blowout should have raised doubts about the cement used to seal the well. The cement failed to stop oil and gas from entering the well and causing the blowout and explosion. A foam slurry was used in the cementing, which some outside experts have criticized.

Halliburton has asserted during the three years since the disaster that the cement was designed per BP’s specifications, and that BP should be held responsible for moving forward with the well job after the tests that were performed.

Halliburton also has asserted that BP did not heed a critical warning it gave BP prior to the blowout about the potential for a severe gas flow problem in the well.

The issue involves the use of centralizers, which are part of the process to plug a deepwater well. Halliburton told BP five days before the well blew that fewer centralizers would cause a bigger gas flow problem.

Centralizers are meant to ensure casing runs down the center of the well bore. If casing strings are cemented off-center, there is a risk that a channel of drilling fluid or contaminated cement will be left where the casing contacts the oil formation, creating an imperfect seal.

BP rejected Halliburton’s recommendation to use 21 centralizers. Instead, BP, which was over budget and behind schedule on the well job, used six centralizers.

In a settlement that BP reached with the PSC that covers thousands of people affected by the spill but not thousands of others who opted out, the oil giant transferred to the PSC the rights to any money collected for legal actions against Halliburton and Transocean. Legal experts have said BP’s assignment to the PSC of its claims against the two companies has put more pressure on Halliburton and Transocean to settle.

On the earnings front, meanwhile, Lesar said that while natural gas prices have seen an uptick, he doesn’t expect a major increase in natural gas drilling activity in the U.S. this year.

Read ongoing FuelFix coverage of the legal trials surrounding the Gulf of Mexico oil spill: