Transocean ?Should Have Done More? Before Blowout, CEO Testifies

By MarEx 2013-03-20 10:03:00

Transocean Ltd. Chief Executive Officer Steven Newman said the company’s crew on the Deepwater Horizon “should have done more” to prevent the rig’s 2010 explosion in the Gulf of Mexico.

Transocean’s missteps in connection with the explosion led Newman to recommend the company pay $1.4 billion in civil and criminal penalties and plead guilty to a criminal charge for violating the Clean Water Act, he told U.S. District Judge Carl Barbier yesterday in a non-jury trial in New Orleans over fault for the spill. Vernier, Switzerland-based Transocean owned the Deepwater Horizon rig that was drilling BP Plc’s Macondo well.

The company acknowledged “our people should have done more,” Newman testified. Instead, he said, “They accepted the assessment of the BP well site leaders.”

The blowout aboard the Deepwater Horizon spilled more than 4 million barrels of oil into the Gulf of Mexico and killed 11 people. The accident sparked hundreds of lawsuits against London-based BP, Transocean, and Houston-based Halliburton Co., which provided cement services.

A trial over liability for the disaster began Feb. 25. The judge will determine responsibility for the disaster and whether one or more of the companies acted with willful or wanton misconduct or reckless indifference -- the legal requirement for establishing gross negligence.

For BP, a finding of gross negligence would mean the company might be liable to the U.S. for as much as $17.6 billion in Clean Water Act fines, as well as unspecified punitive damages to claimants who weren’t part of the $8.5 billion settlement the company reached with most private party plaintiffs last year.

Gross Negligence

For Transocean and Halliburton, findings of gross negligence would mean the companies could be held liable for punitive damages for all plaintiffs.

While Newman admitted Transocean employees made mistakes in connection with the rig explosion, he added under cross- examination that an internal review found no systemic problems that caused or contributed to the disaster. “We had no management failures within the management system in place,” the executive said.

‘Good People’

“I believe we had competent managers carrying out the drilling operation,” Newman added. “I think we had a good system in place. I think we had good people.”

The government and spill victims have argued BP was over budget and behind schedule on the deep-water Macondo well off the Louisiana coast, prompting the oil company to cut corners and ignore safety tests showing the well was unstable.

They also allege Halliburton’s cement job was defective and Transocean employees made a series of missteps on the rig, including disabling safety systems, failing to properly maintain the installation and not adequately training its crew to handle crisis situations.

Newman testified yesterday that Transocean and its employees had no financial incentives to cut corners or sacrifice safety for profits. “It’s a hazardous business,” Newman told Barbier. “Safety is one of our core values and I think it’s fundamental to what we do.”

Just ‘Luck’

Robert Cunningham, a lawyer for spill victims, challenged Newman on whether the fatal Deepwater Horizon explosion was a matter of bad luck and whether Transocean’s safety philosophy was based on those kind of analyses.

“Sometimes the difference” between a fatal incident and one that causes no damage or injuries “can be nothing more than luck,” Newman added.

Barbier also heard testimony yesterday from Tim Quirk, a Halliburton manager who oversaw tests on the cement formula used on the Macondo well a month after the explosion.

BP officials contend the results of those tests on the stability of the cement formula used by the Deepwater Horizon crew to seal the well were destroyed despite court orders requiring that they be preserved.

Quirk said he was asked by Halliburton colleague Ronnie Faul to run the tests in May 2010 to see if the Macondo formulation was “thin.” Faul also requested the tests be done “off to the side,” the lab manager acknowledged.

Faul asked him not to write a report, but “to just phone the results to him,” Quirk recalled. He acknowledged Faul’s request was “a little unusual.”

Deferred Motion

Once the tests were complete, Quirk discarded his notes because he didn’t have to write up a report and wasn’t “aware of any preservation order” that covered them, he added.

On March 18, Barbier deferred BP’s request that he find the government and spill victims hadn’t proved claims that the oil company was grossly negligent in its handling of the explosion and spill, according to court filings.

“Frankly, I am not going to grant that motion,” Barbier told BP’s lawyer in court. “I’ll either deny at this stage or defer a ruling. Likely I would just defer a ruling and let the trial proceed.”

He also deferred ruling on a similar request by another defendant, M-I Swaco, a unit of Schlumberger Ltd., which provided drilling fluid for the project, according to the filing.

The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, 10-md-02179, U.S. District Court, Eastern District of Louisiana (New Orleans).

Copyright 2013 Bloomberg.
Allen Johnson Jr., Margaret Cronin Fisk and Jef Feeley