Brett Owens is a leading on income investing; the editor of the industry-leading Contrarian Outlook ...
Deciding which company pays what in the Gulf disaster just got a little harder
06/30/2010 12:24 pm EST
Anadarko will be on the hook for a share of the costs proportionate to its ownership in the project—unless a court finds BP guilty of gross negligence in the design and/or operation of the well. With BP putting $20 billion into escrow to cover claims, the negligence/no negligence question is of intense interest to the $18 billion (market capitalization) Anadarko and its investors.
The distribution of costs will also have a huge effect on which companies can afford to keep exploring in the Gulf. If Anadarko winds up picking up its 25% share of the costs, it will deter smaller oil companies from operating in the region. And that will mean that the globe’s biggest oil companies will be able to buy assets in the Gulf at very reasonable prices. (For more on how the Deepwater Horizon disaster will reshuffle oil assets in the Gulf see my post http://jubakpicks.com/2010/06/24/oil-company-buyers-and-sellers-in-the-deepwater-gulf-of-mexico-after-bp/ )
The task of winning a finding of gross negligence against BP got a little harder today, June 30, when both BP and Anadarko confirmed to the Financial Times that Anadarko was aware of the design choices that contributed so much to the disaster. Those design choices include the use of a long string lining on the well, a cheaper method for lining a well that provides less protection against exactly the kind of gas leaks that, according to preliminary reports, played a role in the explosion of the well, and the use of just six centralizers, devices that stabilize a well before it is cemented.
BP told the Financial Times that it provided each of its co-owners with documents on the well’s design and on any changes in the design. In addition BP told the Financial Times that it engaged in periodic communications with personnel from its partners on well design and well-control events during drilling.
If BP’s representations on consultation with its partners over the well’s design hold up, they will remove one line of attack for Anadarko in any suit to prove gross negligence. Anadarko won’t be able to argue—and use design documents to prove--that BP was negligent in the design of the well. (Well, it won’t be able to argue that without accepting its own responsibility, anyway.)
That doesn’t mean that Anadarko doesn’t have any legal arguments left. The company’s stance is that the design was within industry standards—if it had been executed correctly by BP.
That will leave Anadarko to prove that BP’s execution of the design, rather than the design itself, constituted gross negligence. That’s harder than simply pointing to documents that show design flaws as a result of an attempt to save a buck. (The long string design, for example, cost $7 million to $10 million less than a more secure multiple layer design.) Anadarko will have to delve into very specific details of how systems were built, installed, and managed that will require hours of depositions of BP managers and workers.
The lawyers will be happy, anyway.
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