Friday, October 29, 2010

Is Halliburton (NYSE:HAL) Protected from BP (NYSE:BP) Via Indemnity?

After the oil spill commission released a report saying the cement mix used in the Macondo well was unstable, Halliburton (NYSE:HAL) took a big hit, but began to almost immediately fight back, hoping to hold onto their indemnity from their contract with BP (NYSE:BP).

The question which will determine liability and whether or not Halliburton will remain protected would be the quality of work performed.

Here's the agreement:

COMPANY shall save, indemnify, release, defend, and hold harmless CONTRACTOR GROUP against all claims, losses, damages, costs (including legal costs) expenses and liabilities resulting from:

(a) loss or damage to any well or hole (including the cost to re-drill);

(b) blowout, fire, explosion, cratering, or any uncontrolled well condition (including the costs to control a wild well and the removal of debris);

BP is the company mentioned and Halliburton the contractor group, which I put in capital letters.

Already admitting they didn't completely finish the testing on the final cement formulation used, it's unknown at this time if that does anything to void the above agreement between the two companies.

Consequently, until that is sorted out, Halliburton will have this hanging over them, and more than likely their share price will swing in both directions on bits and pieces of news as it emerges, as well as rumors.

At this time it seems there are questions as to whether the indemnity will hold. But that's a long way from a certainty.

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