Sunken Oil Rig Owner Could Be Liable For Millions, Lawyer Says

NU Online News Service, April 23, 3:30 p.m. EDT

The firm owning the drilling rig that sank in the Gulf of Mexico could be liable for millions of dollars depending on its leasing agreement with BP, a lawyer familiar with oil and gas litigation said.

Meanwhile, in a filing with the Securities and Exchange Commission, Transocean, a global provider of drilling management services based in Zug, Switzerland, said the insured value of its drilling rig was put at $39 billion in aggregate.

Keith B. Hall, an attorney with the law firm Stone Pigman Walther Wittmann LLC in New Orleans, said there are three areas of liability coming out of this incident:

o Loss of life and personal injury.

o Liability to the government for its emergency response.

o Economic loss to private parties, in this case BP and Transocean.

Energy company BP leased the semisubmersible drilling rig Deepwater Horizon from Transocean.

Its insurance program consists of a combination of commercial market and captive insurance policies. The company maintains a $125 million per occurrence deductible on its hull and machinery, subject to an aggregate deductible of $250 million, Transocean reported.

However, in the event of a total loss or a constructive total loss of a drilling unit, the loss would be subject to a deductible ranging from $500,000 to $1.5 million.

The company also maintains a $10 million per occurrence deductible on crew personal injury, $5 million deductible on non-crew claims and aggregate deductible of $50 million.

The company says it carries $950 million of third-party liability coverage.

Transocean retains the risk for any liability losses in excess of the $950 million limit.

Mr. Hall said that of the three concerns, the most expensive could prove to be the economic loss to BP for loss of production. While the rig was not yet producing, the loss of potential income could become a major issue for the two companies, but that depends on the design of the lease which would detail who is responsible for what in the loss of the rig.

"It will not be clear cut," Mr. Hall noted. "People will look at this very carefully to see why they should not incur a loss." And when dealing with such significant numbers, the parties will "test and vigorously re-test to find clarity of the agreements between them."

The Deepwater Horizon caught fire and exploded on Tuesday, sinking two days later. The rig was located approximately 41 miles offshore of Louisiana, Transocean said.

The cause of the fire and explosion remain unknown at this time.

Transocean said the rig was staffed with 126 crew members. Eleven remain missing and the Coast Guard is continuing search efforts. However, reports said rescued workers believe the 11 never survived the explosion and fire.

Environmental concerns seemed to subside today with reports there was no oil leaking from the well site.

The company said in the filing that its customers "generally assume, and indemnify us against, well control and subsurface risks."


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