Is Halliburton Out of the Woods on Deepwater Horizon Settlement?

Energy

Published: September 2, 2014 1:20 pm

Halliburton Co. (NYSE: HAL) announced a settlement on Tuesday concerning the class claims regarding the Deepwater Horizon rig explosion in the Gulf of Mexico. The case was originally filed in 2010, and the company has settled to pay out a total of $1.1 billion to a majority of the claims.

In just the past year or so, Halliburton settled its criminal charges for its role in the explosion of a BP PLC (NYSE: BP) well in 2010 and reserved over $1 billion against the claims. The total accrued loss contingency provision retained by Halliburton for this case totals at $1.3 billion.

It remains a debate as to whether this is viewed as a good settlement by the stock market. It may be a lower sum of money than what was set aside, but Halliburton shares gapped up at $68.17 on the open and traded as high as only $68.18, and the stock was down under $67 in early afternoon trading on Tuesday. One concern may be that the settlement requires approval, as well as that there seem to be “outs” in the deal.

The settlement will be executed by the company paying into a trust in three installments over the next two years until all appeals have been resolved. Pending the final court approval, the settlement may include appeals from the BP settlement with the settlement class.

This settlement will include punitive damages claims against the company by a class of plaintiffs that alleged damages to property or associated with the commercial fishing industry. Halliburton will be able to terminate this agreement if the settlement does not have an agreed-on level of participation by the current claimants.

Halliburton released a statement with its second-quarter earnings report back in 2010 addressing the matter. The company said at that time:

The tragic incident that occurred in the Gulf of Mexico and the subsequent suspension of deepwater drilling, we believe, will usher in a new regulatory climate and will have a profound impact on how deepwater drilling is performed. We are taking appropriate actions to mitigate the impact of the reduced activity in our Gulf of Mexico business, including redeploying our people and equipment to other areas of stable or increasing activity. Despite these moves, we estimate that the deepwater drilling suspension will negatively impact our earnings by $0.05-$0.08 per quarter for the remainder of 2010.

Halliburton shares were down just over 1% at $66.90 in early afternoon trading on Tuesday, and its 52-week trading range is $47.46 to $74.33. The consensus analyst price target is now closer to $83.00. We have yet to see any major analyst notes on the matter, and it seems more likely that the analysts will opine if the settlement terms actually look probable under the approval process.

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