BP (BP.) filed another lawsuit against Halliburton (HAL) on Monday, seeking to recover all costs and expenses incurred by BP relating to the Deepwater Horizon incident, or more than $20 billion thus far. This latest lawsuit seems similar to an existing suit BP filed in April 2011 but comes a month ahead of a federal trial scheduled to begin in February. Our read on the lawsuit is that BP is going after both Halliburton and Transocean's (RIG) claims of contractual indemnification. As is typical of oil services contracts, BP's contract with Halliburton and Transocean includes language in which the operator (BP) indemnifies the service provider from all liability and potential damages and fines that arise in the course of drilling the well. BP's suit accuses Halliburton of gross negligence, as it seeks to penetrate Halliburton's contractual indemnifications. We see this development as a continuation of BP's legal strategy and continue to believe that BP, or the federal government, would face significant challenges establishing gross negligence on the part of the services firms, particularly since as operator BP was party to all material decisions on the Deepwater Horizon. However, if BP's legal strategy succeeds, all bets are off, and either or both service companies could be on the hook for billions.
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