I've been doing some research today about why Halliburton are not being named as culpable in the recent oil spill in the Gulf of Mexico.
As some of you may or may not know, Halliburton are a company with close ties to the government in the US.
Dick Cheney was at one time, Chairman of Halliburton, but gave up his ties with the company soon after they won a no-bid contract for the rebuilding in Iraq.
It later transpired that Cheney had held onto millions of dollars worth of shares, which had quadrupled (if not more) in value, thanks to the no-bid contract they won, which Cheney was instrumental in handing to them.
It is not clear if Cheney has cut his ties with Halliburton, but it seems unlikely, given that major contracts were handed out to a subsidiary of Halliburton, called KBR.
In Iraq and in other countries, contractors work on a cost plus basis, which is basically a license to print money when working on government contracts.
Sometimes there are as many as 5 sub-contractors working under the main contractor, which means that the US taxpayer is paying for the same work up to 5 times.
Cost plus is a dis-incentive to efficiency, and works like this in its most common form:
MR = P + ((dP / dQ) * Q)
where:
MR = marginal revenue
P = price
(dP / dQ) = the derivative of price with respect to quantity
Q = quantity
This method of charging means that the stock price of Halliburton went through the roof as soon as they were awarded government contracts in Iraq, Afghanistan and other places.
Halliburton have been investigated on several occasions for accounting irregularities, bad practice (including rotten food being given to troops in mess halls), improper disposal of waste products including medical waste, and toxic substances (burning these in open pits) and supplying/building faulty products and buildings, but they have always got away with little more than a slap on the wrist.
So, as we can see, they have friends in high places (including the Bush family) they are bleeding money out of the government, and they are penny pinchers.
In relation to the oil spill, they were contractors for the cementing process - this is plugging holes in the pipeline seal by pumping cement into it from the rig.
Initial reports have indicated that many experts are convinced that the cementing process was at fault - the problem was very likely a faulty cement plug at the bottom of the well or the cement between the pipe and well walls didn't harden properly and allowed gas to pass through it.
Halliburton also acquired "Boots and Coots", the premier international oilfield emergency expert. From firefighting to pollution control, Boots & Coots is there to provide complete emergency services as well as preventative maintenance, engineering and design, safety training, and are the most experienced team of well control specialists in history.
They acquired them 8 days before the explosion happened, which cost them $240 million dollars. There were problems with the take over though, shareholders are suing over this. Halliburton has worked with Boots & Coots for a very long time, and Boots & Coots was involved heavily in both the Iraq and Kuwait war.
Halliburton were working 5,000 feet down at the ocean floor only 20 hours before the whole thing blew up. A standard "fail-safe" that would normally stop this type of accident didn't work as it should have.
So, the question is,
why is all the blame being laid at the door of BP, when other companies are just as culpable?I have no great love for BP, in fact I really, really dislike the bas**rds - they have a corporate history of extreme PR to make them look as though they are a responsible company, but in reality they are VERY irresponsible.
Part of the answer may lie in President Obama's insistence in calling BP "British Petroleum" even though they have been a multinational and changed their name to BP in the mid-late 90's and have as big a stake in the US pensions market as they do in the UK.
Indeed, they have more US employees than UK employees, and while UK shareholders (in the shape of pension plans) hold around 40%, the US pensions have a 39% stake.
There's also the fact that Halliburton have a history of cover ups and shady practices, and have friends in high places, including Cheney and the very powerfull Bush family.
I'll be doing some more diggin around over the next few days, and will post updates.
Edit to add:
Wall Street has been quick to defend Halliburton, at least based on the limited information available so far. The stock traded up 74 cents, or 2.4%, to $31.39 on Monday as analysts expressed confidence that the company was not to blame.
As always with this type of thing, it pays to "follow the money" - someone is making a killing out of this...
Halliburton have been involved in oil spills before in 2002, 2006, 2009 and 2010, all involving plugging incidents, yet despite this, their stock continues to rise, and they manage to climb out of the sh*t smelling of roses.
