A federal judge today ruled that Halliburton Co.'s exposure to financial penalties relating to the Deepwater Horizon disaster are somewhat limited by its contract with BP PLC.

U.S. District Judge Carl Barbier of the Eastern District of Louisiana held that the contract indemnifies Halliburton over compensatory damages related to the April 20, 2010, explosion and resulting spill at the Macondo well, including the cleanup costs -- even if it is determined that the company was grossly negligent. That means BP would have to pay.

But Halliburton, which was the cement contractor at the well, will not be protected from potential punitive damages or civil penalties under the Clean Water Act, which could be in the billions of dollars.

Barbier, who is presiding over the multi-district litigation against BP and its co-defendants, deferred reaching any decisions concerning BP's claims that Halliburton had breached its contract, which could nullify the indemnification agreement.

His decision today largely echoed his ruling last week on a similar indemnification agreement BP had with Transocean Ltd., the rig owner (Greenwire, Jan. 27).

One difference between the agreements is that Halliburton is indemnified even it is determined that it was grossly negligent.

A spokeswoman for Halliburton said the company "agrees with the ruling to the extent that it requires BP to honor its contractual indemnity obligations."

BP said in a statement that "official investigations have concluded that Halliburton played a causal role in the accident" and highlighted the fact that "if Halliburton is found to have committed fraud, then the indemnity could be void."

Click here to read the order.