World’s largest offshore drilling contractor Transocean, Inc. (RIG) is set to attend a hearing before a federal judge in New Orleans on February 14, 2013 related to the Gulf of Mexico oil spill in 2010. The federal judge will decide whether the criminal settlement of Transocean with the Justice Department can be accepted.
The Deepwater Horizon drilling rig that sank after an explosion on April 20, 2010 while operational on the Macondo exploration well proved fatal for 11 workers and leaked 4.9 million barrels of oil into the Gulf over 87 days, polluting shores from Texas to Florida. The drilling rig was leased by British energy major BP plc (BP) from Transocean. The incident was a major environmental disaster in the U.S. history. Last week, Transocean agreed to pay more than $1.4 billion as a settlement fee, which includes $400 million in criminal penalty and $1 billion plus interest in civil penalties. Moreover, the company also pleaded guilty to one misdemeanor count under the Clean Water Act.
Transocean will enter into its guilty plea deal on February 14, 2013 - scheduled by a U.S. District Judge named Jane Triche Milazzo. She will decide on that day whether the deal can be accepted. If the deal is rejected, Transocean can go for a trial by withdrawing its guilty plea. However, the company’s civil settlement with the federal government will be looked after by a different judge.
Switzerland-based Transocean is the leading provider of drilling management services worldwide. As of June 30, 2012, the company owned, had partial ownership interests in, or operated 130 mobile offshore drilling rigs. Transocean’s drilling fleet consists of 50 high-specification deepwater floaters, 25 mid-water floaters, 10 high specification jackups, 44 standard jackups, and one other rig utilized to support offshore drilling activities worldwide.
Transocean carries a Zacks Rank #3 (short-term Hold). For the long term, we maintain a Neutral recommendation on the company.
With less oil being discovered on land and with companies having to dig ever deeper to get to their reserves, Transocean is poised to benefit from a market with robust multi-year demand trends, given its technologically-advanced and versatile drilling fleet.
On the flip side, the introduction of new and more stringent regulations due to the oil spill will likely make deepwater drilling activity prohibitively expensive for exploration and production companies, making many projects marginal. This could reduce the demand for deepwater drilling.
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