Transocean Antes Up - Investors Appear Happy

PUBLISHED: 05 Jan 2013 @ 00:50 | Comments (0) | More info about Lou Gutheil

Transocean (NYSE:RIG) announced late yesterday that it had reached a settlement with the US Department of Justice for its part in the 2010 Deepwater Horizon tragedy in the Gulf of Mexico.

That’s right. BP has not been the only deep pocket company that the DOJ has pursued. Transocean is the owner of record for the Deepwater Horizon rig. At the time of the disaster the rig was leased to BP, which garnered most of the bad publicity for the explosion, loss of life, and the oil spill that lasted for three months.

US Attorney General Eric Holder said that “This resolution of criminal allegations and civil claims against Transocean brings us one significant step closer to justice for the human, environmental and economic devastation wrought by the Deepwater Horizon disaster.”

The DOJ agreed to accept $1.4 million as settlement for all federal civil and criminal charges. Transocean will plead guilty to a single count of “failing to properly monitor the well at the time of the blowout,” a criminal misdemeanor violation of the Clean Water Act, and pay a fine of $100 million. In addition, it will pay $1 billion in fines for civil violations of the Act. The total payout will be completed with payments to the National Fish & Wildlife Foundation and the National Academy of Sciences in the amount of $150 million each. That’s a total of $1.4 billion.

Here’s the twist to the story. Transocean has to pony up $1.4 billion. In most cases where there is a similar headline, investor confidence and share price decline. In this case, however, shareholders breathed a collective sigh of relief as $6 million of the original reserves set aside for potential claims may now be released. Transocean’s share price has already risen by as much as 10% on the NYSE in trading yesterday, reaching a high of 49.90, which is midway between its year high of 59.03 and low of 38.80. It would seem that, at least in the short term, the company and its investors can relax a bit knowing both that the claim is settled and that it was settled for less than anticipated. It is now, on the books at least, history.

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