Transocean is set to pay $1.4 billion in Gulf spill

Offshore driller Transocean Ltd. will pay $1.4 billion to settle all federal civil and criminal claims relating to the 2010 Deepwater Horizon accident in the Gulf of Mexico, the U.S. Department of Justice said.

Transocean was the owner of the drilling rig that exploded in April 2010, killing 11 workers and triggering the largest offshore oil spill in U.S. history. Oil giant BP PLC, which had been leasing the rig to drill an exploratory well and was primarily in charge at the time of the accident, agreed to pay $4.5 billion in November to settle all criminal and some civil charges in the case.

While investors cheered the Transocean settlement and what it might mean for BP as it relates to remaining federal civil claims, the deal drew some criticism as it fell short of the Swiss company's own expectations on potential settlement costs.

Transocean will plead guilty to one criminal misdemeanor violation of the Clean Water Act for failing to properly monitor the well at the time of the blowout and pay a $100 million fine, according to documents filed Thursday. The company will also pay $1 billion in fines for civil violations of the Clean Water Act. Additionally, it will pay $150 million each to the National Fish and Wildlife Foundation and the National Academy of Sciences for oil-spill response and habitat rehabilitation. The pact is subject to a federal judge's approval.

"This is a positive step forward, but it is also a time to reflect on the 11 men who lost their lives aboard the Deepwater Horizon," Transocean said in a statement. "Their families continue to be in the thoughts and prayers of all of us at Transocean."

The Swiss firm previously said in securities filings that it had discussed a $1.5 billion payment with the Justice Department to resolve the civil and criminal claims. It has set aside a $2 billion noncash reserve for all related claims.

David M. Uhlmann, a University of Michigan law-school professor who used to be head of the Justice Department's environmental-crimes unit, commended the department for settling the case but took issue with the size of the penalties. Given the amount the company had disclosed it was girding for, he said, "it is curious that the Justice Department has agreed to a settlement that is better than what Transocean was proposing."

Lanny A. Breuer, assistant attorney general for the Justice Department's Criminal Division, said "Transocean's agreement to plead guilty to a federal crime, and to pay a total of $1.4 billion in criminal and civil penalties, appropriately reflects its role in the Deepwater Horizon disaster."

Analysts with Wells Fargo Securities called the settlement a welcome surprise for Transocean investors who were worried the spill-related liability could grow. "We think the quantification of the liability should give ratings agencies more comfort in rating RIG's debt," Wells Fargo analysts said, referring to the company's stock symbol.

Transocean shares jumped 6.4% to $49.20 in New York on Thursday. BP rose 2% to $43.27.

BP must still contend with civil Clean Water Act violations, which could total more than $20 billion. If BP agrees to settle the civil violations the payments would likely be much less. But if it chooses to fight the claims in court it could face fines of $4,300 for each of the estimated 4.9 million barrels of oil spilled if the company is found to have been grossly negligent.

BP spokesman Geoff Morrell said Transocean's settlement "underscores what every official investigation has found: that the Deepwater Horizon accident resulted from multiple causes, involving multiple parties."

Tom Claps, an analyst with Susquehanna Financial Group, said Transocean's settlement could be seen as a positive for BP because it doesn't include language that Transocean was grossly negligent in connection with the spill.

"The Justice Department said repeatedly in filings that both Transocean and BP were 'grossly negligent' in their conduct," Mr. Claps said. He added that if the Justice Department concluded Transocean was merely negligent, "it would improve the chances that BP would also just be called negligent and could mean their Clean Water Act fines would be much smaller than many have predicted."

Meanwhile, Halliburton, the cementing contractor on the doomed project, said in publicfilings last year that the Justice Department was looking into its actions following the accident, including record retention and post-accident testing of cement samples, to determine if it broke any laws. Halliburton has recorded a $300 million loss contingency it says is related to civil lawsuits related to the accident. Beverly Stafford, Halliburton's director of corporate affairs, said it believes its work on the doomed well was sound and that its contract with BP indemnifies it against any liability related to the blowout or the spill.

(Published by WSJ - January 3, 2013)