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Transocean: The Name Synonymous With Oil Spills

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History seems to be repeating itself. Once again, Transocean (NYSE: RIG  ) is embroiled in an oil-spill mess that threatens to bring repercussions far worse than what the company had to endure after the Gulf of Mexico spill.

The latest crisis
This time, it's a leak of almost 3,000 barrels in eight days in the Campos Basin, off the Brazilian coast, from a well operated by Chevron (NYSE: CVX  ) . And Transocean is, yet again, the rig operator. Now, in terms of magnitude, this is much smaller than the Macondo well blowout in the Gulf of Mexico last year, where the spill was about 3,000 barrels of crude oil per day. However, the ramifications for Transocean may be much greater. According to the latest information available, the Brazilian government has already banned the rig maker from operating in the state of Rio de Janeiro and has slapped the company with a $28 million fine.

Keep in mind that the current spill comes at a time when the rig maker has yet to reach a settlement with BP (NYSE: BP  ) over the Gulf tragedy. No prizes for guessing that the immediate consequence will be a strengthening of BP's claims for compensation from Transocean in a saga that's yet to rest.

On a positive note, unlike BP, Chevron has accepted full responsibility for the leak by admitting to a miscalculation of the pressures while targeting the concerned reservoir. To a large extent, this should remove the burden of responsibility from Transocean's shoulders. But what really can't be taken for granted is a political backlash leading to a further loss of reputation.

Calculated moves
Given that offshore drilling is picking up across the globe as onshore reserves are fast getting depleted, exploration and production companies will be wary of employing the services of Transocean. This is where management needs to carefully weigh its options.

Take the Campos Basin alone: More than 80% of Brazil crude oil is produced here. The recent Tupi oil field discovery, which is three times larger, has yet to figure prominently in terms of production. State-owned Petrobras (NYSE: PBR  ) , which is the major operator in both the oil fields, will now think twice before using the services of Transocean. The Gulf of Mexico holds several contracts for the Switzerland-based company as well.

Foolish bottom line
It'll be interesting to see how Transocean reacts to the latest crisis. The best possible way out is to follow Chevron's footsteps and accept full responsibility. Still, that could be far-fetched, given the company's past responses in similar situations.

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Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Transocean. Motley Fool newsletter services have recommended buying shares of Petroleo Brasileiro and Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 22, 2011, at 4:14 PM, prginww wrote:

    Why exactly would Transocean accept responsibility for an error that has been acknowledged by Chevron as being theirs? They made an error in determining the pressure of the reservoir and the mud that should be used to control such pressure, and they have been forthright on explaining that.

    A couple of other points seem worth noting. Transocean is not a "rig maker", they are a contract driller. Also, at the moment, Transocean has not been fined (Chevron has) and it's only the state of Rio doing the talk about banning them, and the federal level is who'll make that call, not the state.

    Lastly, the assertion that this incident, which is both minor and includes no fault by the driller, has anything negative to tell us about RIG's post-Macondo litigation with BP, seems ill founded.

    Just to be totally clear, I am long RIG, as well as several other drillers in the sector, and have been a long time investor in Petrobras. So I bring both bias and experience to the discussion.

  • Report this Comment On November 22, 2011, at 5:27 PM, prginww wrote:

    Good points by Petroglyph. Chevron essentially gave Transocean the plan, supervised the execution of that plan, and signed off on the result. The fact the plan wasn't a good one in the first place has nothing to do with Transocean, they are drilling plan executers, not drilling plan designers or geophysicists. CVX accepted the blame for this because of this fact.

  • Report this Comment On November 22, 2011, at 7:41 PM, prginww wrote:

    Let me sound off as another RIG shareholder. Not only is the author peddling misinformation about the Brazilian spill, but he seems equally unaware that the federal court in New Orleans has shown it respects the contract between BP and Transocean as regards distributed liabilities for the Macondo spill: Transocean is responsible for damage caused by surface and above water sources (i.e. fuel, liquids and debris from the destroyed Deepwater Horizon platform), while BP is responsible for damage caused by subsurface sources (i.e. the well itself). RIG's liabilities would seem to be very restricted. At least in this essay, the author demonstrates that not all fools are wise.

  • Report this Comment On November 23, 2011, at 8:22 AM, prginww wrote:

    Wow, rig "maker"? Really? My question is this: "Why would Motley Fool allow anyone to write about a company that they obviously know nothing about? " And one has wonder what the motivation was for this article to begin with....Chevron said themselves "Transocean has NOTHING TO DO WITH THIS."

    The problem is when you're the biggest driller in the world, sadly your exposure to such things also rises. Everything on the rig in this incident, I.E. the blow out preventer, worked EXACTLY as it should have. RIG should be commended for having saved Chevron from a huge mess. And anyone in the business will see that Transocean has there act together and will see this incident not as a failure on RIGs behalf, but a success, and be even MORE willing to contract them out.

    Note to the author: Actually research what you are writing about before making yourself look wholly ignorant. Just some friendly advice.

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