I recently wrote about how Transocean's
Fool community member artmuseum noted that any analysis of the Swiss drilling contractor needed to take into account the latest oil spill off Brazil's coast. Good point. Here goes.
What's happening in Brazil?
A spill in the Frade Field off the Brazilian coast last month has raised eyebrows. Federal prosecutors in Brazil are suing Transocean and Chevron
According to Chevron, which operates the field, with Transocean being the drilling contractor, hardly a barrel of oil was leaked in March. This has led analysts and critics to wonder about the merits behind the second lawsuit.
But whether or not the lawsuit holds water, investors are bound to be worried about the next move. So what really is in the offing?
This could be tricky to answer. For now, Brazil's oil regulator has suspended all drilling activities in the Frade Field. This will also affect the state-owned Petrobras
Much of the lawsuits pertain to environmental issues. Some of these accidents have been viewed by the drilling industry all along as something unavoidable.
Additionally, Brazil's largest union of oil workers has long opposed "foreign involvement in Brazilian oil development." Which is why things look pretty bleak right now. At the center of the controversy is Transocean's Sedco 706 semi-submersible rig capable of drilling below 6,000 feet of water to a depth of 25,000 feet. In total, the company has nine rigs, including Sedco 706, operating in the waters off Brazil. Some of them are drillships capable of drilling in ultra-deepwater regions.
Last year, Brazil constituted 10% of Transocean's total assets and 11% of total revenue. That's a considerable chunk. If cash flows from this region dry up, this could mean serious trouble for the company. Meanwhile, the Gulf of Mexico disaster hasn't been put to rest.
Foolish bottom line
Transocean could be heading for trouble with the ghosts of the Gulf spill still haunting it. However, my gut feeling says these draconian charges leveled by Brazilian prosecutors are not going to pose a huge problem. The incidents do not warrant such measures. A minor problem, maybe. But definitely nothing that justifies a ridiculously high $22 billion case. But whichever way it turns, The Motley Fool will help you stay up to speed on the top news and analysis on Transocean. All you need to do is add the company to your free watchlist.
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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 Chevron and Petrobras. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.