Transocean Seeks $1.5 Billion Settlement for Certain Macondo Claims

Houston-based drilling contractor Transocean reported Monday that it has been in discussions with the U.S. Department of Justice seeking to resolve certain civil and criminal claims related to Macondo for $1.5 billion over a period of years.

The parties have not reached an agreement, Transocean reported in an 8-K filing with the U.S. Securities and Exchange Commission.

Transocean said a number of issues would need to be resolved in order to reach any settlement, including whether that settlement would include or exclude claims under the Natural Resource Damage Assessment Process (NRDA) under the Oil Pollution Act of 1990, the time period for payment, and the factual basis of a plea.

BP proposed a settlement to Transocean prior to the February 2012 announcement of the settlement between BP and the Plaintiff's Steering Committee (PSC). Later that month, but before the BP settlement with the PSC was announced, Transocean suggested a settlement of all claims of the plaintiffs represented by the PSC. The PSC responded with a settlement proposal. No further settlement discussions with either the PSC or BP have taken place since February.

The proposed settlements by BP and the PSC were each far in excess of the figure that Transocean had been willing to consider for a settlement, and far in excess of the amount Transocean had considered in its discussions with the Department of Justice.

"Our initial read is that the dollar amount is in line with our expectation and the company's $2 billion reserve and that such a specific focus is a positive sign of potential settlement," according to a Sept. 10 analyst note from FBR Capital Markets & Co.

While the tone of the Department of Justice memorandum released earlier this month - in which DOJ accused BP of gross negligence over the Macondo oil spill - was negative, FBR did not read any new or irrefutable evidence of gross negligence or willful misconduct that would expose Transocean to outsized clean water act exposure.

"We do not disagree with the logic that the Administration is eager to settle before the election and emphasize that headline volatility is a predictable tactic in negotiating a final settlement," FBR analysts noted.

In its 10-K filed in February, Transocean reported that it could be suspended or debarred as a contractor on federal leases if it is charged with or convicted of certain criminal environmental offenses. The line of reasoning is technically plausible "but more likely as part of a closing negotiating tactic by the government," FBR analysts said.

"With Transocean owning more than one-third of active Deepwater [Gulf of Mexico] rigs, an exclusion of the company would undermine the administration's efforts to put the moratorium behind it and move towards energy independence," FBR analysts noted.


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