The price of crisis at Transocean …

August 5, 2010

Deepwater Horizon Offshore Drilling Platform on Fire
Transocean (RIG) got some press yesterday for the $267-million gain it recorded from an insurance settlement for the Deepwater Horizon, its drilling platform in the Gulf of Mexico that burned and sank after the well it was drilling blew on April 22. It also announced net income of $715 million.

But deeper in the company’s quarterly report, Transocean offers some insight into just what it costs to be involved in a crisis of this size and complexity.

We’re not talking about ultimate liability for the spill. For one thing, that number isn’t known yet. For another, Transocean denies having much responsibility: It says, essentially, that BP is responsible for oil discharges under water, while Transocean is responsible for those on or above the surface. Or, as Transocean puts it:

“As the responsible party for Deepwater Horizon, we believe we are responsible only for the discharges of oil emanating from the rig. Therefore, we believe we are not responsible for the discharged hydrocarbons from the Macondo well.”

(Russell Gold’s Wall Street Journal piece yesterday gives a good summary.)

But here, we’re talking about the raw costs of dealing with the crisis and the aftermath — the kind of costs that Transocean is going to incur even if its argument prevails, and which will take some effort to recoup from others. Here’s the litany as Transocean spells it out:

  • $70 million of insurance deductibles;
  • $30 million or so in higher insurance premiums;
  • $36 million in legal expenses “related to lawsuits and investigations”;
  • and $44 million “primarily related to our internal investigation” of the incident, “including consultant costs, travel costs and other miscellaneous costs.”

That’s a $180-million price-tag in operating costs for 2010, before any liability issues are considered. And it’s far from unreasonable to think such costs will continue, and are reflected to varying degrees at other companies.

If you’re really curious about the legal issues, incidentally, Transocean also filed a copy of what it calls the Deepwater Horizon Drilling Contract, which clocked in at somewhere around 280 pages when we briefly considered printing it.

Image source: U.S. Coast Guard via Flickr

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