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Transocean Says Brazilian Operating Ban Upheld

Source: Reuters 9/12/2012, Location: South America

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Transocean Ltd said a Brazilian court upheld a ruling that would prevent the world's largest offshore rig contractor from operating in the country because of an oil spill last November. Prosecutors seeking about $20 billion in damages from well operator Chevron Corp and rig owner Transocean over the 3,600-barrel spill sought the ban to ensure payment.

Brazilian industry regulator ANP tried to prevent the ban on Transocean and Chevron from taking effect, but Transocean Chief Executive Steven Newman said Brazil's Superior Court of Justice denied the attempt.

"This is very disappointing as we believe the injunction order is unwarranted and is flawed legally and procedurally," Newman said on a conference call. "The technical merits of our case are strong and we are pursuing the many avenues available to us to appeal the preliminary injunction and have it suspended."

Shares of Transocean gave up early gains on Wednesday, and closed 0.9 percent lower at $46.19 on the New York Stock Exchange. Of Transocean's 10 Brazilian rigs, seven are contracted to state-run oil company Petrobras. The others are the rig that drilled the well for Chevron, one contracted to BP Plc but working for Petrobras, and one hired by Vanco, part of privately held Houston-based firm PanAtlantic Energy Group. Many of those work at the center of a Brazilian oil frontier that has been responsible for about a third of the new oil found in the last five years.

A Transocean shutdown would be just the latest setback for Petrobras. Despite a $237 billion five-year investment plan, oil output fell in the last year. Chief Executive Maria das Gracas Foster has cited a lack of rigs as a key factor in the company's inability to meet targets over the last decade. Chevron also said it was disappointed with the court's decision and would seek all legal means to overturn the injunction. Transocean, which generates 11 percent of its revenue in Brazil, has not yet been served with the injunction, which goes into effect 30 days after it is served with legal papers, Newman said. The CEO said he did not assume Transocean could declare force majeure on the contracts as a result of the injunction, and its rigs would likely stop generating revenue while the company fought the court decision.

"So there is a kind of a worst-case scenario that doesn't look very pretty," Newman said on the call with analysts. "But as I said, we believe strongly in the merits of our case, and I'm confident that we will ultimately prevail." UBS analyst Angie Sedita saw a "real risk of downtime" for Transocean in Brazil until the company could overturn the injunction, but noted its confidence in ultimately doing so.

Earlier, the company had detailed how this week's $1.05 billion sale of 38 rigs would be modestly dilutive to 2013 earnings. The company said 2013 revenue would decline by between $1.15 billion and $1.2 billion as a result of the sale, while costs would be reduced by $750 million to $825 million. Analysts have been looking for 2013 revenue of about $11 billion, according to Thomson Reuters I/B/E/S.

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Related Categories: Ecological & Environmental  Emissions Measuring  Environment Management, Consultancy  Environmental Services  General  Hazardous Waste Management  Oil Spill & Emergency Response  Safety Services  Waste Disposal 

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