Transocean Paying $1.4 Billion Deepwater Horizon Settlement

The company announced Jan. 3 it has reached agreement with the Justice Department to resolve civil and potential criminal claims.

Transocean Ltd., which owned the Deepwater Horizon drilling rig that sank in the Gulf of Mexico following an April 20, 2010, explosion, announced Jan. 3 it has reached agreement with the Justice Department to settle civil and potential criminal claims. Eleven workers died in the explosion, which started a major oil spill into the gulf.

A Transocean subsidiary has agreed to plead guilty to one misdemeanor violation of the Clean Water Act for negligent discharge of oil into the Gulf of Mexico and pay $1.4 billion in fines, recoveries, and penalties, excluding interest, the company announced, saying the amount will be paid over a period of five years using cash on hand and cash flow from operations. At Sept. 30, 2012, Transocean had accrued an estimated loss contingency of $1.5 billion associated with claims made by the department.

"These important agreements, which the company believes to be in the best interest of its shareholders and employees, remove much of the uncertainty associated with the accident. This is a positive step forward, but it is also a time to reflect on the 11 men who lost their lives aboard the Deepwater Horizon. Their families continue to be in the thoughts and prayers of all of us at Transocean," its posted statement said.

The Justice Department's news release identified the subsidiary as Transocean Deepwater Inc., which has signed a cooperation and guilty plea agreement with the government. DOJ's release said Transocean Ocean Holdings LLC, Transocean Offshore Deepwater Drilling Inc., Transocean Deepwater Inc., and Triton Asset Leasing GMBH have agreed to pay an additional $1 billion to resolve federal Clean Water Act civil penalty claims and to improve their emergency response procedures at all of their drilling rigs working in U.S. waters. "This resolution of criminal allegations and civil claims against Transocean brings us one significant step closer to justice for the human, environmental, and economic devastation wrought by the Deepwater Horizon disaster," said U.S. Attorney General Eric Holder. "This agreement holds Transocean criminally accountable for its conduct and provides nearly a billion dollars in criminal and civil penalties for the benefit of the Gulf states. I am particularly grateful today to the many Justice Department personnel and federal investigative agency partners for the hard work that led to today's resolution and their continuing pursuit of justice for the people of the Gulf."

Within 60 days after the agreement receives federal court approval, the company will pay a $100 million fine, and the subsidiary will be subject to a statutory-maximum term of five years of probation. Transocean also will pay $150 million to the National Academy of Sciences over a five-year period and $150 million to the National Fish and Wildlife Foundation over a three-year period. The money paid to NAS will be for the purposes of oil spill prevention and response in the Gulf of Mexico, while money paid to the foundation will be go to natural resource restoration projects and coastal habitat restoration, including restoration of the barrier islands off the coast of Louisiana and diversion projects on the Mississippi and Atchafalaya Rivers.

Transocean has agreed to consult with the United States in preparing a performance plan for improvements to prevent spills -- and this plan must be submitted for government approval within 120 days after this agreement takes effect.

Potential claims associated with the Natural Resources Damage Assessment process are excluded from the agreement, but the court previously held Transocean is not liable under the Oil Pollution Act for damages caused by subsurface discharge from the Macondo well. If the ruling is upheld on appeal, Transocean's NRDA liability would be limited to damages arising from the above-surface discharge, according to the statement.

The payment schedule is this:

  • 2013 - payments totaling $560 million
  • 2014 - payments totaling $460 million
  • 2015 - payments totaling $260 million
  • 2016 - payments totaling $60 million
  • 2017 - payments totaling $60 million

Civil penalties will bear interest from the date the consent decree is lodged with the court.

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