Financial impact of Transocean's rig loss mulled
Reuters
Published: Thursday, April 22, 2010
The company said Thursday that the Deepwater Horizon, a rig that was ripped by explosion and fire late on Tuesday, had sunk off the coast of Louisiana as rescuers continue the search for 11 missing ...
SAN FRANCISCO -- Analysts believe the financial impact for offshore drilling contractor Transocean Ltd. of its rig lost in the Gulf of Mexico depends on whether it can be replaced, and how much oil is spilled.
The company said Thursday that the Deepwater Horizon, a rig that was ripped by explosion and fire late on Tuesday, had sunk off the coast of Louisiana as rescuers continue the search for 11 missing workers.
Analysts said that while the cost of the rig will be largely covered by insurance, the contract with BP Plc could prove to be where Transocean feels the financial impact from the loss of the nine-year-old floating rig.
According to the company's latest fleet status report, the current contract had an adjustable day rate estimated to range from US$458,000 beginning in March 2008 to US$517,000 in September 2010. After that, BP had signed up the Horizon to work for three more years at US$497,000 per day.
UBS analyst Angie Sedita estimated the earnings impact of the lost revenue at 3 percent to 4 percent per year for Transocean. She said it would cost more than US$600 million to build such a rig today, and that Transocean did not have another one to fill the contract.
"We are not sure of the scale of the environmental insurance coverage, which could become an important issue," Sedita wrote in a note to clients on Thursday.
Analysts at Tudor Pickering Holt Securities in Houston said the real negative outcome would be if the Horizon's loss turned into a major oil spill or the well was not quickly controlled.
Transocean said in a separate statement on Thursday that the well was still flowing, and it had started skimming an oil slick that measured 1 mile by 5 miles (1.6 to 8.1 kilometers).
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