Transocean Agrees to Pay $1.4 Billion in Gulf Spill Settlement

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Transocean Ltd., the company that owned the Deepwater Horizon drill rig, has reached an agreement with the U.S. Justice Department regarding its role in the deaths of 11 people and the oil spill that resulted from the rig’s explosion in the Gulf of Mexico in April 2010. The deal would resolve outstanding civil and potential criminal claims against the company arising from the incident.

As part of the agreement, a Transocean subsidiary has agreed to plead guilty to one misdemeanor violation of the Clean Water Act (CWA) for negligent discharge of oil into the Gulf of Mexico and pay $1.4 billion in fines, recoveries and penalties, excluding interest.

This resolution will result in the Department of Justice concluding its criminal investigation of Transocean and settling its claims for civil penalties against the company relating to the spill from BP’s Macondo well. The company intends to satisfy its payment obligations over a period of five years, using cash on hand and cash flow from operations. As of Sept. 30, 2012, Transocean had accrued an estimated loss contingency of $1.5 billion associated with claims made by the Department of Justice.

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 the company’s leaders believe it is also important reflect on the 11 men who lost their lives aboard the Deepwater Horizon.

A Transocean subsidiary has agreed to plead guilty to a single misdemeanor violation of the CWA for negligent discharge of oil into the Gulf of Mexico. This violation pertains to well monitoring in connection with specific operations during the temporary abandonment procedure on April 20, 2010. Pursuant to the agreement, Transocean will pay a fine in the amount of $100 million within 60 days of this agreement receiving U.S. federal court approval. The Transocean subsidiary will also be subject to a statutory-maximum term of five years of probation.

Additionally, Transocean will pay $150 million to the National Academy of Sciences (NAS) over a five-year period, and $150 million to the National Fish and Wildlife Foundation (NFWF) over a three-year period. The funds paid to the NAS will be for the purposes of oil spill prevention and response in the Gulf of Mexico; funds paid to the NFWF will be directed 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.

To address the government’s pending civil claims, Transocean has agreed to pay $1 billion in Clean Water Act civil penalties over a period of three years. Additionally, the company has agreed to implement certain measures to prevent a recurrence of an uncontrolled discharge of hydrocarbons. Transocean has agreed to consult with the United States in preparing a performance plan for these improvement measures, which must be submitted for the government’s approval within 120 days of this agreement taking effect.

Any potential claims associated with the Natural Resources Damage Assessment (NRDA) process are excluded from the agreement with the Department of Justice. However, the district court previously held that Transocean is not liable under the Oil Pollution Act for damages caused by subsurface discharge from the Macondo well. Assuming that this ruling is upheld on appeal, Transocean’s NRDA liability would be limited to any such damages arising from the above-surface discharge.

The Department of Justice has agreed that it will not pursue further prosecution of Transocean Ltd. and certain of its subsidiaries for any conduct regarding any matters under investigation by the Deepwater Horizon Task Force relating to or arising out of the Macondo well blowout, explosion, spill or response. Transocean has agreed to continue to operate with the Deepwater Horizon Task Force in any ongoing investigation related to or arising from the accident. The civil and criminal agreements are subject to court approval and, in the case of the civil agreement, public notice and comment.

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