A Behind-the-Scenes Firm in the Spotlight
Transocean’s corporate motto is “We’re never out of our depth.”
But after last month’s fatal explosion on a Transocean oil rig in the Gulf of Mexico, that assertion is open to question.
BP, which leased the platform from Transocean, has repeatedly emphasized that the rig and its safe operation were Transocean’s responsibility. Meanwhile, Congressional investigators have raised questions about Transocean’s maintenance and its modification of the rig’s blowout preventer — the system of valves and rams positioned at the seafloor that was supposed to seal the well in case of emergency.
Although Transocean has denied any wrongdoing and says BP is responsible for the costs of the accident, investors are unconvinced. Transocean shares plunged 9 percent on Monday, as 18 Democratic lawmakers asked for an investigation into the company’s recent decision to pay a $1 billion dividend to shareholders. Since the April 20 explosion, Transocean’s stock has fallen 41 percent, while BP’s has dropped 31 percent.
Throughout its history, Transocean has been known for pushing the envelope. The company, the leading player in offshore oil drilling, proudly breaks records for drilling the deepest wells, while finding ways to keep oil and gas flowing under the most extreme pressures and temperatures. On the financial side, Transocean has pursued aggressive tax strategies and bought up competitors.
The sinking of the Deepwater Horizon platform and the widening oil spill from the underwater well has damaged the company’s image of discipline and technological know-how. It has also dragged the secretive company and its chief executive, Steven L. Newman, uncomfortably into the public eye.
“Transocean is dominant, but the accident has definitely tarnished its reputation for worker safety and for being able to manage and deliver on extraordinarily complex deepwater projects,” said Christopher Ruppel, an energy expert and managing director of capital markets at Execution Noble, an investment bank. “The story of this tragic accident will play on for weeks and months, continuing to put Transocean and its work into question.”
A memorial service is planned Tuesday in Jackson, Miss., for the 11 people who died in the gulf accident.
Transocean, which employs more than 18,000 people, operates a fleet of 139 offshore rigs and drill vessels in 30 countries. It owns nearly half of the 50 or so deepwater platforms in the world.
A predecessor company was the first to deploy jack-up drilling rigs that could stand on the ocean floor. Transocean was the first company to drill year-round in the frigid North Sea, and it was the first to run a drill ship capable of working in 10,000 feet of water. In September, the company claimed the record for the deepest offshore well after it finished one for BP in the Gulf of Mexico that was 35,050 feet in vertical depth.
Now Transocean might be in the record books for a less stellar achievement: contributing to what some experts predict will become the biggest accidental oil spill in history.
Company officials declined repeated interview requests.
In testimony to Congress and comments to securities analysts last week, Mr. Newman, who was promoted to chief executive in March, said he could not yet give definitive answers for the causes of the accident, which killed 11 people.
“We will work very hard to understand what happened this time around, and we will implement whatever recommendations come out of that analysis such that this doesn’t happen again,” Mr. Newman told a Senate committee.
One crucial question is whether Transocean compromised safety in the Deepwater Horizon accident.
Stephen Stone, who worked as a roustabout on the platform, said in an interview that safety policies were important at Transocean “if you have time.”
“But if it’s a rush, then you kind of overlook it,” said Mr. Stone, who is suing the company and others for personal injuries and economic losses.
An examination by The New York Times of Transocean’s pollution and accident record showed that it had performed on a par with other companies working in the gulf. Before the Deepwater Horizon accident, Transocean’s current drilling vessels had accounted for about 15 percent of 777,000 gallons of chemicals and petroleum spills in the last decade in the gulf, based on a review of completed investigations by the United States Coast Guard.
Still, the company’s board suspended executive bonuses for 2009 after four workers died in separate incidents on separate rigs in different countries.
When Mr. Newman was asked by a senator last week if the Deepwater Horizon accident demonstrated a greater interest in profit than safety, he responded, “We will never compromise safety in pursuit of customer satisfaction.”
In one sign of that commitment, Mr. Newman promised to perform a Bollywood-style dance number if Transocean’s employees in India topped the company’s safety charts for two years running. In February 2009, after they hit the target, he gamely gyrated on stage, backed up by four dancing women. The performance was captured on video for a company magazine.
That image of Mr. Newman contrasts with his solemn, brooding presence at the Congressional hearings about the accident. His square jaw and bald head have given the former rig manager and Harvard Business School graduate the mien of a boxer at the witness table.
He has, at times, visibly bristled at the ring of eyeballs and television cameras — as well as the technologically unsophisticated questions of lawmakers unfamiliar with the offshore drilling industry.
“You are the manufacturer of the blowout preventer that did not work,” declared Senator Bill Nelson, Democrat of Florida, at a hearing last week.
“We are not the manufacturer of the blowout preventer,” Mr. Newman responded coolly. “We own the blowout preventer.” The device was manufactured by Cameron .
Between Congressional hearings, Mr. Newman has traveled back to Transocean’s new headquarters in Zug, Switzerland. The company, which had formerly been based in the Cayman Islands and earlier, in Houston, moved to Switzerland in 2008 after years of tax disputes with the United States government over Transocean’s treatment of losses and capital gains.
Those disputes, totaling $698 million, are unresolved, and the company is involved in tax dispute in Norway.
As oil companies have sought oil in ever-deeper waters around the world, Transocean’s revenues have grown an average of 34 percent annually since 2004, according to Morningstar.
The company has a backlog of over $30 billion in contracts, none of which have been canceled since the accident. Some of its growth has come from decades of acquisitions, in particular its merger with GlobalSantaFe nearly three years ago.
Most analysts and legal experts say Transocean’s liabilities in the gulf spill are probably limited. Under its contract for the Deepwater Horizon, BP agreed to assume all losses, expenses, fines and claims for pollution or contamination. And under the Oil Pollution Act, the well’s owners, principally BP, are responsible for paying for cleanup costs.
Transocean is trying hard to protect itself. It has filed a petition in United States District Court in Houston to limit its liability to $26.7 million, trying to use a clause in an 1851 maritime law to hold liability to the value of the rig and its cargo.
BP would probably be able to recover damages from Transocean only if investigators found the company was guilty of gross negligence, said Tracy Hester, a visiting assistant law professor at the University of Houston.
Transocean is also facing a multitude of lawsuits for the 11 deaths and myriad injuries caused by the Deepwater Horizon explosion.
The company carries $950 million of third-party liability coverage for personal injuries and property damage. But even if its out-of-pocket costs for the accident are minimal, that is surely little solace for a multinational corporation that had come to see itself — through its technological derring-do and its ability to push the frontiers of offshore drilling — as exceptional.
In an interview published in a Transocean corporate magazine before the accident, Mr. Newman was asked where he would like to see the company in the next five or 10 years.
“I think the hallmark of our organization has always been around innovation and technology development,” Mr. Newman replied. Asked what the company could be doing better, he said, “First of all, we have to improve our safety performance.”