Updated to include analyst comments from Credit Suisse and Wells Fargo
NEW YORK (TheStreet) -- Rig maker Transocean (RIG) has plead guilty to a misdemeanor criminal violation of the Clean Water Act and will pay $1.4 billion in fines to settle criminal and civil claims with the U.S. Department of Justice related to a 2010 oil spill in the Gulf of Mexico, which was the worst manmade environmental disaster in U.S. history.
Transocean's fine follows BP's (BP) $4.5 billion settlement with U.S. regulators, which also led to guilty pleas on 11 felony counts and manslaughter charges for two of the British oil giant's employees.
"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," said Attorney General Eric Holder, in a statement. "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," he added.On news of the settlement, Transocean shares rose over 6% to $49.10 in late Thursday afternoon trading, signaling the fine and guilty plea was a relief to investors, as the Swiss-based deepwater rig specialist tries to put the Gulf spill behind it. As of its most recent quarter ended in Sept. 30, 2012, Transocean had set aside a provision of $1.5 billion for the Department of Justice inquiry into its role in the Gulf oil spill. Transocean's Deepwater Horizon oil rig was in the midst of drilling BP's Macondo oil well when a series of failures caused the well to blow out and collapse football-field-sized rig, killing 11 workers and causing millions of gallons of oil to spill into the Gulf of Mexico. As part of Wednesday's settlement with the DoJ, Transocean won't plead guilty to any manslaughter charges, however, like BP, an admission of guilt related to a negligence violation of the Clean Water Act could expose the company to civil litigation. Bloomberg reports BP and Halliburton (HAL) face hundreds of lawsuits for their involvement in the spill. Transocean's single criminal guilty plea, "pertains to well monitoring in connection with specific operations during the temporary abandonment procedure on April 20, 2010," the company said in a statement, which adds a subsidiary of the company will face probation of five years. "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," said Transocean, in a statement. "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," the company added. With regulatory fines and charges out of the way, analysts saw Thursday's settlement as potentially driving returns of capital to shareholders and C-Suite aggression. "With Macondo out of the way this opens the door for acquisitions, dividends, and buybacks," wrote Credit Suisse analyst Gregory Lewis, in a note to clients, which highlighted the 79 cent dividend Transocean paid as of early 2012. "[We] think the quantification of the liability should give ratings agencies more comfort in rating [Transocean's] debt, allowing RIG greater financial freedom to reinvest in the business through value-added newbuilds and/or acquisitions," added Matthew Conlan of Wells Fargo, in a note to clients.
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