Profit Sinks for Oil-Spill Villain Transocean

Transocean, the oil rig operator at the heart of the Gulf of Mexico oil spill, issues its first quarter earnings after the market close on Wednesday.
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(Transocean earnings story updated for information in 10-Q filing)





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, the oil rig operator at the heart of the Gulf of Mexico oil spill, reported its first quarter earnings after the market close on Wednesday.

While analysts expect the oil spill to be an overhang on shares of Transocean for weeks if not months to come, its first quarter earnings were more or less in line with Street expectations, and did not seem to herald the kind of numbers-based surprise that could prove a catalyst for share price movement.

Transocean reported earnings of $2.09 in the first quarter -- a penny below the consensus -- on revenues of just above $2.6 billion. Excluding special charges, Transocean earned $2.22 per share in the first quarter.

Transocean's net income fell to $677 million, from $942 million, or $2.93 per share, a year ago, and revenue declined 16.4%, but the results were close to the low end of the Street consensus numbers for the first quarter, and ahead of the Street EPS number when excluding one-time items.

The Street consensus was for earnings per share in the first quarter of $2.10, and revenue of $2.65 billion. The high analyst estimate was $2.29 and the low estimate $1.88 for Transocean earnings per share, with revenue estimates ranging from $2.57 billion to $2.78 billion.

Transocean stated in its 10-Q filed with the Securities and Exchange Commission after the market close on Wednesday that the Departments of Homeland Security and Interior have begun a joint investigation into the cause of the incident, and that the company received a request to preserve information from the DOJ.

Transocean also stated that as of May 5, it received $401 million as partial payment of the expected insurance recoveries from the lost rig that had an insured value of $560 million

As of April 13, 2010, Transocean's contract backlog had declined to $28.6 billion, as adjusted for the $590 million lost backlog associated with the drilling contract under which Deepwater Horizon was operating. As of February 2, 2010, Transocean's contract backlog was $30.4 billion, according to the 10-Q.

Transocean shares ended Wednesday's regular trading session up marginally, and were up by more than 1% in after-market trading.

In fact, Wednesday was a day on which Transocean,


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Cameron International


-- the three companies most directly affected by the oil spill in the Gulf of Mexico -- all finished up in trading, though obviously with shares coming off big losses in recent weeks.

The energy sector as a whole was down 1.7% on Wednesday after the second-straight day of an equity markets selloff related to the crisis in Europe.

There was mixed news on the oil spill on Wednesday. It was widely reported on Wednesday morning that the new worst-case scenario is that as much as 60,000 barrels of oil may leak into the Gulf of Mexico daily if the spill is not contained.

However, on Wednesday afternoon, BP CEO Tony Hayward tried to counter those reports, saying that was a worst-case scenario that might never prove true if containment efforts work, and even U.S. government officials said a 40,000-barrel estimate might be better.

Hayward went further on the optimistic side of making estimates, saying at a press conference on Wednesday afternoon, "A guesstimate is a guesstimate. And the guesstimate remains 5,000 barrels a day."

BP also had some success on Wednesday containing one of the three leaking underwater wells. Hayward indicated at the press conference that the leaking wells could be sealed within as little as two weeks using an untested approach called a "top kill." Existing wellhead equipment can be reconfigured to provide a conduit for pumping heavy fluids into the well that would stop the flow and allow for a permanent seal to be put in place.

-- Reported by Eric Rosenbaum in New York.


>>Oil Spill in Pictures: Gulf of Mexico Impact

>>Transocean Earnings: Think EPS Matters?

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