Transocean LTD (RIG): Finally Time To Buy This Oil Rig Contractor?

Transocean LTD (NYSE:RIG), the largest offshore drilling rig contractor in the world, has been one of my favorite stocks to watch for years now, however I have not pulled the trigger.  When the 2007-08 oil bubble was happening and you were seeing headlines such as “Oil Going to $200 a Barrel?” Transocean was trading at up to $188 per share.  Something told me that the oil madness wouldn’t last and I was right.

After the bubble burst, and the Deepwater Horizon disaster happened, Transocean fell to a low of $38.21.  While the company has rebounded some, I was hesitant to make a call on it either way until the company had some closure in regards to that situation.  With the lawsuits and penalties pretty much settled at this point, it might finally be time to make a move on Transocean LTD (NYSE:RIG).

Profile

Transocean focuses mainly on oil rigs for deepwater drilling, which is defined as depths of over 4,500 feet.  The company currently has a fleet of 134 drilling rigs, with another six under construction.

As of the end of the last fiscal year, Transocean had a contract backlog of $21.4 billion. This was down 10.8% from the year before, but still included $2.7 in contracts with BP (NYSE:BP), who was operating the Deepwater Horizon rig.

Deepwater Horizon Saga

Most people know the general details about the Deepwater Horizon disaster.  In April 2010, the rig (one of Transocean’s) had an explosion, burned, and sank in the Gulf of Mexico while being operated by BP.

The reason that BP was mainly held responsible was that as the operator of the rig, the contract between the two companies provides that BP cannot hold Transocean responsible for containing a blowout, or for the cost of cleaning up the spilled oil resulting from it.

However, Transocean was not completely absolved.  In late 2010, the Department of Justice filed a civil lawsuit against Transocean for violations of the Oil Pollution Act of 1990 and the Clean Water Act.  The company set aside a $2 billion reserve fund to deal with this and any other charges.