Transocean Still In The Crosshairs

The hits just keep on coming for deepwater driller Transocean (NYSE: RIG). Today word came out that a gaggle of senators (I believe they're are all senators ... maybe there is a rep or two in the mix) sent a letter to the Attorney General asking him to investigate Transocean's recent  special dividend announcement.

The dividend, about $1 billion in total, was going to be paid in four quarterly installments. According to these business geniuses, they are concerned that the payment of such a dividend could make it difficult to pursue liability claims against Transocean in the future.

Here I would explain the logic of this move ... if there was any.

So much for "innocent until proven guilty", huh? Moreover, these economic geniuses apparently don't realize that Transocean has been cash flow positive for nine straight years and given the dynamics of the energy market and deepwater drilling, I really don't see that reversing any time soon.

I don't know whether or not Transocean has done anything that will stand up as legal liability. And nobody else does either (possibly including Transocean). Maybe Halliburton flubbed the cementing. Maybe Smith's fluids were faulty. Maybe Cameron's blowout preventer was faulty, or maybe the accident was one not anticipated by the design of the device.

That's a lot of "I don't knows" or maybes.

Practically speaking, Transocean is likely going to get stuck for some part of the bill -- whether through proper legal decisions or through political maneuverings aimed at "punishing" these nasty energy companies. Given today's letter, that latter contingency shouldn't be discounted by investors. While there are certainly limits on what the government can do, some of those limits are imposed only at the level of the Supreme Court and that's a long, expensive journey for any company.

Even still, Transocean isn't likely to be bankrupted by this. Short of foolish and criminal negligence (namely, not properly maintaining equipment like the BOP), I just don't see the smoking gun that keeps Transocean on the hook. That doesn't mean, though, that lawyers and politicians won't try sticking it to them in the meantime.

You have to a pretty high threshold for pain to buy today, as the press isn't likely to get better any time soon. Still, though, the stock is trading for a lot less than I believe it's fundamentally worth and those situations always appeal to me.