The Looting Begins in Earnest

This should surprise no one:

Five days after appearing before Congress to testify about its responsibility in one of the worst oil spills in US history, the Swiss company that owned and operated the oil rig that sunk into the Gulf of Mexico announced that it would shell out $1 billion in dividends to shareholders.

The revelation that Transocean is distributing a $1 billion profit to shareholders as one of its drill sites leaks millions of gallons of oil into the sea is sure to inflame an already smarting debate over offshore drilling and the company’s role.

Transocean has passionately argued that they don’t share financial responsibility for the disaster. A clause in a contract they had with BP says that the oil company is obligated to pay for any environmental damage, even though Transocean actually owned the rig. BP was leasing the rig from Transocean at the time of the accident.

As many of you pointed out a few days ago, this is a no-brainer. Have to get rid of the money before the lawsuits pile up.

Here is the excellent 60 Minutes piece on the disaster:

In somewhat related news, Reason magazine is furious that the EPA regulates things.

32 replies
  1. 1
    Steve says:

    You can put all the indemnity clauses you want in a contract, but it doesn’t make your liability go away. It just means that if you get found liable, you can ask someone else to make you whole.

    I wonder how much Transocean’s US assets amount to, anyway.

  2. 2
    JG says:

    I can’t really believe that paying this dividend has anything to do with stifling lawsuits. If anything, it might encourage them as potential litigants see a wrongdoer with deep, deep pockets shelling out money left and right.

  3. 3
    Zuzu's Petals says:

    I believe all drilling contracts include such a clause.

    In any event, the oil company is liable for the cleanup costs and specified damages under the Oil Pollution Act of 1990.

  4. 4
    Drive By Wisdom says:

    Not that anyone here is interested in facts when Prius driving liberal hypocrites can pile on corporations or Mr. Stuck – here is the report on the Ixtoc 1 blowout in 1979, which dumped hundreds of millions of gallons into the Mexicans Gulf:

    None of the indirect economic effects exceed $1 million . These estimates, based upon the available data, support a statement of no significant indirect economic impact in the study region that can be attributed to the oil spills

    http://www.gomr.mms.gov/PI/PDF.....3/3930.pdf

    Cannot wait to see all the doom-and-gloom emails from the environuts proven wrong again.

  5. 5
    WereBear says:

    Only the most foolish idiot (pause for Usual Suspects) is avoiding the realization that this is an immense disaster, the dimensions of which are still not clear.

    BP picked the wrong Presidential term to have their reckless disregard catch up with them.

  6. 6
    Delia says:

    That was the best thing I’ve seen on 60 Minutes in a very, very long time.

  7. 7
    beltane says:

    Why is it that only drug crimes involve asset forfeiture? It seems that we have a system where corporations have all the rights but none of the responsibilities of individuals.

  8. 8
    SiubhanDuinne says:

    This is really off-topic, but y’know? I don’t give a rat’s.

    Aherm. So I was wondering, what has happened to Dennis G/dengre? He was putting up awesome posts nearly every day in April, but now that Confederate History Month is over, it’s like he’s forgotten all about us. Has he found a new (younger, cuter) commemorative month to hang out with?

    Love John and the front-page gang, but I miss dengre.

  9. 9
    Comrade Kevin says:

    That 60 Minutes piece was excellent.

    As for that Reason piece, bwahaha! I do wonder, though, is this comment for real, or some sort of spoof?

  10. 10
    Roger Moore says:

    @JG:

    I can’t really believe that paying this dividend has anything to do with stifling lawsuits.

    No, it has to do with protecting their money from lawsuits. That way when they get sued into oblivion they don’t have any assets left to be seized to pay for the judgment. They can declare Chapter 7 bankruptcy and let all their creditors squabble over the remnants. The current shareholders won’t care because they’ll have their money already.

  11. 11
    Alex says:

    How can anyone who cares about reality be a libertarian? Seriously, how? I’m glad I never read any Ayn Rand, if it’s this easy for her to grab hold of the brains of the young and impressionable and never let go.

  12. 12

    @Drive By Wisdom: There’s a term for people who selectively [edit – QUOTE, not misquote] to misinform. The portion of the executive summary you quoted applied only to recreation (page 12). Allow me to quote from the very next page under the subtitle “Costs”:

    The IXTOC I oil spill is probably the world’s most expensive oil spill . The estimated loss of oil exceeded 5 million barrels of oil worth approximately $365 million . Damage claim suits that are pending in U .S . Courts total in excess of $400 million . The SEDCO-135 semi-submersive drilling platform, a complete loss, was valued at $21 million . PEMEX has reportedly spent over $70 million in capping operations and $42 million in clean-up operations . The expense to the U .S . Government is still being compiled, and cost estimates exceed $8 million . The cost to the state of Texas, for the clean-up measure, has been compiled by the involved agencies and totals to $331,389 . The Small Business Administration received 523 inquiries for economic recovery loans . They approved 238 business loans for a total of over $7 million .

    The CPI inflation rate from 1982 to 2009 is 2.19. In other words, $1 in 1982 is $2.19 in 2009. Adjust the preceding quote accordingly.

  13. 13
    slag says:

    @Kirk Spencer:

    There’s a term for people who selectively [edit – QUOTE, not misquote] misquote to misinform.

    Republican?

  14. 14
    Zuzu's Petals says:

    @Roger Moore:

    First, it looks like the dividend has been in the works for a few months now.

    Second, since it looks like they have over $21 billion in net assets (if I’m reading this filing correctly), it’s doubtful a $1 billion dividend is going to protect them from much.

  15. 15
    randiego says:

    Feh. 5 MILLION Barrels of Oil?? Is that all?

    Where’s the beef?

  16. 16
    ChrisB says:

    @Roger Moore: Not really. Transocean has about $36 billion of assets (offset by a little under $10 billion of debt). It earns about $3 billion per year on $11 or 12 billion of revenue per year. The $1 billion dividend represent a 4.5% dividend yield at the current stock price, which is not unusually high. They have insurance and a good legal position against BP. They’re not going to be sued into oblivion.

    The dividend was proposed back in February, 2 months before the accident. Its ratification at this month’s shareholders’ meeting was bad timing, PR wise, but is not an attempt to spirit money away before going bankrupt. They’d been pressured for years to start paying regular dividends.

  17. 17
    ChrisB says:

    @Zuzu’s Petals: You’ve got it right.

  18. 18
    patroclus says:

    Most excellent reporting by CBS and 60 Minutes! It seems like years – maybe decades – since I’ve seen such effective investigative journalism from them. Prior to watching, I only had a vague idea of what actually happened; now, I feel informed. It was literally riveting.

    But the urgent situation isn’t over yet…and it’s getting worse. The media should be all over this 24/7 until the leak is plugged – kudos to 60 Minutes for leading the way.

  19. 19
    Roger Moore says:

    @Zuzu’s Petals:

    Second, since it looks like they have over $21 billion in net assets (if I’m reading this filing correctly), it’s doubtful a $1 billion dividend is going to protect them from much.

    They have over $21 billion in book equity, but their balance sheet is heavily tilted toward long-term assets. That’s mostly property and equipment- stuff they need to keep in business- and goodwill- which is an intangible. If you look at their current assets- stuff that’s readily monetizable- they aren’t that much more than their short term liabilities. If they pass out $1 billion in dividends, they’ll be in a tight enough position that an unexpected hiccup would put them in a short-term cash crunch. I’d rather keep a larger cash reserve, especially given the recently demonstrated risks of the business.

  20. 20
    Zuzu's Petals says:

    @Roger Moore:

    But your argument was that they were issuing the dividend so there wouldn’t be “any assets left to be seized to pay for the judgment” if they were sued. As you agree, there actually would be about $10 billion worth of assets to be seized even after short-and long-term liabilities are paid off.

    And BTW, it’s hard to see how getting a $3+ per share dividend equals the shareholders “having their money already” if the company goes belly up and they lose their initial $50-$60 per share investment. I’m pretty sure they’d care.

  21. 21
    Martin says:

    @Roger Moore: It’s a clean enough balance sheet that they probably won’t fold under any costs under $10B. It’ll depend on how badly the stock goes to shit and whether anyone would loan to them based on the outcome of all of this.

    All the money in the oil industry is in drilling, not in refining or distribution or retail. Since the business is really quite profitable and realistically, you only risk having one rig blow up on you, you’re better off using that cash to expand the business and if anything happens, you borrow against future earnings from the rest of your fleet.

    Transocean is fine. $3B in profits? That’s seriously not bad. That’s half of what HP earns, almost a quarter of what Microsoft earns. They’ll weather this just fine.

  22. 22
    Zuzu's Petals says:

    @Martin:

    Interestingly, they did not pay bonuses to any of their executives last year because they wanted to improve their safety record.

    It made sense financially because a company’s safety record is paramount in getting and maintaining business in a competitive industry.

  23. 23
    TenguPhule says:

    It made sense financially because a company’s safety record is paramount in getting and maintaining business in a competitive industry.

    Relatively speaking of course. There are firing ranges safer then BP related properties.

  24. 24
    Zuzu's Petals says:

    @TenguPhule:

    My comment was about Transocean.

  25. 25
    Roger Moore says:

    @Martin:

    It’ll depend on how badly the stock goes to shit and whether anyone would loan to them based on the outcome of all of this.

    Not the stock; the credit rating. Given that their drilling fleet constitutes hard assets, they could probably borrow enough to cover a substantial judgment.

    I guess I’m just too fiscally conservative. I think it makes sense to have a good sized cash reserve so you can deal with unexpected crises (or opportunities). Most businesses seem to disagree; they’d rather put that money into something productive- or into dividends- and deal with the unexpected by borrowing. Given how easy credit has been, they’re probably on to something.

  26. 26
    shortstop says:

    OT and petty: Why are there only about five people in the world who know that the simple past tense of “sink” is “sank”?

  27. 27
    Xenos says:

    I made it through 15 seconds of the Reason video. Incredibly shallow and jejune. A brilliant comeback being to claim that EPA regulations are not mentioned in the Constitution, and so they must be unconstitutional.

    You can’t argue with willful stupidity.

  28. 28
    crack says:

    Sounds like there could be a good case for breaking the corporate veil.

  29. 29

    […] others would just call it what it really is: Looting. Environment assholes, deepwater horizon, drill baby drill, it's the end of the […]

  30. 30
  31. 31
    Steeplejack says:

    @shortstop, @Zuzu’s Petals:

    Ditto for stank and shrank. This is very disheartening (which is why I am moved to post extremely late). Even the New York Times has been letting sunk go the last few years or so.

    And don’t get me started on Honey, I Shrunk the Kids. Ugh.

    Steep, former copyeditor.

  32. 32
    Zuzu's Petals says:

    @Steeplejack:

    Yep, that Grammarphobia writer makes some of the same points.

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