Spill thrusts Transocean into spotlight it shuns

SAN FRANCISCO Mon May 10, 2010 6:12pm EDT

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SAN FRANCISCO (Reuters) - Eight months ago, BP Plc was celebrating the discovery of a massive oil find thanks to the work of Transocean's Deepwater Horizon rig, which had just drilled the oil and gas industry's deepest well.

The Horizon is now a wreck on the seabed, following an explosion three weeks ago that killed 11 people, including nine Transocean employees, and precipitated a massive leak from another well it was drilling for BP.

In both cases, rig contractor Transocean Ltd found itself playing second fiddle to the client.

Simply put, rig owners view too much attention as bad for business, and Transocean, the Switzerland-based industry leader with a history of ex-military managers, is no exception.

Yet the tight-lipped approach, which might satisfy some of its lawyers, is seen as a bad strategy this time around.

"You can get eviscerated in the court of public opinion just as easily as you can get eviscerated in a court of law," said Richard Dukas, head of Dukas Public Relations, citing as an example a Wall Street Journal story on Monday that called into question Transocean's safety record.

"Sometimes if your reputation and your image have taken such a huge beating, I feel you have an obligation to your shareholders and your employees to defend yourself," said Dukas, whose firm has helped many in the finance industry navigate through the PR minefield of the recent credit crunch.

Transocean shares have dropped 28 percent since the April 20 explosion.

Transocean Chief Executive Steven Newman, after fighting his way to the top of a company which spat out three top executives over the past two years, now faces withering challenges after only two months as CEO -- not least a Senate hearing on Tuesday that puts him squarely in the spotlight he has avoided.

OVER TO YOU, BP

BP, as one of the world's biggest private-sector oil companies, seemed to understand the need to tell its side of the story after the Horizon accident. The London-based company was quick to deploy executives to discuss tackling the spill, while Transocean's top brass have been far less visible.

Given the nature of its work, Dukas said, Transocean should have had a crisis communications plan.

"Transocean obviously did not have that, and they got caught flat-footed," he said.

Transocean declined to comment for this story.

It was a similar story last September, when Transocean's announcement that the Horizon had drilled the record oil well -- 35,050 feet in 4,130 feet of water -- came fully half a day after BP unveiled its find.

Much of that was by design, an effort not to get out in front of the customer. This means executives at Transocean, just like rivals Diamond Offshore Drilling Inc, Noble Corp and Seadrill Ltd, keep their heads down as a rule.

"If they wanted to be an oil company, they'd be one," said one source in the contract drilling sector, which another described as the "ultimate business-to-business industry."

Entire fleets of rigs, some worth $500 million, are often deployed with no more than a dozen clients.

Contracts can run for years, and are often renewed. So it was with Horizon, which was under a long contract at variable rates until September 2010, after which the British company had it signed for three more years at $497,000 a day.

With such lucrative relationships, drillers do not put much stock in promoting what they do, whether through advertisements or marketing. As a result, Transocean is one of the biggest, most technologically adept companies that few in the public know anything about.

MOUNTAIN MOVE

The past year will have done little to change that. First, Transocean moved its headquarters from Houston to the foot of the Swiss Alps in early 2009, in a move mainly aimed at saving on taxes. Then came a top management reshuffle and retirement of its eminent, but media-shy chief executive, Bob Long.

Long spent 34 years working for Transocean or predecessor companies, and as a Naval Academy graduate, shared the U.S. military pedigree of Chairman Bob Rose, an Air Force veteran.

So Newman, formerly the chief operating officer and a Harvard Business School graduate like Long, was already stepping into some large shoes.

"They've had some bench strength, they've had experienced managers coming up through the ranks," said Philip Adams, senior analyst at Gimme Credit in Chicago. "It doesn't feel like because somebody retires, nobody knows what to do."

The bench is certainly facing a stress-test, because Newman's move to the helm topped off a busy year of nameplate switching in Transocean's management suites.

Chief Financial Officer Greg Cauthen opted to retire in April for "personal reasons" at age 51 as his colleagues moved to Switzerland. He was succeeded by an Oxford-educated senior vice president, Ricardo Rosa, who was already based in Europe.

Then came the December announcement that Rob Saltiel would jump ship to run Atwood Oceanics Inc -- only three weeks after being named as the replacement for Newman as COO.

"When the decision on the management was made, and Steve was appointed the heir apparent, clearly Rob wanted that job," said Kurt Hallead, co-head of global energy research for RBC Capital Markets.

That all followed the abrupt 2008 retirement of another COO, Jon Marshall, who was also in line to be boss, indicating that the 45-year-old Newman has a proven ability to survive boardroom politics.

After his Senate appearance, Newman faces his first annual general meeting of shareholders as CEO on Friday.

He was a petroleum engineering major at the Colorado School of Mines, who has held numerous roles in his 16 years at Transocean ranging from rig manager to regional manager, so his past public comments tended to focus on technical issues.

Senators will want to know more about the company's safety record, cited by the Wall Street Journal, showing three out of every four incidents triggering investigations of problems on Gulf of Mexico rigs were on Transocean rigs.

And Transocean's move of its headquarters and tax domicile to Switzerland from the Cayman Islands just over a year ago will probably come up.

Noble Corp followed it, along with a few other companies with few fixed U.S. assets, and analysts interpret those moves as a response to fears that President Barack Obama would seek to increase the tax burden on U.S. companies based offshore.

BORN OF MANY

Yet Transocean's history is pretty multinational. It grew out of a series of mergers in the past 14 years, starting with the purchase by Birmingham, Alabama-based Sonat Offshore Drilling Inc of Norway's Transocean ASA in 1996.

Three years later came a merger with Sedco Forex, spun off by oil services company Schlumberger. A blockbuster deal for GlobalSantaFe in 2007 created an industry leader.

Cobbling together these various groups has been tough, even if the company's financial discipline impressed investors.

In a twist on its move to Switzerland, which has succeeded in cutting its tax bill, the company's cash management is now open to scrutiny with the weekly online publication of its share buybacks. www.dinkylink.co.uk/mBDEJ

Hallead at RBC Capital said the buybacks, which only started in February, could be seen as an indication about the company's concern about its liability for the oil spill.

"Whatever they say or don't say, some people are going to look at that and suggest that look if you really don't think you're liable or have a lot of exposure here, you should be buying back more stock," Hallead said.

(Reporting by Braden Reddall)

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