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By now, everyone realizes the tremendous environmental and economic disaster that has become of the accidental explosion and sinking of the Deepwater Horizon oil rig in April. We hope that the latest attempt by BP to stop the leak will be a success and everyone can begin the difficult next phase of this process. As crude oil continues to spill into the Gulf of Mexico and threaten the sensitive ecosystem, the blame game has reached a fevered pitch even before the well is capped and a prudent and thorough investigation takes place.

When something goes wrong it is human nature to want to assign blame, and that feeling only intensifies among the political class as they feel a duty to hold the guilty party responsible and get justice for those wronged. However, the latest news out of Congress strikes us as inconceivable, as 18 Democrat senators are seeking a formal investigation into Transocean (NYSE:RIG) for a dividend declared more than two months before the accident.

Where to begin? Well, for starters Transocean owned, leased and operated the deepwater rig from which all the problems arose back on April 20th. RIG has formally stated that they will “honor all of its legal obligations arising from the Deepwater Horizon accident.” There is little reason to suspect that the company will not be able to afford its liabilities as it has substantial operating revenue of more than $10.8B the last two years, but additionally, they had insurance that will at least help cover liabilities arising from the accident.

However, instead of focusing their attention on how the ongoing efforts to fix the leak more than a mile under water is going (primarily BP’s operation); these Senators want to investigate a $1 billion special dividend payment announced on February 16th. The special dividend, which equates to little more than $3 per share, was declared more than two months before the accident and presumably will be paid out of cash on RIG’sRIG balance sheet. After returning this sum to shareholders, the company will still have nearly $600 million in cash and reasonable ability to generate more relatively quickly. Legally, this will all be sorted out likely over the course of many years, but according to Transocean’s lawyers they are only on the hook for $26.7 million, citing an 1851 maritime law limiting liability to the value of the rig and its cargo. We have no legal knowledge as to whether this claim will stand, but if so RIG could easily pay this liability and be done with it.

The other x-factor is the fact that Transocean is reported to make a $270 million profit by supposedly insuring the rig for more than it is worth. That may leave those in Washington boiling, but from our perspective Transocean paid what was likely a hefty price for such insurance in order to protect shareholders in the event of such a disaster. We think it is far too early to claim that RIG will profit from this incident, but the insurance policy did what it was intended for and should help RIG deal with costs arising from the Deepwater Horizon, both legal and otherwise.

Most important right now is successfully closing the leak and after what has been compared to an Apollo 13-type effort is completed attention should be turned to a full and thorough investigation into all involved parties. At the moment, no one knows for sure where the bulk of the liability lay, but from many reports I have read it is BP Plc that is more likely to bear the brunt of the costs. Like RIG, BP has stated they will stand up to whatever liabilities they are legally required to pay, and they have already paid hundreds of millions in attempts to contain the spill.

We believe Senators are being irresponsible for investigating a dividend promised to shareholders well before the accident. Even if RIG and its insurance policy are found responsible for huge penalties, that dividend should be considered gone; it’s already spent money. Calling the dividend back into question would punish RIG shareholders, not on the company itself. Is the goal to have justice for those who erred or to further pile onto RIG shareholders that have seen the stock fall nearly 40% since the rig exploded?

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Source: Congress Looking to Drill Into RIG Shareholders’ Dividend