GULF SPILL:

Transocean charts the depths, heights and ironies of drilling

Correction appended.

The well ruptured. The blowout preventer failed. Oil gushed from the hole in the ocean floor for months, fouling the Gulf Coast.

It was the summer of 1979 and the Pemex Ixtoc 1 well was 60 miles off the Mexican coast. The driller was Sedco, a forerunner of what is today Transocean Ltd., working for Mexico's national oil company.

The Ixtoc blowout set the oil spill record that was broken only this year when Transocean's Deepwater Horizon rig sank and the well it drilled for BP PLC gushed millions of barrels of crude oil into the Gulf of Mexico.

In the years between the Ixtoc and Deepwater Horizon spills, Transocean and its predecessor companies set the records for drilling the deepest wells in the deepest water in the world and accomplished numerous "firsts" in deepwater drilling.

Through the trials and triumph, the company has managed to come out on top. Few people had heard of Transocean before the Deepwater Horizon exploded. But it has merged and acquired its way to become the world's dominant offshore driller. With 135 rigs and 18,500 employees, it drills off every continent but Antarctica, usually in the deepest and harshest environments.

The latest, terrible chapter in Transocean's story may come to a close next week when drills boring "relief wells" near their target. And in the aftermath of the spill, the Transocean story turns from tragedy and triumph to a chain of bitter ironies.

Perhaps chief among those ironies is that despite the furious finger-pointing between BP and Transocean, it is Transocean that is drilling those relief wells, and BP is paying the company $1.5 million a day to do so.

Attorneys for the two companies have their swords crossed over liability for the Gulf spill, but out on the water their crews remain partners in production. Transocean has five other ships working for BP in the Gulf and around the world, bringing in more than $2 million a day.

In addition, Transocean announced last week that it realized a $267 million gain when insurance paid off the Deepwater Horizon (E&ENews PM, Aug. 4).

The company is also seeking to take advantage of federal maritime laws that sharply limit its liability compared with an industrial accident on land. The company petitioned a federal judge to invoke a maritime law that could cap its liability at $27 million, less than it was paid in a month to drill the relief wells.

"I guess crime does pay sometimes," said Peter Galvin of the Center for Biological Diversity, a leading critic of the deepwater industry and its regulators in the wake of the spill. "It's ironic; it's outraging that they would be the ones to drill those wells. But it's understandable if that was the only option."

Though Transocean has fared better than the average Gulf fisherman, company officials bristle at the idea that they have profited from the explosion and spill.

The company's insurers demanded that it seek the $27 million liability cap, according to Transocean's filings with regulators. And the $267 million gain it made on the sunken rig does not stack up next to the $590 million in business it had waiting for it. And the three rigs were working for BP before they were diverted to the relief wells, they note, so the work does not boost Transocean's bottom line.

As to how the company has fared since the blowout, they point to the ticker tape. The company's stock on the day of the explosion was $92. It fell to $43 on June 9, though it has rebounded somewhat in recent weeks to hit $57 on Aug. 6.

"Transocean is a market leader because of its people and mourns deeply the loss of its colleagues," a company spokesman said in a statement to Greenwire. "Any suggestion that Transocean avoided financial impact is false and counters the company's public financial reports and market realities."

From Louisiana to Ixtoc

Transocean traces its roots back to 1926 in Louisiana, when a firm called Danciger Oil & Refining bought its first drilling rig. In 1950 Danciger was bought by Southern Production Co., which became the Offshore Co. in 1953.

In 1996, the Offshore Co.'s parent firm, Sonat, bought Transocean ASA, a Norwegian drilling firm with roots in the whaling business. After the purchase, Sonat slapped the name of its new acquisition across its bow.

The company kept growing through mergers. In 1999, Transocean merged with Sedco Forex. When it bought R&B Falcon in 2000, its rig fleet became the largest in the world. The current Transocean emerged when its merger with GlobalSantaFe was finalized in 2008, putting it well ahead of its competitors as the largest offshore drilling company in the world.

Though the company seeks to avoid the spotlight, its tortuous history of mergers is chronicled in detail on the company's website. One episode that is not listed, however, is its predecessor's role in Ixtoc.

The 1979 spill started a lot like the April BP disaster. In the early morning hours, Sedco's drill bit hit a pocket of gas and bent. A geyser of oil shot 150 feet in the air and burst into flames. The platform quickly caught fire and collapsed.

Attempts to contain the leak with metal domes failed. The well spewed oil for nine months, devastated marine life and covered the Texas and Mexican coasts with gobs of crude. The flow was not stanched until three months after the first relief well was completed. The rupture poured 143 million gallons of crude into Mexican waters, and the goop covered 170 miles of U.S. beaches.

In the early weeks of this year's spill, as the federal government stood by BP's estimates saying that the Macondo well was gushing a mere 5,000 barrels a day, experts scoffed that the spill could not rival Ixtoc (Greenwire, May 4). But since the well was capped last month, federal officials released figures showing that 206 million gallons escaped from the well, pushing aside Ixtoc as the largest accidental spill ever.

Cold War intrigue

Though the company's history presentation does not include Ixtoc, it does include an intriguing hint at a Cold War spy story worthy of a James Bond movie.

The entry for 1973 is matter-of-fact. "Global Marine, under contract with the CIA, designed and built the Hughes Glomar Explorer." But the story behind it, a top-secret program with code names, cover stories and conflicting stories of success, was classified by the CIA until February of this year.

The story started in 1968 when a Soviet submarine sank 1,600 miles northwest of Hawaii. The Navy found it, even though the Soviets could not. The sub held coveted secrets, such as code books and nuclear missiles. But it had fallen to the ocean floor, 3 miles below the surface.

The Navy suggested using unmanned submarines to retrieve selected items from the sub. But over the objections of top naval officers, the CIA embarked on an ambitious plan to raise the entire vessel.

The CIA turned to Global Marine Corp. -- like Sedco a predecessor of Transocean -- to build a massive ship with a giant arm to scoop the submarine from the depths. The cover story was that eccentric billionaire Howard Hughes was building the ship to mine manganese nodules from the seafloor.

By some accounts, the vessel was an engineering marvel. In 2006, the American Society of Mechanical Engineers deemed it a "Historic Mechanical Engineering Landmark."

Others have called it not just a failure but an $800 million Cold War boondoggle. (That would be $3.5 billion in today's dollars.) The project was nearly canceled several times for cost overruns. But the investigative reporters who wrote the 1998 book "Blind Man's Bluff" on U.S. submarine spy operations reported that the ship dropped the nuclear missiles and the section with codebooks that were the most sought-after portion of the sub.

Whichever it was, the erstwhile spy ship is today a drill ship in Transocean's fleet, exploring for oil off the coast of Angola, now known as the GSF Explorer. It is the only U.S.-flagged ship in Transocean's fleet.

Going deep, safely

Transocean hit the pinnacle of deepwater achievement in 2003, when its rig Discoverer Deep Seas became the first company to drill in more than 10,000 feet of water.

A predecessor company developed the world's first offshore jackup rig in 1954. Transocean holds 19 of the past 23 world records for drilling in the world's deepest waters.

Last year, the Deepwater Horizon itself drilled the deepest oil and gas well ever. Working for BP in the Gulf of Mexico, the now sunken rig drilled a well to 35,050 feet vertical depth and 35,055 feet measured depth, more than 6 miles down.

"This impressive well depth record reflects the intensive planning and focus on effective operations by BP and the drilling crews of the Deepwater Horizon," Robert Long, then CEO of Transocean, said in September.

Transocean officials also tout their safety record, which they say has led the industry. They note that the company has won numerous safety awards and last year had the lowest "total recordable incident rate" in its history. But critics have pointed to the Interior Department's safety awards to BP and Transocean as evidence of how poorly the agency policed drilling (Greenwire, July 7).

After four workers were killed in separate incidents, the company's board eliminated all executive bonuses last year.

Going far to outrun taxes

In 2008, the same year it completed its merger with GlobalSantaFe, Transocean moved its official headquarters to landlocked Switzerland. That cut its tax burden to 16 percent of its $4.4 billion in operating income last year, compared with the corporate income tax in the United States of 35 percent.

Transocean had already moved its headquarters from the United States, where most of its component companies were founded, to the tax haven of the Cayman Islands. But the Caymans have come under increasing scrutiny from U.S. tax officials. Switzerland, by contrast, has a long-standing treaty with the United States preventing double taxation.

Nine of Transocean's 18,000 employees work in Transocean's headquarters in the Swiss canton of Zug. Another 25, including nine executives, are based in Geneva, while the rest of employees are scattered across the globe, including 1,300 in Houston.

Critics deem it hypocritical for a company assembled in the United States, involved a spill that has required massive federal response, and part of an industry that touts its U.S. jobs and importance to the American economy to place its official headquarters in a landlocked European country to avoid taxes.

"It's the height of hypocrisy," Galvin said. "They moved there because they got the best deal."

While acknowledging that tax reduction was behind the move, the company insists this was not simply a shuffling of papers. CEO Steven Newman and his management team, they say, really did uproot from Texas to the Alps. Some executives gave up promotions or took early retirement rather than make the move. In addition, the deepwater drilling business is an itinerant trade. Many were longtime globetrotters, having uprooted families many times to hop from one oil patch to the next.

"The great majority of Transocean's management team and their families reside in Switzerland, including the CEO, general counsel, COO, CFO, and tax VP," a Transocean spokesman said. "This central location allows the company superior access to its customers and primary growth markets around the world."

The company also sought to solidify its place in the Swiss business culture by getting a listing on the Swiss Stock Exchange.

The company's shares started trading in Zurich on April 20, the same day the Deepwater Horizon exploded.

Correction: A reference to Swedish business culture in an earlier version was corrected to read "Swiss."

Want to read more stories like this?

E&E is the leading source for comprehensive, daily coverage of environmental and energy politics and policy.

Click here to start a free trial to E&E -- the best way to track policy and markets.

Latest Selected Headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

More headlines&nbspMore headlines

Latest E&ETV Videos