Blow Out Preventer (BOP) Passed all Tests

ANGIE SEDITA, UBS Securities LLC (06/01/2010)
"Remains confident that BP will honor indemnification for liability Last Friday, Transocean hosted an investor call regarding the Deepwater Horizon. While the cause of the incident remains uncertain, the company seems positive about its potential liability situation and remains confident that BP will honor its contract which indemnifies RIG from any clean-up and well control expenses.

Blow Out Preventer (BOP) passed all tests; exceeded MMS requirements. The BOP on the Deepwater Horizon passed its tests on April 10 and April 17. Additionally the BOP had higher specifications than required. The MMS requires one shear ram and the BOP had two, and requires 3 rams and the BOP had 5 rams. Thus a considerable amount of redundancy was in the BOP. Also the battery on the control pod was tested and it exceeded manufacturer specifications.

RIG halted repurchase program but will pay $1 bil dividend (5.5% yield) Management has decided to halt share repurchases out of an “abundance of caution”. The company will pay its $1 bil dividend (5.5% yield) over the next four quarters that has already been approved by shareholders. RIG has run various scenarios (including circumstances where its rigs in the GOM are operating under force majeure provisions) and is confident that its liquidity situation is strong. Issue will likely continue to hang over stock near-term We believe the stock will remain under pressure and that with the new six-month drilling moratorium it will be difficult for the stock to rise. Given the new moratorium on drilling we are lowering our PT to $82 from $90. Our new $82 PT for RIG is based on a 5.7x 2011E EV/EBITDA multiple."

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