Transocean: Gulf Spill Factoring $4B in Damages?

Shares of both BP (BP) and Transocean (RIG) are sharply lower today after it was reported the that the oil rig that exploded last week off the coast of Louisiana is leaking oil across a much wider area than previously believed.

BP is off $3.58, or 6%, while Transocean is down $5.48, or 6.5%, at $79.35.

The joint decline is interesting because up until now, it has seemed that the issue was one of clean-up of the spill, which seemed to fall mostly on BP’s P&L, with the company reportedly paying $6 million per day to sop up the mess.

As clean-up efforts now are combined with an investigation into what happens, the threat of punitive damages, accusations of negligence, and individual lawsuits grows. Yesterday, Louisiana shrimpers filed suit against BP claiming a threat to their livelihood. And today’s Wall Street Journal runs a story by Russell Gold, Ben Casselman and Guy Chazen noting that Transocean’s rig did not have a remote control used on some rigs as a last-resort.

But the more telling factor is that Cameron International (CAM) is down $5.59, or 13%, at $38.88. Cameron is the maker of a so-called “blowout preventer,” and as the Journal’s story points out, BP argues that “finding out why the blowout preventer didn’t shut down the well is the key question in the investigation.”

That raises questions of whether BP will blame RIG for not maintaining the preventer, whether RIG will blame CAM for the preventer it sold the company, etc., etc.

Meantime, the decline in the stocks represents some shocking assessment of liabilities. As RBC Capital Markets analyst Kurt Hallead points out to me in a phone call this afternoon, the decline in the respective share prices of CAM, RIG and BP since this incident began about 10 days ago has yielded market cap declines of $2 billion for CAM, $4 billion for RIG and $24 billion for BP.

Is that reasonable or even conceivable? Hard to know, says Hallead, given that there’s no easy precedent. Comparable disasters seem far in the past, including a spill in the North Sea by Occidental Petroleum in 1988; an offshore spill in California in 1969 that basically shut down offshore U.S. drilling for a time; and the last accident in the Gulf of Mexico, back in 1968.

“You don’t have recent precedent to tell you what a benchmark could be,” says Hallead.

Hallead maintains a “Sector Perform” rating on RIG and CAM.