World’s largest offshore drilling contractor Transocean, Inc. (RIG - Analyst Report) has agreed to pay more than $1.4 billion as a settlement fee, in order to resolve the federal claims that have emerged from the Gulf of Mexico oil spill in 2010. According to a court filing, the payment includes $400 million as criminal penalty and $1 billion plus interest as civil penalties.

Out of the $400 million payment of criminal penalty, $150 million will be allocated for protecting the Gulf of Mexico and another $150 million will be paid for preventing oil spillage.

The Deepwater Horizon drilling rig that sank with explosion on the evening of April 20, 2010 while working on the Macondo exploration well had killed 11 workers and leaked 4.9 million barrels of oil into the Gulf over 87 days, polluting shores from Texas to Florida. The drilling rig was leased by British energy major BP plc (BP - Analyst Report) from Transocean. The incident was a major environmental disaster in U.S. history.

Transocean management reveals that the company has already set aside $1.5 billion as loss contingency, and is planning to pay the fine over a period of five years. Moreover, management expects to pay some $1 billion by 2013 and 2014.

Switzerland-based Transocean is the leading provider of drilling management services worldwide. As of June 30, 2012, the company owned, had partial ownership interests in, or operated 130 mobile offshore drilling rigs. Transocean’s drilling fleet consists of 50 high-specification deepwater floaters, 25 mid-water floaters, 10 high specification jackups, 44 standard jackups, and one other rig utilized to support offshore drilling activities worldwide.

Additionally, the company had 2 ultra-deepwater drillship and 3 high-specification jackups under construction. Transocean's fleet is considered to be one of the most modern and versatile in the world due to its emphasis on technically demanding segments of the offshore drilling business.

Transocean holds a Zacks #2 Rank, which translates into a Buy rating for a period of one to three months. For the long term, we maintain a Neutral rating on the company.