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Friday, September 10, 2010 4:04:45 PM

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Note boosts Transocean shares, but rally may fade

1:29 pm ET 09/10/2010- MarketWatch Databased News
LOS ANGELES (MarketWatch) -- A note from a Bank of America analyst that said Transocean may be absolved of liability in the Deepwater Horizon Gulf of Mexico spill, gave an 8% lift to the company's shares Friday, but the rally may be short-lived.

The note from B. of A.'s Douglas Becker disclosed comments from BP Plc's incoming Chief Executive Bob Dudley in a meeting with analysts. Dudley reportedly said contracts related to the Macondo oil well relieved both Transocean , the operator of Deepwater Horizon, and subcontractor Halliburton Co. , hired to seal the rogue conduit, from liability in the incident, Becker noted.

"Importantly, BP does not intend to seek compensation from either company unless the Department of Justice finds gross negligence," Becker's note said. "Given the difficult in proving gross negligence, we view this as a positive for [Transocean], and to a lesser extent [Halliburton]."

BP officials did not immediately comment on the report. But B. of A. officials later said that they had been contacted by BP officials who now dispute Becker's account of Dudley's comments.

Earlier this week, BP released a report after conducting its own investigation into the April 20 explosion aboard Deepwater Horizon that killed 11 workers and created the worst oil spill in U.S. history. Millions of gallons of oil spewed into the Gulf of Mexico for three months about 50 miles off the Louisiana coast while crews tried to cap the out-of-control wellhead.

BP had shifted some of the blame for the incident to both Transocean and Halliburton, and both companies responded by saying that BP should be shouldering more of the responsibility.

Becker's note said that Transocean's shares are down 40% since the incident, and that the market had baked in a $6 billion liability for the company.

"We believe this is excessive based on conversations with lawyers and the emerging fact pattern," Becker wrote. "However, we have maintained a neutral rating based on headline risk."

After rising more than 8% at one point, Transocean shares were up 7.95 to $59.66 in recent action. The note apparently gave a slight boost to Halliburton, which was up 2% to $30.78.
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