There is no need to minimize just how serious the Deepwater Horizon oil spill in the Gulf of Mexico could ultimately be. Workers died in the accident, billions of dollars in damage are likely, a valuable rig is now scrap metal, and opponents of offshore drilling will make hay from this accident for years to come.

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All of that being said, the decline in market value of offshore driller Transocean (NYSE: RIG) seems to be exaggerating the ultimate impact to the company and its future prospects. With earnings out last week and a growing sense of the worst-case scenarios, the nervous hands may be all but gone from this story.

The Quarter That Was
The first quarter of 2010 was not an especially strong quarter for this premier drilling company, but it wasn't expected to be. Revenue was down about 17% versus last year, and down about 5% sequentially. Overall utilization rates slipped again, ending up at 66% for the Q1 (versus 69% in Q4 2009 and 91% a year ago), while day rates were mixed.

Below the top line, Transocean delivered an efficient quarter. Operating costs fell on a sequential basis, helped significantly by a drop in rig operating costs. All in all, this powered the company to a 6-cent beat on the EPS number.

Deepwater Horizon
Along with the earnings information, Transocean management gave a little more detail on the company's exposure to the Deepwater Horizon accident. The rig in question was insured for $560 million, of which the company has already received $401 million. Unfortunately, this amount does not cover the full value of this relatively new rig, nor does it cover the $590 million of contracted revenue that was tied to it. Beyond these amounts, the company has $950 million in insurance coverage for injuries, wreck removal and other assorted liabilities.

While years of litigation are a virtual guarantee, Transocean's client, BP (NYSE: BP), will have total legal responsibility for the clean-up and the economic fallout. That is not to say that other participants in the drilling operation, including Transocaen, Cameron (NYSE: CAM), Halliburton (NYSE: HAL) and Smith International (NYSE: SII), will not get sucked into the legal proceedings and investigations, but their liabilities should be limited relative to those of BP.

A Brighter Future Amidst The Problems
Investors who are new to the energy patch may wonder why Transocean reported a relatively soft quarter while energy companies like Apache (NYSE: APA) are showing strong rebounds. The reason basically comes down to timing - energy companies do not commission offshore rigs (especially deepwater rigs) lightly, and offshore drilling projects require longer start-up periods.

That said, with companies like ExxonMobil (NYSE: XOM) and Petrobras (NYSE: PBR) committed to extensive offshore activity in the years to come, it feels reasonable to assume that day rates will be on the upward march again. As the unquestioned leader in offshore drilling, and the owner of the largest and most sophisticated fleet, Transocean will certainly stand to benefit.

Investors who are nervous about anything related to this accident, but still looking to play the theme, could consider names like FMC Technologies (NYSE: FTI) or CGG-Veritas (NYSE: CGV). But put simply, and even acknowledging the possibility of additional liabilities, Transocean shares look pretty appealing at today's levels. Investors with a bit of risk tolerance and patience may want to take a very serious look at these shares while the headlines are still dominated by bad news. (Before jumping into this hot sector, learn how these companies make their money. Read Oil And Gas Industry Primer.)

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