Investopedia: Odyssey Leads Investors On Treasure Hunt

Sell-side analysts desperate to add a little flair to dry research reports will try to spice things up by talking about "hidden treasure," "deep dives," or "plumbing the depths". Well, there is a company that actually does all of that. Odyssey Marine Exploration (Nasdaq:OMEX) is primarily in the business of finding and salvaging wrecked ships and it may be one of the strangest companies that trades on U.S. exchanges.

What They Do
Odyssey Marine operates several simultaneous and overlapping businesses. The core of what the company does is the use of advanced underwater technologies to find, characterize and salvage shipwrecks - often ships from the Age of Sail that sank with ample amounts of gold or silver on board. That is not all that the company does, though. Odyssey Marine also assists in more conventional salvage and recovery operations, conducts deepwater mineral exploration projects, and operates a museum exhibit that highlights some of the artifacts that the company has recovered from shipwrecks.


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Investopedia: Noble's Permit No Giant Leap For Drillers

In what may pass for a step back toward normalcy, the U.S. government has given Noble Energy (NYSE:NBL) the go-ahead to resume offshore drilling in the Gulf of Mexico. While it seems likely that a lot will be made of this move, investors should remember that it isn't a straight line between this permit and "normal", even if the long-term result is almost certainly going to be a return to active drilling. 

What Noble Energy Can Do
Noble did not receive permission to sink a new well. Rather, the company was granted permission to resume work on a well in the Mississippi Canyon, some 70 or miles south of Louisiana. Work on this well had started a while back, but all drilling was stopped in the aftermath of the BP (NYSE:BP) Deepwater Horizon accident.

Now, though, Ensco (NYSE:ESV) can go ahead and drill the well. As part of this process, Noble/Ensco will be using a new underwater containment system developed by Helix Energy (NYSE:HLX). It is unclear at this point whether the inclusion of that system had any bearing on Noble getting permission to move forward, but it certainly seems like a good move to include a system that should help contain any spilled oil if another accident were to occur. 


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Investopedia: Macando Takes Out Another Seabird

Given the scope and scale of the Macando explosion and oil spill disaster in the Gulf of Mexico, it is not at all surprising that it pushed a company out of business. Many people will be angry to learn, though, that it was not one of the prime culprits like BP (NYSE:BP) or Halliburton (NYSE:HAL) that was taken down by the disaster. Instead, a relative small offshore driller is the first to go. 

Seahawk Clipped
Seahawk Drilling (Nasdaq:HAWK) had the second-largest jackup fleet in the Gulf of Mexico, but not the staying power to surmount several fundamental problems with its business model. Spun out of Pride International (NYSE:PDE) in August of 2009, Seahawk had issues from the start.

Of the company's rigs, none were built later than 1982 and some were built in the 1970's. While 10 rigs were upgraded in 2002, the fact remains that this was an old and out-of-date fleet. Perhaps even more problematic, Seahawk was entirely dependent upon the Gulf of Mexico (a region seen as in decline) and hugely dependent on Pemex, Mexico's state oil company, as a customer. More than 70% of the company's revenue in 2009 came from Pemex and this is even more problematic considering that Pemex is not particularly well-run and that Seahawk had an ongoing tax dispute with the Mexican government. (For more, see A Primer On Offshore Drilling.)

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McDermott's New Life

For McDermott (NYSE: MDR), it is now all about energy. With the completion of the Babcock and Wilcox (NYSE: BWC) spinoff at the end of July, McDermott is now an EPCI (engineering, procurement, construction, installation) company with a laser focus on the upstream energy market. In particular, the new company focuses on offshore projects in the Middle East and Asia. If Apache (NYSE: APA), Chevron (NYSE: CVX) or OMV want to build a new offshore installation (whether a production rig, subsea field or floating production system), they hire a company like McDermott to build it. 

The First New Quarter In The Books
On the surface, this third quarter was not an auspicious beginning. Revenue dropped 28%, and operating income fell about 14%, though net income from continuing operations was actually up an encouraging 39%. Although there was weak order flow for the quarter, and the company's backlog declined on a sequential and year-over-year basis, McDermott has booked $1.2 billion in new orders for October.

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Another Big Gulf Clean-Up Operation

It looks like the U.S. government is getting serious about cleaning up the Gulf of Mexico. In the wake of the BP (NYSE: BP) Macondo oil spill, the U.S. government has issued an order that will require energy companies to permanently decommission idle wells in the Gulf. Under the order, wells and platforms that have been idle for five or more years will have to be plugged and dismantled, and it would appear to include roughly 3,500 wells and 650 production platforms.

To a large extent, this move makes sense. The temporary plugs that are installed in idle wells do not last forever and can leak. Likewise, a platform can be vulnerable to severe events, like a hurricane. While severe damage is relatively rare (these platforms are built to withstand bad weather), it is nevertheless possible that a bad storm could wreck a platform and create both an oil spill risk and a hazard to navigation.

Major Gulf operators like Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM), BP and Apache (NYSE:APA) could all be on the hook, as well as numerous tiny operators. Although it is not uncommon for operators to use temporary plugs for marginal wells (particularly when prices are low), this order would require permanent plugs that would not be removable later. Then again, given the high prices of the past five years, if a well has been idle for all of that time, it is not too likely that it would be coming back into significant production. (For related reading, see A Primer On Offshore Drilling.)

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Judge Tosses Drilling Moratorium

A Federal District Judge in Louisiana has just ruled against the administration, overturning the government's 6-month ban on drilling in U.S. waters. Assuming it holds up on appeal (and the government has already said that it will appeal), it will once again be legal to drill in U.S. deepwater areas, and those 33 exploratory projects in the Gulf that were suspended by the ban can now restart.

I don't think it surprises anybody that there has been opposition to the ban, including industry representatives like Transocean (NYSE: RIG) and Chevron (NYSE: CVX).

Frankly, I'm with the drillers on this one. Locking things down after a rare disaster is an overreaction that plays well on TV and with the environmental groups, but doesn't score high on common sense. The reality is that drilling was going to recommence whether people liked it or not; the economic demands for ongoing offshore drilling are just too powerful to ignore.

What's more, it seems more and more certain that the rig disaster and oil spill were a product of a thankfully rare combination of reckless operation, very challenging geology, and ill-maintained equipment. Assuming that other drillers are going to be checking their blowout preventers VERY carefully and insisting upon conservative practices for cementing, the risk of another accident is very low.

After all, name the last major oil rig accident that resulted in an oil spill before the BP (NYSE: BP) Macando/Deepwater Horizon accident. Go ahead ... take your time ... I'll wait.

Clearly this could be good news for a whole host of Gulf and deepwater operators. Drillers like Rowan (NYSE: RDC), Ensco (NYSE: ESV), Noble (NYSE: NE), Nabors (NYSE: NBR), and Diamond Offshore (NYSE: DO) should benefit, as well as a whole host of service providers like Cal-Dive (NYSE: DVR), Oceaneering (NYSE: OII), Tidewater (NYSE: TDW), and equipment companies like Cameron  (NYSE: CAM) and National Oilwell Varco (NYSE: NOV).

The initial reaction hasn't been all that strong, though, as the Oil Equipment ETF (NYSE: IEZ) is down more than 1.5% as of this writing. If nothing else, this ruling could add even more pressure and uncertainty to situation as the administration may go to greater lengths to enforce its wishes on the industry. After all, you certainly don't make someone more friendly to your cause by suing them.

All in all, this ruling is a minor bit of positive news for a beaten-up sector, but it's only one round in a long battle. There are plenty of long-term reasons to stay positive on drilling and the energy sector, but also a lot of near-term noise and volatility. That's a great recipe for folks with the nerves and stamina to buy at a low price and just ride out any turbulence, but investors who find themselves shaken up when they see a holding down 10% or more from where they bought it should probably stay on the sideline for now.