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.)
Click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Another-Big-Gulf-Clean-Up-Operation-APA-CVX-TTI-SPN-DVR0917.aspx
Showing posts with label Gulf of Mexico. Show all posts
Showing posts with label Gulf of Mexico. Show all posts
Friday, September 17, 2010
Tuesday, June 22, 2010
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.
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.
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