Deepwater Drill Ban May Lift Sooner – Analyst Blog

While it is well known to the oil industry that the ongoing drilling moratorium will continue through the end of this November, the Obama administration may lift it a little earlier. The Interior Department is set to release new regulations/guidelines for deepwater drilling anytime soon.

 

The government said that it is necessary to introduce the new regulations before the temporary drill ban is lifted. While the ban was meant for deepwater exploration for more than 500 feet, shallow water drillers have also been facing hindrances in getting permission. Last year, the department approved 15 shallow water permits for new wells between June and August. Over the same period this year, the department approved only four.

 

The new rules will come with more strict safety guidelines that may require a certification related to blowout preventers in working condition at the rigs and standards for cementing wells. It may also require strong measures for testing of equipment and for preventers to have at least two sets of blind shear rams, which are supposed to shut a well in the event of a blowout.

 

Erik Milito of American Petroleum Institute said oil companies were ready to meet more stringent safety regulations, but the government must approve new permits expeditiously.

 

The Deepwater Horizon was a terrible accident that poured millions of barrels of oil into the Gulf of Mexico. The U.S. government feels it mandatory to set the new guidelines for deepwater drilling to avoid a repetition of the Deepwater tragedy.

 

The lifting of the ban is no doubt good news for the industry players directly involved in deepwater drilling as it had cut significant amount of oil production from the Gulf. While this production cut is a prominent factor that directly hampers the bottom line of E&P companies, deepwater drillers have also been suffering either from idling their rigs or moving them outside the region.

 

The lifting of the ban, however, will mostly benefit companies such as Diamond Offshore Drilling Inc. (DO) Transocean Inc. (RIG), Ensco plc (ESV) and Noble Corporation (NE) as a fair percentage of their total revenue comes from the GoM region.