GoM Spill: Doldrums Continue – Analyst Blog

A federal judge lifted the six-month moratorium on deepwater drilling in the Gulf of Mexico (GOM) Tuesday, which was imposed by President Obama following the largest oil spill in the history of the country. 

The chief executive officer of Transocean Ltd (RIG) also said that the moratorium on deepwater drilling is not needed. 

Transocean’s Deepwater Horizon drilling rig exploded in the GoM on April 20. Following this, the U.S. government banned offshore drilling operations in more than 500 feet of water at the end of May.

 

Diamond Offshore (DO) contested the moratorium, demanding the reason for greater risk from deepwater drilling at the end of May rather than before the explosion. Transocean believes that the Government should instead implement rules that can restore deepwater activity.

 

Several GoM rig owners argued that the six-month moratorium could prove more economically distressing than the spill itself. On the other side, the government said industry regulators need more time to study the risks of deepwater drilling and identify ways to make it safer. In a statement, Interior Secretary Kenneth Salazar said that he will issue a new order on deepwater offshore oil drilling.

 

The obvious question that arises now is who will pay the rent for idle rigs? While drillers could legally restart the offshore drilling services following the verdict; only a few, if any at all, would wish to resume services until they get orders from higher courts.

 

Given the doldrums, the drop in share prices for offshore drillers continue. Players such as Transocean, Diamondand Noble Corp. (NE) were down 2.6%, 2.9% and 4.0%, respectively, at yesterday’s closing. While we have a Neutral recommendation for Transocean and Noble for the long term, the Underperform recommendation for DO remains unchanged.