Wednesday, July 14, 2010

The count starts, how many deepwater rigs will leave GOM

Diamond Offshore is moving two of its deepwater drilling rigs out of the Gulf of Mexico for work outside the US given uncertainty about the length of a drilling moratorium on new deepwater drilling in the gulf. This marks the start of an ongoing count. The question is how many deepwater rigs might be relocated.

“We believe the risk that a substantial number of deepwater rigs will leave the gulf has risen considerably,” FBR Capital Markets analysts wrote in a July 13 research note after Secretary of the Interior Ken Salazar issued a second moratorium on deepwater drilling moratorium based on technology and drilling configurations instead of water depth.

A New Orleans federal judge struck down the first drilling ban. Salazar reissued a second drilling moratorium on July 12 until Nov. 30, pending interim rules that might end it sooner. He also reserves his right to end the moratorium earlier or to extend it.

“Despite the focus on a Nov. 30 horizon, we believe that the content of the decision memo will increase the uncertainty in the minds of the deepwater producers as to when the moratorium may end,” FBR analysts said.

They suggest the new moratorium could prompt more lawsuits, although analysts emphasize that litigation is unlikely to resolve the uncertainty.

“Interior’s decision to allow the drilling of waterflood and injection wells while not allowing the drilling of development wells could represent an avenue for further litigation,” FBR analysts said. “The DOI can continue to refine the moratorium or impose almost unlimited requirements regarding safety that will keep the drilling industry in limbo.”

One industry spokesman last week suggested this scenario reminds him of having his engine halfway out of his car. Given that situation, more deepwater rigs are very likely to be leaving the gulf.

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