I’ve been following the drilling moratorium and potential legislation on Gulf producers closely. Here are previous articles that provide some more detail:
FBR suggests spill bill becoming less likely
http://www.gurufocus.com/news.php?id=104862
State of Texas calls for end to moratorium
http://www.gurufocus.com/news.php?id=104109
Legislation appears to be reasonable
http://www.gurufocus.com/news.php?id=102204
Despite the overreaction to a fire on a Mariner Energy platform last week (which was not related to a blowout or spill) it is becoming clear that the drilling moratorium is running out of steam.
Last week the federal judge who struck down the original Obama moratorium denied the government request to throw out a suit challenging the drilling halt filed by offshore service companies. The government was arguing that the case was moot because they had filed a second moratorium. The judge ruled that the second moratorium was substantially the same as the first one as it applies to the exact same rigs, exact same deepwater drilling and the exact same period.
Of course it is also important to remember that all the government is fighting for is to maintain the moratorium until November 30, so it isn’t as if the long term value of companies impacted by the moratorium is going to be significantly impacted either way. Further the government has said it will consider scaling it back or lifting the ban earlier, depending on what it learns about improvements in the industry safety practices.
Also last week a report provided to the panel investigating the oil spill on behalf of Obama indicated that a moratorium on deep-water drilling is no longer needed because new rules reduce the risk of an uncontrolled spill.
The Bipartisan Policy Centre, which is a Washington based research group indicated that the rules issued in June by the Interior Department “provide an adequate margin of safety to responsibly allow the resumption of deep-water drilling,” The rules, if followed Gulf drillers, and enforced by regulators, “will achieve a significant and beneficial reduction of risk.”
The report was prepared for the presidential commission investigating the BP spill. Its leaders, former Environmental Protection Agency Administrator William Reilly and former Democratic Senator Bob Graham of Florida, have also questioned the need for the moratorium, which is scheduled to expire Nov. 30.
And even the American people in recent surveys have indicated that they believe that Deepwater GOM drilling needs to continue.
And I believe that this spells opportunity for a value investor.
Most smaller companies that have significant operations in the Gulf of Mexico are trading at prices that are 50% to 60% of where they were before the spill. And I think most of them were pretty good values at their pre BP spill levels.
The ending of this moratorium is going to provide a catalyst to move their share prices upwards, and whether it ends early or at November 30 as currently scheduled I believe investors will be rewarded over the next couple of years.
So unless you think we don’t need the oil from the Gulf of Mexico, I encourage you to start taking a look at this sector.
Here are my favorite ideas:
http://www.gurufocus.com/news.php?author=CanadianValue
