The official moratorium on deepwater drilling in the U.S. Gulf of Mexico was lifted in October 2010, but has been replaced with what can only be described as a quasi moratorium as new permits continue to languish in a byzantine approval process that has frustrated the industry. Investors and industry participants have every reason to be confused. On Monday, The Wall Street Journal reported that major players did not expect new permits to be issued until late 2011 or 2012. This was followed today by another article in the Journal indicating that certain projects could receive a go-ahead within weeks. It seems like the Obama Administration either does not know how to proceed or an internal power struggle is taking place as competing interest groups influence policy. Read this article for our views of Diamond Offshore as a potential opportunity to profit from the market’s current view of offshore drilling.
A quick look at the chart for Atwood Oceanics shows a familiar pattern for those who have been following the price action of companies in the offshore contract drilling industry. Shares of Atwood have declined by approximately 30 percent from the trading levels that prevailed in the weeks prior to the April 20, 2010 Deepwater Horizon disaster. However, Mr. Market is generally incapable of evaluating the details behind specific situations and appears to have unfairly discounted Atwood based on one surprising fact: Less than two percent of the company’s revenues in the current fiscal year were derived from activities in the Gulf of Mexico. Read this article for more details.
Barron’s has published a brief article making a bullish case for Noble Corporation. Jay Palmer, writing for Barron’s, believes that Noble is well positioned for a world in which deepwater drilling will account for a growing share of production as China and other emerging countries continue to demand more oil. The article points out that Noble has a solid balance sheet and significant international operations that should mitigate the risk of further disruption in the Gulf of Mexico due to the federal moratorium put in place in response to the Deepwater Horizon disaster. Read this article for more details and links to related article.