Moratorium Countdown

Jim Brown
Printer Friendly Version

Pressure is building on the Interior Department to lift the current deepwater drilling moratorium. The legal cases are not going well and lawmakers are starting to tighten the screws on the administration.

Based on comments from Michael Bromwich and others the Bureau of Ocean Energy Management Regulation and Enforcement (BOEMRE) plans to publish their recommendations for the new drilling rules this week. Bromwich also said he would make a recommendation to Ken Salazar on when the four month old moratorium should be lifted.

On Tuesday, Louisiana Lt Governor Scott Angelle met with Bromwich to make a case for regulations that vary on the type of well being drilled. Senator Mary Landrieu also met with Bromwich today to pressure him for a quick resumption of drilling.

Landrieu said "We are making some progress, but not enough for me to change my position at this time." She was referring to her action in the Senate to block the confirmation of Obama's recommendation of Jacob Lew as the head of Office or Management and Budget. She said she will not lift the block until the moratorium is lifted or modified significantly. She said today she was getting a lot of "pushback" from the White House over her blockage of Lew's confirmation. "They are not happy with it but you know our people are not happy with the moratorium."

I suspect there will be a big announcement of the cancellation of the moratorium and the implementation of the new safety rules. It will be a major "get out the vote" effort for the administration. They are currently under fire and this will produce positive press for the administration. The timing should be a couple weeks before the election for maximum benefit.

Bromwich claims the resumption of drilling rests on three conditions including more effective safety regulations, new equipment and more vigorous technical inspections.

One of the rules is expected to be mandatory use of blow out preventers with double sets of blind shear rams. These are devices that can slice through the drilling pipe and seal the well in case of trouble. The Horizon BOP only had one set. The U.S. House of Representatives has already voted on requiring a second set of blind shear rams when it passed drilling legislation in July.

Chevron completed the deepest offshore well this week in over a mile of water. No, it was not in the U.S. but in Canada where there is no moratorium. The well is 260 miles northeast of St John's in a field called the Orphan Basin. The field is thought to contain 700 million barrels of recoverable oil. Chevron said it took extra precautions to make sure all safety mechanisms were in reliable working condition and all pressures carefully monitored.

Drillers posted gains for the second day this week on the moratorium rumors. You can bet that companies are lining up their employees and supplies and once the moratorium is canceled they will begin transporting them to the rigs. During the moratorium many rigs have taken the opportunity to perform maintenance and replace worn gear. Some have also been active doing well maintenance and preparing for the restart.

Two weeks ago the BOEMRE issued orders to plug 3,600 abandoned wells in the Gulf. Most of those are in shallow water and it will produce years of work for the shallow water drillers. The estimated cost is between $1.5 to $3.0 billion.

Jim Brown

This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.

Subscribe to Energy Picks Newsletter