New Permits Or A Political Ploy?

Jim Brown
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Noble Energy won the first deepwater drilling permit to be issued since the Horizon exploded back on April 20th. Is this the end of the unofficial moratorium or just a way for the Interior Dept to avoid growing criticism for not allowing new drilling?

Noble (NBL) received the permit for a well in the Mississippi Canyon block in 6,500 feet of water 75 miles offshore in the Gulf. Drilling on this well began four days before the Horizon exploded and continued for several weeks after the explosion until the Bureau of Ocean Energy Management, Regulation and Enforcement issued a moratorium halting all drilling in the Gulf. Companies with wells in progress were told to halt drilling at the first available opportunity to do it safely.

The Noble well had been drilled to 13,385 feet on its way to 19,000 when work was halted. The new permit will allow the contractor, Ensco (ESV), to reopen the well and continue drilling. Works is expected to resume in late March.

There are 16 wells like this in the Gulf with 13 different operators. All work was halted when the moratorium was issued. There are dozens of new wells where permits had been requested or were in the planning stages when the moratorium was issued.

The problem with the government issuing a bunch of new permits is that they don't want anyone drilling in the Gulf until after the elections. The administration took such a hit on the Horizon disaster that they don't want another problem to cause a repeat.

Meanwhile the judge in Louisiana has issued several orders demanding the government end the moratorium. In the latest he gave the government 30 days (two weeks ago) to approve five permits by Ensco that had been on hold for months. I suspect the permit issued this week is a result of that order. The bureau realized they had run out of options and decided to release just enough to make it appear they were complying.

The BOEMRE spokesman said they planed to issue more "soon." Who knows what soon means. The permits they are expected to release are on wells already started. The bureau has less liability in the case of a new disaster because these were started under the old rules. They still need to conform to the new safety protocols including independent certification of all safety procedures and equipment plus the actual well design. They also have to be able to prove they have a well containment system in place to handle a blowout. Noble did this by partnering with Helix Well Containment Group.

Brand new wells will have to submit a new form of environmental impact statement unique to each well and those are expected to take 3-9 months to complete on each application. This is the equivalent to a continued moratorium only without the official designation.

The administration is behind the 8-ball on deepwater drilling. Consumers are paying an average of $3.33 per gallon for gasoline and the whining and complaining has already begun. The rising fuel prices are a risk to the struggling recovery. Worse than the potential for a new oil spill is the potential for the country to sink back into a recession thanks to high oil prices. The administration is also fighting a losing battle with the Louisiana judge and it makes more sense to appear to give in by letting work begin on a few existing wells than escalating the legal battle and receiving more negative headlines.

Lastly the administration has begun taking some increased heat from politicians in recent weeks upset about job losses and economic losses in the Gulf region. SeaHawk Drilling (HAWK) went out of business and was forced to fire sale $105 million in rigs to Hercules Offshore to pay its bills. None of this is the kind of publicity the administration needs at this time.

I believe the new permits will "trickle" out of the bureau at a pace designed to appear to comply with the legal rulings. Once the heat eases the permits may also slow. It could be 2012 before any permits for a new well are issued.

Time will tell if this is the end of the moratorium or just a smoke screen to get past the 2012 elections.

Jim Brown

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