In the wake of the BP plc (BP) gulf oil spill, the Obama administration’s moratorium on new deepwater drilling in the Gulf of Mexico has been overturned, and suspension of drilling at 33 exploration wells will be appealed. Interior secretary Ken Salazar also said that the administration plans to declare a new moratorium within a few days that would contain additional specific justification to impose the ban.
Meanwhile, Anadarko Petroleum Co. (NYSE: APC) has filed suit in federal court in Houston asking to terminate its contract for a rig owned by Noble Corp. (NYSE: NE). Transocean Ltd. (NYSE: RIG), owner of the Deepwater Horizon that blew up and sank in the Gulf, owns 14 of 33 rigs affected by the moratorium. Several exploration and production companies are declaring force majeure, but that does not forgive high termination and standby fees. If the E&P companies are successful, they will avoid daily rates for deepwater rigs that can be as high as $600,000 a day.
The ruling by Judge Martin Feldman calls into question the scope of the moratorium due to the failure of just one well for unknown reasons. The judge also cited the economic hardship the moratorium would bring to the Gulf coast as a result the ban’s scope.
Judge Martin Feldman, who issued the ruling, is under scrutiny because of his possible ownership of stock in Transocean and other oil-field services companies based along the Gulf coast. Feldman owned shares in the companies as of 2008, according to the latest financial disclosure forms available.
Even though the court decision lifts the moratorium, there is little chance that any of the operators will get the rigs producing again. It takes at least a week to get a rig to full production again, and by that time the Obama administration is likely to have issued a second moratorium. Until the legality of a moratorium is established, a virtual, but effective, moratorium is now in place.
It is also unlikely that the rig owners and the operators will truly slug it out in court. Neither has anything to gain in the longer run from doing so. Far more likely is a negotiated settlement that might include re-locating a rig from a well from the Gulf to another field.
The rig owners might even agree to cancel the contract if they can get another quickly, say offshore Brazil where Petroleo Brasiliero SA (NYSE:PBR) is ramping up spending on the huge offshore Tupi field. There is some question, however, regarding the Brazilian government’s willingness to allow ultra-deepwater drilling until the current disaster in the Gulf has been brought under control and more exacting standards for drillers are in place.
Shares of Anadarko and Noble are both down about 2.5%-3% this morning, while Transocean shares are up about 1%.
