Obama Says Drill, Baby, Drill!

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The Obama administration's plan to expand domestic offshore drilling for oil and gas is, of course, far more nuanced than the familiar Republican campaign slogan.

Areas that will be opened to exploration include part of the Atlantic seaboard, running from Delaware down to central Florida. The permitted portion of the Gulf of Mexico will be expanded eastward, while maintaining a 125-mile buffer from the Alabama and Florida coast. Finally, parts of the Chukchi Sea and Beaufort Sea offshore Alaska will also be fair game, following detailed studies.

The Northeast coast, from Maine down to New Jersey, will remain off limits, as will the entire Pacific coast. As a resident of California, whose fiscal situation is downright depressing, I find that latter exemption to be indefensible. My surfer friends would probably disagree.

It seems there is enough in the proposal unveiled today to make everyone a little unhappy, no matter what his or her position on offshore drilling. You would think that a political compromise such as this would seek the opposite -- to make everyone at least a little happy -- but that's just not possible, given the hard lines that have been drawn in this debate. Environmental groups and oil lobbying groups are both professionally petulant pains in the posterior, always ready with an over-the-top outcry when something doesn't go 100% their way.

As far as energy security goes, we're not going to see any incremental oil and gas production anytime soon as a result of this new drilling plan, but that's no reason not to get started. If Royal Dutch Shell (NYSE: RDS-A  ) ally Codexis or ExxonMobil (NYSE: XOM  ) partner Synthetic Genomics finds a cost-competitive oil alternative in the next few years, we can always scrap these drilling plans. If we're stuck with hydrocarbons for decades to come, as I believe we will be, then we'll have a great need for this incremental oil, and we'll be glad we didn't wait for oil to spike to $150 before getting off our duffs.

Let's get to the investment angle here. Who are the big winners under this proposal, and who gets a raw deal?

Well, those with an eye cast to the California coastline, like Venoco and Plains Exploration & Production (NYSE: PXP  ) have little to celebrate. Gulf of Mexico explorers like Chevron (NYSE: CVX  ) and Mariner Energy will get an expanded opportunity, though I'm not sure anyone has really been chomping at the bit to push eastward.

As for the Atlantic coast, it's impossible to say who will show up to play. What we do know is that in all of these areas, extensive seismic shoots will be required to get a handle on the potential prize. That's a nice bit of extra business for folks like Schlumberger (NYSE: SLB  ) and CGG Veritas (NYSE: CGV  ) . Once prospects have been identified, the benefits begin to accrue to drillers like Transocean (NYSE: RIG  ) and support companies like Hornbeck Offshore Services. The oil services industry is the clearest near-term beneficiary, and that translates not only to profits for investors, but an expanded local jobs market as well.

So does Obama's plan to open up our coastlines to drilling go too far, or not far enough? Let's explore the issue in the comments section below. I expect this to be a lively discussion.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. CGG Veritas is a Motley Fool Global Gains pick. The Motley Fool has a disclosure policy.

Read/Post Comments (10) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2010, at 6:10 PM, fadler1 wrote:

    This is just an opening shot on wind and solar loves which could NEVER fill the gap but which made good campaign fuel for the base. Reality is setting in and this is just one more turn around for Obama. I would have been more impressed if we pushed on to gas AND wind in the great plains with T. Boone and a program to spend a little stimulus on businesses making gas conversions on trucks and public vehicles.

  • Report this Comment On March 31, 2010, at 6:15 PM, AbstractMotion wrote:

    I think it's a decent compromise. It solidifies his campaign claims that he wants a diversified solution to the nations energy problem while keeping the expansion away from areas where it would be highly unpopular (California and North East). We won't be seeing any oil from the region for several years, but at least it's an open option going forward. Nothing will make everyone happy, this is at least a more middle ground approach that provides some opportunities to states willing to allow exploration. He managed to keep some drilling out of Alaska in the process too. Overall I feel it sent a strong political message and helped set a more centrist tone going forward, especially in light of the recent healthcare outcome.

    As for the winners, being that it's 50 miles offshore I'd say most deepwater drillers (disclosure I'm long several deep water drillers). The industry as a whole is coming off a bad quarter and is likely to see improving earnings over the next few quarters. I like RIG as it's taken a pretty severe beating lately, but still maintains a strong balance sheet, good income, and a modern fleet. DO would seem to be the best pick for a dividend investor though.

  • Report this Comment On March 31, 2010, at 8:50 PM, SUPERMANSTOCKS wrote:

    I don't like Obama. But this idea is not a bad one!

  • Report this Comment On March 31, 2010, at 9:08 PM, johnsonle9 wrote:

    So you really buy there is going to be new drilling anytime soon? Dream on.

  • Report this Comment On March 31, 2010, at 9:08 PM, johnsonle9 wrote:

    So you really buy there is going to be new drilling anytime soon? Dream on.

  • Report this Comment On March 31, 2010, at 9:30 PM, FutureMonkey wrote:

    The first thought that came to mind was

    "Only Nixon could go to China"

    Nobody else could get this done in this way. Oil, Natural Gas, and Gasoline market is far too global and liquid for supply side influence. Will certainly create jobs and wealth and sends a good message to OPEC. As a far left tree-hugger myself, I'm actually gratified that somebody could distinguish between the necessary protected areas and the bankable chips that could be sacrificed. Besides the greatest risks are in the transport of oil. Drilling actually has a pretty good track record in the last 30 years.

  • Report this Comment On March 31, 2010, at 9:47 PM, topsecret09 wrote:

    Oh boy! Our companies now get to drill off the Florida and Virginia coastlines.... One Big Ass Mistake America.... TS

  • Report this Comment On April 01, 2010, at 2:17 AM, police12345 wrote:

    California is too risky for drilling. Sucking oil from below the tectonic plates may cause catastrophic earthquakes in a nearly bankrupt state stradling many fault lines. Of course you could invest in Nevada/Arizona beach front property.

    Long XOM, CVX, RIG, NE

    Short CVG, PXP

  • Report this Comment On April 01, 2010, at 3:00 PM, XMFSmashy wrote:

    Excellent point, FutureMonkey. Oil spills largely result from tanker transport, not offshore pipelines.

  • Report this Comment On April 02, 2010, at 9:56 AM, efmagowan wrote:

    Drilling won't cause earthquakes, but it may be unwise to drill in quake prone areas. This was a wise move on Obama's part. I'm in favor of increased drilling. Alternative energy sources are certainly worth pursuing, but oil really does make the world go round (for now). I use a home made solar water heater and solar oven when possible and am building a woodgas generator, but neither wind nor solar will run my cars and motorcycles any time soon. Long XOM, gradually building positions in RIG, DO, others.

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