Is This The Death of Deepwater?

BP's (NYSE: BP  ) woeful failure to stem the flow of hydrocarbons into the Gulf of Mexico has now truly begun to cascade into plummeting stock prices for other Gulf-heavy producers like Anadarko Petroleum (NYSE: APC  ) .

Although Anadarko's 25% stake in the offending BP-operated well may account for a portion of Tuesday's 16% intraday free fall from the preholiday close -- which punctuates a 40% overall share-price decline since the tragedy began -- some of this weakness undoubtedly peers forward into the abyss of the vast unknown.

The entire oil industry has been forced to confront its undeniable and collective lack of preparedness for addressing a major deepwater catastrophe, and reasonable folks around the world find themselves wondering just what the heck we've been thinking by allowing deepwater production to flourish as it has without the necessary capabilities in place.

When a company resorts to seemingly silly measures like deploying golf balls and old tires to plug a gushing geyser of subsea oil and gas, it highlights an apparent ocean of disconnect between modern society's unwavering thirst for oil and our capacity to safeguard entire ecosystems from the risk of catastrophic spills.

Just as the Exxon Valdez disaster precipitated the Oil Pollution Act of 1990 (OPA), the present disaster will undoubtedly yield a regulatory response that will alter the operating landscape for the deepwater drilling industry in fundamental ways. Already this week, we've seen President Obama's six-month moratorium on Gulf of Mexico deepwater permits lead explorer Cobalt International Energy (NYSE: CIE  ) to declare force majeure on a rig leased from Diamond Offshore (NYSE: DO  ) .

Reflecting these sweeping implications for the deepwater segment at large, and the considerable uncertainty created thereby, the cost of insuring against a default on debt by even an energy services behemoth like Halliburton (NYSE: HAL  ) rose sharply on Tuesday. Halliburton shares cratered by more than 11% in response.

At a time when the entire world is grappling with the appropriate questions that are triggered by an environmental disaster of this magnitude, tracking the investment implications can leave a strange taste in the mouth. Nonetheless, real people have real money tied up in these stocks and must continue to make informed decisions.

I believe that plenty of companies are receiving deserved revaluations to account for the calamity, even dry bulk operator DryShips (Nasdaq: DRYS  ) -- which is on the hook for four deepwater drill ships presently under construction -- is vulnerable under the circumstances.

On the other side of the spectrum, I believe the market could potentially be exacting a disproportionate toll upon shares of Anadarko Petroleum. As the leading independent producer in the Gulf of Mexico, this company is certainly exposed, but Anadarko also boasts an impressive onshore natural gas asset portfolio with enviable positions in coveted shale plays like the Marcellus and the Haynesville. As I mentioned some time ago, China has tapped Anadarko and Devon Energy (NYSE: DVN  ) as strategic development partners in Chinese offshore assets, which provides further protection from an extended moratorium on deepwater drilling in the Gulf.

As we struggle to adapt to this tragedy, both as investors and as human beings, I encourage Fools to communicate with one another to share their diverse and valuable perspectives. Your fellow readers look forward to hearing your thoughts in the comments section below.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. The Fool owns shares of Devon Energy. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (16)

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  • Report this Comment On June 01, 2010, at 3:54 PM, SCCC2008 wrote:

    We should look on this disaster not as the end of the deepwater drilling industry, but as an opportunity to explore what went wrong and make the rigs safer to operate. Im certain that regulation from the U.S. government, as good ole Rahm Emanuel knows we should "never let a good crisis go to waste" to make govt. just a little more powerful so the sheeple that voted for the current administration sleep well at night. With that being said, I can "guarandamteeya" that the Chinese, Mexicans, Brazilians, Saudis. and just about anybody else with oil off their shores isn't going to slap up more regulation to cripple their drilling efforts. Are you kidding me? In fact, with U.S. offshore oil off-line, the small hike in price from reduced supply might even warrant more offshore drilling to compensate (for those of you in the Obama administration and Democratic party, thats whats known as "supply and demand"). So heres whats going to happen, those rigs that were operating in the Gulf of Mexico are going to be sent somewhere else, and in the meantime, pick their shares up cheap while the rest of everyone is running scared.

  • Report this Comment On June 01, 2010, at 4:37 PM, texasflyfish wrote:

    Until the U.S. starts to switch to natural gas powered transportation, we will be dependent on both Gulf of Mexico and Middle East oil. Neither is good for our health. The current administration does not have the political capital to lead the nation to natural gas cars and semis. There is a huge need for infrastructure to allow this. There will be more regulation of Gulf drilling which will increase the cost and consumers will pay. The companies (outside of BP and RIG) will continue to do well. I would look for current producers at a discount and buy (ATPG, DVN, APC).

  • Report this Comment On June 01, 2010, at 11:00 PM, topsecret10 wrote:

    I'm looking for solid companies In this sector whose stocks are getting hammered,and have little or no exposure to the United States or the Gulf of Mexico In particular. Seadrill (SDRL) has one rig there,and other than that they are a large and growing deepwater company with operations throughout the world. They were recently listed on the New York stock exchange In April,and the dividend Is solid. I am nibbling on this one right now,and I am not concerned with the long term prospects of International deep water drillers. I will stay away from the companies that are overexposed to the United States,and the Gulf of Mexico In particular.... TS

  • Report this Comment On June 02, 2010, at 4:40 AM, jan1971 wrote:

    So most of you want to go on with ´drill baby, drill´? If it is not clear now that we need to develop a clean and reliable source of energy, it will never become clear to you guys. Natural gas is an alternative but will be a temporary solution too and the emissions will go on. Nuclear involves a seriuos waste problem, serious safety issues as well. So we will have to stimulate the development of much greener and more reliable alternatives.

    For a concrete investment advice; be carefull with investing in the big oil companies and the service companies who are deeply involved in the deepwater drilling. This will have a serious impact on regulations on deep-sea drilling. Most big oilcompanies have a large part of their business in these deepwaterfields. Most of the easy fields are exploited by state-controlled national oilcompanies like saudi Aramco in Saudi Arabia now.

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