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There has been some recent chatter about the Feds lifting the current deepwater drilling moratorium ahead of the Nov. 30 expiration date. This got me wondering: How many rigs could actually get back to work relatively quickly?
In late May, the Bureau of Ocean Energy Management, Regulation and Enforcement issued a set of safety requirements known as NTL-05. One key requirement is that floating drilling rigs (and rigs located on floating platforms) get their blowout preventers, or BOPs, recertified by an independent third party.
On its second-quarter conference call, Ensco (NYSE: ESV ) said that its two rigs, the ENSCO 8500 and 8501, were the first to be recertified and go back to work for customers. As of the latest fleet status report, both rigs were earning full day rates while performing activities permitted under the moratorium, such as re-entries and completions. A third Ensco rig in the Gulf of Mexico is tied up in a dispute with client Nexen (NYSE: NXY ) .
According to the BOEMRE, five more floating rigs have been recertified: three owned by Diamond Offshore (NYSE: DO ) , one by Noble (NYSE: NE ) , and one by Transocean (NYSE: RIG ) . Like Ensco, some of these contractors are facing standoffs with clients as well. Diamond, for example, received a force majeure notice from Anadarko Petroleum (NYSE: APC ) on the Ocean Monarch. Anadarko is seeking a declaratory judgment in U.S. District Court upholding the termination.
Twenty-five exploratory wells were shut down following the imposition of the moratorium, so this group of recertified rigs represents a small fraction of the Gulf deepwater fleet. BOP recertifications look like a minor hurdle compared to other existing and potential regulatory requirements, however.
Once the moratorium is lifted -- whether it comes next week or next month -- operators are going to face an uphill battle when it comes to securing new permits. Noble Energy (NYSE: NBL ) reports that it had to submit an application to complete a deepwater well drilled before the Macondo spill nine times before the permit was approved. A second permit in the same field took six attempts. I can only imagine how hard it will be to get a new exploratory well approved.
It's hard to handicap how long it will take for the business of deepwater drilling to get back to its pre-spill pace, but I'm beginning to think that this will be more of a 2012 or 2013 event at the earliest. Next year will not resemble business as usual. That doesn't mean you should avoid drillers and exploration and production companies with deepwater exposure, as some are attractively priced. I wouldn't rush out and buy these stocks willy-nilly when the moratorium lifts, however.