With New Rules, It Is Time to End the Moratorium

Washington has finally laid out the groundwork for offshore drilling to begin again. Most of the tougher safety standards have been well-received, even though it will weigh on the industry. With rules in place, it is time to end the moratorium and play ball.

Let's start at the beginning. In April, British oil giant BP's (NYSE: BP  ) Macondo well, which was being completed in mile-deep Gulf of Mexico waters when Transocean's (NYSE: RIG  ) Deepwater Horizon rig exploded, burned, and sank into the depths. Along the way, 11 rig hands died tragically, and the blown-out well begin gushing more oil than ExxonMobil's (NYSE: XOM  ) Exxon Valdez came close to leaking.

The spill -- a word that doesn't seem to quite capture the fury of the flow -- was finally brought under control in July. However, the oil industry remains under the yoke of the Obama administration and its deepwater drilling moratoriums, the latest of which is scheduled to end in late November.

Then, as last week wound down, the administration unleashed its first new rules for drilling for oil and gas offshore:

  • Rig owners will be required to install blowout preventers containing two sets of blind shear rams, thereby increasing the likelihood that the devices will do their jobs in the event of accidents.
  • Government bureaucrats will be endowed with increased authority over well design, drilling, and sealing methods.
  • At the companies' expense, auditors will be hired to ascertain the efficacy of rig workers' safety procedures and the dependability of the blowout preventers.

This first group will undoubtedly be followed by others, and goodness knows how inappropriately creative the feds can become before they're through. But what's less defensible is the refusal of the administration to immediately shelve its latest drilling ban. This act of stubbornness stands to have major economic effects on Louisiana and other Gulf states.

Ultimately, it could also cost you at the gasoline pump and add to your winter heating bills. For these reasons, and in an effort to shake some logic into the heads of Interior Secretary Ken Salazar and others involved in the decision-making process, Louisiana Sen. Mary Landrieu, a Democrat, has said she'll block President Obama's nominee to lead the Office of Management and Budget.

While Washington's new drilling rules appear completely reasonable, I'm concerned their future application could knock offshore drilling for a further loop -- something none of us really wants. But, in the interim, I'd strongly urge Fools to cozy up to appropriate energy names. I'd include Chevron (NYSE: CVX  ) , which is rapidly expanding worldwide, along with Cameron International (NYSE: CAM  ) and National Oilwell Varco (NYSE: NOV  ) , both of which will busy themselves manufacturing the new generation of blowout preventers.  

Chevron is a Motley Fool Income Investor choice, and National Oilwell Varco is a Motley Fool Stock Advisor pick. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days.

Fool contributor David Lee Smith doesn't own shares in any of the companies named above. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.


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