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Drill, baby, drill! The Obama administration has lifted the ban on deepwater oil and gas drilling in the Gulf of Mexico. Drilling stocks were significantly higher yesterday in hopes that demand will pick up, but let's not get too excited just yet.
Deepwater drillers Ensco (NYSE: ESV ) , Noble (NYSE: NE ) , and Diamond Offshore (NYSE: DO ) all moved higher on the news, but it could be awhile until we see new business materialize. Interior Secretary Ken Salazar announced additional new rules including safety regulations, adding uncertainty to the amount of time and energy it will take to meet the new guidelines.
Industry members are skeptical that the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) can process permits in a timely manner to get drilling moving again. Shallow-water well permits have slowed dramatically since the explosion and spill in the Gulf in April, so investors shouldn't get too excited about drilling too soon. Michael Bromwich, director of BOEMRE, said he expects permits to be approved this year, and based on the fact the drilling ban was lifted a month earlier than expected, it appears the administration wants to move quickly. Time will tell how quickly that will be.
As deepwater drilling picks up, this should be viewed as a positive for all drilling companies but especially those like DryShips (Nasdaq: DRYS ) that are building un-contracted ultra-deepwater drill ships. DryShips received a contract for its first rig, but with three more coming online next year, it would be good to see demand pick up.
The new rules will also be a positive for service providers like Halliburton (Nasdaq: HAL ) and Schlumberger (NYSE: SLB ) because the regulations require additional service work at drill sites. At the very least, this lifts a cloud surrounding drilling in the Gulf of Mexico. Just like any regulation, companies will figure out a way to deal with it and continue with business.
Who do you think will benefit most from the lifted ban and new regulations? Leave your thoughts in the comments section below.
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