There's an old joke about the powerlessness of the old-timey, club-carrying, English bobby. Unable to unleash a fusillade of hot lead (like his American counterpart, at least in the movies) upon seeing a fleeing criminal, he can only yell, "Stop! Or I shall shout 'stop' again!"
Allow me to repeat myself again, one more time
Today, the Obama administration, already twice slapped down by courts for its arbitrary Gulf of Mexico deepwater drilling moratorium, shouted "Stop!" again, but with far more damaging consequences. The reworded moratorium aims to stop most new deepwater drilling until Nov. 30. It's not without a certain smirk-worthy irony, coming on the day that BP
It's easy to understand why President Obama might take this tack. Following the disaster of the blowup on Transocean's
Ask the experts -- then ignore them
To begin with, there's not much point in taking populist swings at ExxonMobil
So, while I understand the President's urge to look presidential, and to look like he's doing something, I am disappointed that he and his interior secretary, Ken Salazar, may have not only ignored the oil-industry engineering experts they commissioned, but also potentially misled the public. They implied that a blanket moratorium was the right thing to do, but the panel from the National Academy of Engineering had argued exactly the opposite, noting that the damage to the economy in such a case could be much worse than the environmental damage.
Second verse, worse than the first
If anything, this new moratorium is worse than the old one, with the potential, as NPR reported this morning, to apply to more rigs. And among its unintended consequences, it has paralyzed the shallow-water industry it allegedly exempts, because of new red tape and the accompanying uncertainties. There's a great firsthand account of this by an industry insider on one of our Motley Fool Hidden Gems message boards. (Trial required.)
This "pause" is already costing thousands of jobs and tens of millions in tax revenues, and pulling billions out of the Gulf economy -- much of which may never return. And it is just the latest bit of evidence that suggests that the administration really has no idea what it's doing, or why. Yesterday, Salazar flummoxed the presidential commission on the Deepwater Horizon incident, suggesting that the administration was hoping that the commission could (at its first meeting) inform it about the moratorium. The committee chair later said this was precisely not a task the committee was intended to tackle.
Clearly, the oil spill is a disaster that we all wish never had happened. But it's equally clear to anyone who knows anything about engineering for harsh environments (or anyone who ponders doing plumbing in a place where methane turns to slush) that accidents are inevitable. That doesn't mean we shouldn't demand that the industry do everything it can to avoid catastrophes, nor that we should allow oil companies to ignore obvious warning signs or take low-cost shortcuts.
What's an investor to do?
Despite the rebound in many stocks serving the Gulf of Mexico, I think there's still money to be made on drillers, equipment makers, and service providers. The abovementioned Transocean was recently selling near tangible book value -- sort of like paying for some of the world's rarest, most expensive gear, and getting the expertise to run it for free. And it will keep running, albeit in alternate locales.
Diamond Offshore Drilling
Personally, I believe the next court to review the government's attempt at face-saving will reach pretty much the same conclusion as the first two did. But even if it doesn't, there's long-term potential in this space. That's why, for the past couple of months, I (along with my colleagues at Motley Fool Hidden Gems) have been doubling down on our research on oil patch plays. We just published a special report with eight of our favorites in the field, and you can get it along with a risk-free, 30-day trial.