Offshore drilling industry shares tumble

Shares of helicopter, crew boat and other service companies associated with offshore oil exploration dropped on Friday following President Obama's decision to close U.S. waters to deep-sea drilling.
Noble Corp., Ensco PLC, Diamond Offshore Drilling, Schlumberger and Hornbeck Offshore Services saw their stock fall at least 4 percent in morning trading. Shares also dropped for BP and its partners in the oil spill, Transocean Ltd., Halliburton and Cameron International Corp.
Obama said Thursday he would extend a moratorium on permits for new deepwater wells. He also canceled lease sales in the Gulf and off the coast of Virginia. Companies like Shell Oil will be asked to shelve plans to explore two locations off the coast of Alaska.
Drillers also will be forced to suspend action on 33 deepwater exploratory wells in the Gulf.
Obama made the announcement as crews tried to plug BP PLC's ruptured well, which has been gushing oil into the Gulf for more than a month. The well is now thought to be leaking more than twice the oil previously thought. Scientists say nearly 19 million gallons (72 million liters) have spewed into the Gulf, surpassing the 11 million gallons (42 million liters) that leaked out of the Exxon Valdez in 1989.
Environmental groups cheered Obama's announcement. It's "the first step needed in broader reform of a broken system," said Vikki Spruill, president and CEO of the Ocean Conservancy.
But the dramatic policy changes took industry observers by surprise. Analysts with Jeffries & Company said Friday that contract drilling companies such as Noble Corp., Diamond Offshore Drilling, Transocean Ltd. and Ensco PLC could see profits slashed by 5 to 15 percent in 2010 and 2011 as oil companies move out of the Gulf.
The decision also will send shock waves across the Gulf Coast, where the offshore industry employs more than 75,000 people.
"We're going to see six months of tough times for the industry _ at least," Jeffries & Company analyst Jud Bailey said. "You're going to see a lot of people lose jobs or take pay cuts. That means they're going to spend less money, and that will impact the entire Gulf Coast."
The move won't touch rigs that are currently producing nearly 2 million barrels a day. But companies that have been scouring the ocean floor for new oil sources will see an immediate impact. The International Association of Drilling Contractors estimated earlier this month that the moratorium will put at least 50 drilling rigs out of work by the end of June.
"This can't be good," said Mark Cuevas, owner of a crew boat that ferries passengers and cargo to deepwater rigs and production platforms in the Gulf.
Cuevas said he's focusing his business on serving established oil platforms not affected by Obama's announcement. But "we're going to have more competition, and we're a small company. We can't compete with some of these guys."
John Hofmeister, former president of Shell Oil and founder of Citizens for Affordable Energy, said Obama is overreacting. Penalizing drillers before investigators conclude what led to the rig explosion that caused the spill is "akin to shutting down the airlines because there's an anomalous aircraft accident," he said.
BP, Shell, Anadarko and others will be able to redeploy their drilling operations off the coasts of West Africa, Brazil, the North Sea and other waters. But smaller companies that live off the Gulf will suffer, he said.
"There is a risk that some of these companies that are more hand to mouth could find it impossible to keep going," Hofmeister said. "Others may find other avenues of work. They could diversify in the short term to keep people employed. But there's no question there will be impact. There will not be work to be done."
Fadel Gheit, an analyst with Oppenheimer & Co. disagreed. Out of work contract workers "have found a good long-term job in the cleanup," Gheit said. "They're going to be cleaning up the mess, and that will cost billions of dollars. I think that beats drilling anytime."

Updated : 2021-01-28 13:31 GMT+08:00