Goal For The Green

As the damaged Deepwater Horizon well, continues to pump out endless barrels of oil per day, into the Gulf, all the major stakeholders are scrambling to find a way to contain the damage.  Just this week, the cap came off for more than nine hours, making an already BAD situation, even WORSE!

Investors in BP, Anadarko, Trans Ocean, and Halliburton, have had a few rough weeks, and they should be NERVOUS, about the future. The growing political firestorm, that’s accompanied this ecological disaster, is drastically reshaping, the energy landscape in the U.S.  This has the makings, of the biggest structural change, to the energy markets in the past 50 years.  So, let’s hope there is more good news on the horizon, of renewable energy, and more “green” jobs.

The political and economic fallout, from this horrific accident, is starting to take shape, with the executives from BP, Transocean, and Halliburton being paraded in front of Congress for a public chastising. Predictably, politicians are making stern promises, of tighter regulations in the future. But, right now, it’s a guessing game as to what the new permanent regulations will be, and when they will happen.

So far, a temporary moratorium, has been put in place on the issuance, of new offshore oil and gas drilling permits. In addition, the Department of the Interior, plans to restructure the federal Minerals Management Service, (MMS) to eliminate the conflict of interest, inherent in its role of monitoring safety, managing offshore leasing, and collecting royalty income.  Seems, a little too late, for that, but I guess, it is a place to start.

The Department of the Interior, has plans to make offshore drilling rig inspections much stricter. Interior Secretary Ken Salazar, has also promised tighter environmental restrictions, for onshore as well as offshore, exploration and production. Lastly, in  reaction to the oil spill, the Senate Climate Bill, gives states the right to veto offshore projects, within 75 miles of shore. Again, I guess, better late, than NOT at all!

Although, these regulatory changes aren’t set in stone yet, it’s a foregone conclusion, that any company involved in offshore drilling, will feel some pain. Any exploration and production company, that continues to operate offshore, will face reduced margins from a higher-cost structure, that includes increased taxes, regulations, and insurance.

Offshore production, supplies a large amount of oil and gas to the U.S.  The U.S. Energy Information Agency, estimates that U.S. offshore reserves account for 17% of total U.S. proved reserves for crude oil, condensate, and natural gas liquids.

Of the total known U.S. offshore reserves, the Gulf of Mexico accounts
for 90%, with the rest found in California and Alaska.  In 2009 alone, BP produced nearly a quarter, of all the Gulf’s oil and gas, located in federal water.  Shell and Chevron, produced 12% and 11%, respectively.

The vast size of offshore reserves guarantees, exploration and production, will never be completely abandoned in the U.S.  But, since this disaster, don’t expect any growth, any time real soon, either.  In fact, the Gulf of Mexico disaster,has probably destroyed any hope of any future drilling, in environmentally sensitive areas, like the Arctic National Wildlife Reserve.  We can only hope, nothing like this ever happens again, anywhere else!

The market has reacted strongly to the spill, punishing the stocks of every company involved in offshore drilling.  Now, many are suggesting, it might be an overreaction, that could benefit your investment portfolio, if you dare buy in now.  Personally, I think there is a much more stable future, in renewable energy.

This oil spill will, be a very expensive setback for all the players involved, in offshore production.  This has already been seen, and reflected in their stock prices.   Since this disaster, 68 days ago, offshore exploration and production companies, and the oil services companies, are beginning to show margin erosion, as they digest higher costs, associated with the disaster.  Some companies will probably pull up stakes, and move completely into non-U.S. offshore projects.  They will soon come to realize, the cost of doing business in the U.S., outweighs any potential gains.

While, it’s possible there are some good bargains, if you are an investor, it’s still too soon, to consider speculating in any, offshore-related companies. Specifically, the threat of increased regulation, massive tax increases, and rising insurance costs, will create a hostile environment for any oil  companies, going forward in the future.  Alternative sources, will be in demand, instead of oil.  Perhaps, the longer this disaster fuels frustration, the better chance the American people have, of  finally being HEARD, about getting off the OIL wagon! We can only hope!

The biggest worry right NOW, is Hurricane Alex, due to reach gulf waters, this next week. Currently, BP is collecting on average 53,000 barrels, of oil a day.  They said, they were planning on stepping that figure up to 80,000 barrels a day.  Hurricane Alex, could halt clean-up and collection efforts, by as much as 5 days!  The situation just goes from bad to worse, with NO end in sight!