The timing and magnitude of the U.S. Gulf of Mexico (GOM) drilling recovery will be more "asset-specific" than any cyclical offshore drilling upswing in decades, the energy team at Raymond James & Associates said Monday.
In their Energy Stat of the Week, analysts J. Marshall Adkins, Collin Gerry and Christopher Butschek noted that the fallout from the deepwater Macondo well disaster has cut into offshore drilling stocks year-to-date on average more than 15% while the broader energy markets are "roughly" flat.
"While valuations are attractive for those with long-term horizons, we think this offshore recovery will generally take longer than many think," said the trio. "The main reason for our near-term pessimism is that it appears the current offshore U.S. deepwater moratorium is likely to morph into an 'Obamatorium' where the drilling moratorium is technically lifted but drilling does not rebound due to Obama administration-directed permitting delays.
"Additionally, ongoing deliveries of (pre-meltdown ordered) rig new-builds mean that offshore drilling capacity is likely to increase in an already oversupplied market."
Based on their review, the analysts concluded:
"While the expiration of the moratorium could provide some short-term relief for the offshore drilling stocks, our fear is that a de facto moratorium state will still exist for another six to 12 months due to a prohibitively cumbersome permitting process," the Raymond James team wrote. "Technically there is no moratorium on shallow-water drilling. But, practically speaking, by implementing an impossibly cumbersome permitting process, the [Obama] administration has effectively killed shallow-water activity."
According to the analysts, "there have only been six total shallow-water permits issued since the moratorium, compared to a monthly run of 15 to 30 prior to Macondo."
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