Analysts for FBR Capital Markets called the Interior Department’s issuance of the first deepwater drilling permit since the explosion aboard the Deepwater Horizon rig a “positive incremental step toward normalization of the regulatory environment” in the Gulf of Mexico (GOM), but they cautioned investors against chasing stocks with GOM exposure in the near term.

“We continue to believe that the first permit marks the beginning of a long period of slow permitting similar to the slog that has been observed in the shallow water, where there is no moratorium,” wrote four FBR analysts in an “Energy & Natural Resources: Energy Policy” research report Tuesday.

On Monday Noble Energy received a permit to proceed with a development bypass around Well #2 in the Santiago prospect in Mississippi Canyon Block 519, about 70 miles southeast of Venice, LA (see Daily GPI, March 1). The Houston-based producer is the operator of the well, which it was forced to plug as the result of the moratorium, and has a 23.25% working interest. Noble Energy said it expects to resume drilling either later this month or in early April.

The Noble Energy permit gives Interior Secretary Ken Salazar, who is scheduled to appear before Congress this week, “an approval in hand in order to respond to allegations” that the Obama administration is dragging its feet in issuing permits in the Gulf deepwater (see Daily GPI, Feb. 17), the report said.

With the Noble Energy permit, Interior essentially tossed the oil and gas industry a bone, according to the American Petroleum Institute (API). “We welcome the news of yesterday [Monday]. But it was one permit for one company…It’s a very small step and more action needs to be taken,” said API President Jack Gerard.

The oil and gas industry has done everything the federal government has asked it to do to improve safety and the containment technology for spills, the API said. “While one permit is greatly appreciated, it is not the answer to a crisis,” Gerard said.

As for future permits, “expect a trickle, not an avalanche,” said the analysts with Arlington, VA-based FBR. Michael Bromwich, director of Interior’s Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM), “says he expects further permits to be approved in the coming weeks and months,” but “we caution investors that, rather than returning to the previous pace of approval, permitting will continue to be an arduous climb in the deepwater,” they said.

Currently there are seven applications for permits to drill in the deepwater pending at BOEM: two new wells, three revised plans for new wells, one sidetrack and one bypass, the analysts said.

President Obama has requested a 50% hike in BOEM’s budget to $358 million in fiscal year 2012, but “Bromwich has said that he is not sure that the department will ever return to the pre-Macondo rate of approvals.”

In issuing Noble Energy a permit, Bromwich said the producer “has demonstrated, through a plan to augment contracted Helix Well Containment Group (HLX) resources, that it is capable of containing a subsea blowout.”

BOEM reportedly is “satisfied with both HLX’s containment system and with the interim system of the ExxonMobil-led Marine Well Containment Co. Last Friday Bromwich and Salazar met in Houston with executives of the two companies to evaluate their containment systems. BOEM had indicated in early December that availability of these systems was the major remaining hurdle to new deepwater drilling,” the FBR analysts said (see Daily GPI, Feb. 8).

After a new containment system was tested successfully in February, industry groups pressured the BOEM to reopen the Gulf (see Daily GPI, Feb. 18a). The pressure from the industry came during the same week that a federal district judge granted a preliminary injunction ordering the BOEM to act within 30 days on five pending permit applications to drill wells in the deepwater Gulf (see Daily GPI, Feb. 18b). Just last week the Louisiana congressional delegation led by Sen. Mary Landrieu (D-LA) called on the president to put an end to the de facto moratorium (see Daily GPI, Feb. 23).

“We continue to emphasize that, beyond the wells already permitted before the moratorium, new permits will require a new exploration plan with associated environmental review. Our conversations suggest that this separate approval process could be significantly more arduous than the pathway for the ‘grandfathered’ permits [such as Noble’s] and offer significantly greater opportunity for litigation delays,” the analysts said.

API indicated that the holdup with new deepwater drilling permits will be with the environmental assessments (EA). Interior will require an EA for every new exploration plan (an estimated 40 exploratory plans are pending), the API said. The oil and gas industry wants Interior to return to the pre-spill timeline of 30 days for reviewing an EA, said Erik Milito, director of API’s upstream and industry operations.

Noble Energy was the first to receive a deepwater permit because it had a waiver from an EA, he noted.

BOEM last week “quietly approved a deepwater exploration plan submitted by Cobalt International for a well that had been suspended by the moratorium. BOEM previously announced that it is reviewing another exploration plan submitted and revised several times by Shell for new wells. Shell’s plan is receiving more extensive environment reviews, including a public comment period, than Cobalt’s.”

The shutdown of the federal government, which still remains a possibility at the end of the week, “could lock out permit offices,” the FBR analysts said. The current continuing resolution (CR), which funds the federal government, expires at midnight Friday. As the deadline nears, the House and Senate have been unable to come to terms over the cuts to be made in the spending bill. To allow the sides more time to negotiate, the House and Senate are expected to vote on a interim spending bill to keep the government operating through March 18.

“In the event of a possible government shutdown at the end of this week or at the expiration of a continuing resolution being negotiated to provide interim funding, nonessential personnel would be prohibited from carrying out government functions. Although essential operations including law enforcement and the post office will continue operating, a significant portion of the Department of Interior, including oil and gas permitting, will be locked out,” the report said.

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