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Obama Open to Offshore Atlantic Exploration: Drillers Delighted - Analyst Blog

Zacks Equity Research

On Tuesday, the Obama administration put forth a proposal to allow drilling in the federally owned waters off the Atlantic coast for the first time. The plan, however, closed doors to some regions off the Alaskan coast. The proposal, which tends to strike a balance between coastal energy development and protection of sensitive environment, drew complements and comments of equal footing.

The Proposal

The plan, released by the Interior Department, proposes drilling activities in the offshore areas of Virginia, North Carolina, South Carolina and Georgia, a stretch that houses large oil and gas reserves. The leasing plans are expected to be finalized later this year, opening a 5-year drilling period, from 2017–2022. BP plc’s (BP) oil spill incident in 2010 had halted the previous Atlantic drilling plan.
 
The proposal allows a lease each in the Chukchi and Beaufort seas and one in the Cook Inlet, in South-Central Alaska. The plan also allows 10 lease sales in the Gulf of Mexico.

However, the administration stated that certain areas in the Beaufort and Chukchi seas would be kept off bound to protect the sensitive environment. The administration also intends to strictly keep drillers away from the Pacific coast.  

The move opens about 80% of the undiscovered technically recoverable resources for development while keeping the delicate habitat safe. Interior Secretary, Sally Jewell added that this is a draft proposal in its early-stages and that the areas mentioned may be altered or removed entirely from the plan.

Not Approving the “Balance”

The proposal to place an embargo on certain energy-rich regions previously open for drilling resulted in clashes with the Republicans. They see the move as a hindrance to the Alaskan economy.

Some officials from the oil industry also opposed the offshore drilling restrictions stating that these would lower U.S. energy dominance on the global market and prevent job creation.

Environmentalists also criticized the move but from another angle. They believe that opening new areas for development exposes the sensitive Arctic environment to the hazards of drilling.

The Gainers

Despite several objections to the proposal, the move was cheered by the oil and gas industry, which has long tried to increase its presence along the eastern coast to monetize on new prospects.

The proposal houses benefits for all companies that are associated with the exploration and development of new acreage – primarily the upstream firms and the drilling and oilfield services providers.

If the proposal comes about, it could see a significant increase in work for offshore drilling firms operating in the region, especially the ones suited better to withstand harsh weather conditions.

Shares of several offshore drilling firms like Diamond Offshore Drilling, Inc. (DO), Noble Corp. (NE), SeaDrill Ltd. (SDRL), Transocean Ltd. (RIG) gained following the announcement.

Bottom Line

The White House sent mixed signals, prompting growth on one hand, whereas restricting drilling avenues on the other. So the road ahead remains muddy, especially in this current weakly priced market.


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