First Deep-Water Permit Approved; Analyst Cautions Against Chasing Stocks

[Stocks-to-Watch]

The Obama administration approved a permit for Noble Energy (NBL) to drill in the deep-water of the Gulf of Mexico on Monday, the first such permit it has issued since BP’s (BP) Macondo spill last April. Industry groups and some politicians have been pushing for the administration to reopen the Gulf to drillers, particularly as tension in the Middle East has led to higher oil prices.

Noble’s permit will allow it to drill a bypass well that it had already begun to work on before the drilling moratorium forced the company to stop. There are now seven drilling applications being considered by the Interior Department, according to a note from FBR Capital Markets analyst Benjamin Salisbury. Shares of some oil explorers with offshore operations rose at the end of the day Monday, with Noble up 4%. But Salisbury says that investors should be wary of piling into the sector in the hopes that the Gulf will go back to business as usual.

“Although yesterday’s approval for the first new deepwater permit is a positive incremental step toward a normalization of the regulatory environment in the U.S. GOM, we caution investors against chasing stocks with U.S. GOM exposure as they run up 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. Specifically, we note the increased scrutiny applied to each APD and the resource constraints at the Department of the Interior. Moreover, we continue to emphasize that, a handful of permits drilling before the moratorium will have a much easier pathway than new permits that require new exploration plans, which we view as much more susceptible to policy and litigation delay.”

Original Article Source by Barrons.com