UPDATE 1-Offshore US drilling could help oil cos, drillers

Wed Jun 18, 2008 4:09pm EDT

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(Adds comment from oil industry group, paragraphs 8-9)

By Michael Erman

NEW YORK, June 18 (Reuters) - President George W. Bush's proposal to end a long-standing ban on oil drilling off the U.S. coasts could be a boon for oil companies and the service companies that help them drill for oil and natural gas.

Bush urged Congress to end the ban on Wednesday, arguing that policies that keep oil companies from developing possibly productive regions have played a role in driving oil prices above $130 a barrel.

Drilling is currently allowed only in the western and central Gulf of Mexico -- offshore Texas, Louisiana, Mississippi and Alabama -- and offshore Alaska.

The oil companies who already have offshore projects in the United States, like Chevron Corp (CVX.N), ConocoPhillips (COP.N), BP (BP.L), Exxon Mobil Corp (XOM.N) and Murphy Oil Corp (MUR.N), would be the first beneficiaries of an end to the moratorium, analysts said.

Still, the real impact of any new policy is unknown and depends on how it would be implemented and, more importantly, what's in the ground. Plus, it could take a decade or more to find the oil and produce it.

"It's a huge opportunity because there's a tremendous amount of acreage involved. But the magnitude of the opportunity -- the magnitude of what's there -- is strictly conjecture," said Howard Weil analyst Gene Gillespie.

Top oil company executives have long called for an end to the moratorium, saying the lack of access to key oil and gas reserves is one of the toughest challenges facing the industry.

With U.S. oil companies facing dwindling options abroad as countries like Venezuela and Russia tighten down on access, the U.S. offshore could give them a way to replace their crude oil reserves, said Sara Banaszak, a senior policy analyst at the American Petroleum Institute.

Wall Street has criticized U.S. oil companies in recent years for failing to replace oil reserves they produce, so "every investment opportunity for them to increase their reserves is critical," Banaszak said.

The U.S. Congress banned most offshore drilling in 1981. Bush's father, former president George H.W. Bush, followed suit with an executive order banning drilling in the wake of the 1989 Exxon Valdez oil spill in Alaska -- the worst tanker spill in U.S. history.

But energy policy has become a key issue ahead of the November presidential elections as average U.S. gasoline prices passed the $4-a-gallon level for the first time this month.

The most obvious companies that stand to benefit from opening new areas off the coastlines would be the offshore drillers, said Calyon Securities oilfield services analyst Mark Urness.

Urness said it should favor drillers with higher specification jackup rigs like ENSCO International Inc (ESV.N) and Rowan Companies Inc (RDC.N) that work in waters not visible from the shore.

He said all companies with rigs that can drill in deep waters should also benefit. The largest U.S. deepwater drillers are Transocean Inc (RIG.N), Noble Corp (NE.N) and Diamond Offshore Drilling Inc (DO.N). (Additional reporting by Anna Driver in Houston and Chris Baltimore in Washington; Editing by Gary Hill)

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