UPDATE 2-Oil drillers welcome US Gulf permit, seek more

Tue Mar 1, 2011 2:29pm EST

Related Topics

* Shares of Ensco, Diamond Offshore, Noble lower

* U.S. move could open door to more drilling permits (Rewrites throughout, adds more comments, FACTBOX links)

NEW YORK/HOUSTON, March 1 (Reuters) - Oil and gas drillers cautiously welcomed the long-awaited U.S. approval of a deepwater drilling permit that they hope will be the first of many.

Shares of Ensco Plc (ESV.N), Diamond Offshore Drilling (DO.N) and Noble Corp (NE.N) fell on Tuesday, a day after a late rally spurred by the first deepwater permit since BP Plc's (BP.L) Macondo well blew out last April, causing the worst-ever oil disaster in the Gulf of Mexico. [ID:nN28278795]

The deepwater drilling moratorium was lifted last October, but no permits had been issued before that. [ID:nN28278795]

Analysts downplayed the overall significance of the approval of Noble Energy Inc's (NBL.N) plan, even if it did bode well for more than half a dozen other pending permits.

In a note to investors entitled "much ado about nothing," UBS analyst Angie Sedita noted the approval was for Noble Energy to resume drilling an old well in Mississippi Canyon, off Louisiana. BP happens to be a co-owner of the well. [ID:nN01172683]

The approval came 11 days after a judge ordered the U.S. government to decide on five pending permits. [ID:nN17641341]

"I just think the one they gave the permit to pretty much had done everything under the new rules, so how do you turn them down," wondered independent trading consultant John Troland in Houston.

"It's a step in the right direction, but it's a very small step," he added. "A lot of harm has been done."

Early data from the Bureau of Ocean Energy Management for 2010 Gulf of Mexico oil output shows a decline to 1.48 million barrels per day from 1.58 million in 2009. Before Macondo, the regulator had expected an increase to 1.6 million bpd in 2011.

Seven deepwater rigs have now moved out of the Gulf of Mexico as a result of the permit shortage. [ID:nN27265554]

But Noble Energy's permit may help others navigate the new regulatory process, with many of the 60 rigs under contract to drill in the Gulf waiting to get the go-ahead. [ID:nN01135987]

"The permit is significant because it gives operators and contractors a road map to getting wells approved in the Gulf of Mexico," said Joe Hill, director of oil services research at energy investment bank Tudor Pickering Holt & Co in Houston.

"We now have a template that has been completed by Noble that should allow people to look at it and follow."

Noble Energy plans to use a new underwater containment system developed by Helix Energy Solutions Group Inc (HLX.N) to help capture any oil from a potential spill.

Shares of Ensco, which will drill the Noble Energy well, were down 0.9 percent at $55.59. Diamond Offshore was down 1 percent, while Noble Corp was 1.3 percent weaker and sector leader Transocean Ltd (RIG.N) (RIGN.VX) was down 2.3 percent. (Reporting by Matt Daily in New York, Anna Driver and Bruce Nichols in Houston, and Braden Reddall in San Francisco; Editing by Lisa Von Ahn, Dave Zimmerman and Derek Caney)

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