August 13, 2010 / 9:25 PM / 9 years ago

Analysis: In choppy U.S. offshore, small fry may need big fish

BANGALORE (Reuters) - Caught in the ripples from the BP spill, small, pure play offshore oil and gas producers may need joint ventures for support, throwing up some bargain assets for majors like Petrobras, Chevron Corp and Exxon Mobil Corp.

While companies such as Anadarko and Plains Exploration have been able to move onshore, others like McMoRan and ATP Oil and Gas lack the scale to make such a sudden strategy shift.

They have little option but to stay put in the Gulf of Mexico, sit out the regulatory backlash against offshore deepwater drilling, and maybe seek venture partners to help bear rising costs and to hedge risk.

The Gulf contributed 30 percent of all U.S. crude output last year and is the main production base for ATP, McMoRan, W&T Offshore and Stone Energy.

“Some U.S. Gulf specialists like McMoRan and Energy XXI are so entrenched (there) that as long as the regulatory environment doesn’t get very negative for them, they’re not expected to diversify onshore,” said Duane Grubert, an analyst with Susquehanna Financial Group.

Faced with a squeeze on margins and little scope to adapt quickly, these firms and others like Cobalt International, are lobbying vigorously for less stringent drilling regulations than are currently anticipated.

“We spent a lot of time in Washington in July ... educating Congressman, Senators..., but it’s going to take longer to get well permits and development permits than it has in the past,” ATP executives said on an earnings call last week.

Following permit delays, Chevron declared force majeure in June on a Hercules Offshore jackup rig, rescinded later once the oil giant got the nod for a new offshore well in the Gulf’s shallow waters.

“(Waiting) six months or a year for a permit instead of six weeks ... majors can afford to do that, but sometimes the smaller ones can’t,” said Neal Dingmann at Wunderlich Securities.

“That will make or break these companies.”

Diversified Plains said earlier this month it plans to sell some U.S. Gulf assets and expand onshore, [ID:nSGE6740J6] and Devon Energy, valued at about $28 billion, has sold offshore assets to focus on lower-risk fields onshore.

Anadarko CEO Jim Hackett said his firm plans this year to announce a joint venture in the Eagle Ford Shale in south Texas. It previously signed Mitsui E&P USA LLC as a partner in a $1.4 billion Marcellus Shale deal.

The shift for some has been helped by a 20 percent rise in the price of natural gas, abundant in the rocks of Haynesville and Marcellus, since the BP disaster in April.

The number of rigs drilling for natural gas in the U.S. hit an 18-month high of 992 this week, according to oil services firm Baker Hughes.


On July 30, the U.S. House of Representatives approved the toughest reforms ever to offshore energy drilling, seeking to end a current $75 million liability ceiling for offshore operations and requiring proof of financial responsibility of $300 million.

Financial responsibility ensures that companies can meet their liabilities from any authorized activity, in this case drilling offshore.

While the Senate may ultimately water down some of the proposed legislation, the concerns over safety and regulation have already spread beyond U.S. waters.

Mexico’s state oil company Pemex will delay its deepest offshore well until next year due to concerns over deepwater drilling.

Editing by Ian Geoghegan

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