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Offshore Drilling in the Gulf: Permit Delays Claim Another Victim

Marathon Oil has complained of delays in getting permits since the federal ban on deepwater drilling in the Gulf of Mexico ended in October. Now the company has made good on a threat to cancel its contract to lease one of Noble Corp.'s offshore drilling rigs. The "permitorium" has struck again.

Curiously, neither company is blaming the federal government's molasses-paced permitting process for killing the contract. Instead, Marathon Oil backed out of the four-year $752 million deal because it didn't think the rig was ready, according to Noble (NE). But that doesn't mean the federal slow-walk of oil permits wasn't a factor.

Leasing rigs are expensive, especially if they're under contract and can't be used because of permitting delays. BP was leasing Transocean's Deepwater Horizon rig for some $500,000 a day before the April 20 disaster, to give you an idea on the cost. While some major companies like Chevron (CVX) and Shell (RDS) remain committed to the Gulf of Mexico and continue to lease rigs despite the hefty price tag, not everyone can afford to wait in permit purgatory.

The lucky 13
Not all is lost for Noble, Marathon Oil (MRO) and a handful of other oil companies. For one, Noble claims a number of potential customers are waiting in the wings for a chance to lease the rig.

For another, there was Monday's emailed announcement from the Bureau of Ocean Energy Management Regulation and Enforcement. Thirteen companies -- among them, ATP Oil & Gas, Chevron, Marathon and Shell -- whose deepwater drilling plans were suspended by the ban can now restart their operations without additional environmental reviews as long as they meet one condition. They have to provide updated estimates of what the worst-case discharge would be if there was an uncontrolled spill at their exploration well. If those estimates come in lower than the amount included in the spill-response plans already on file with the agency, then they're good to go. I expect every company's "updated" worst-case estimate will fall below their previous figure.

It's doubtful that the oil industry, except for perhaps the lucky 13, will interpret this as good news, although they should. These 13 companies represent small independents that have struggled in recent months and those major companies like Chevron, Marathon, Shell and Statoil (STO) that have billions of dollars tied up in idled projects.

The BOEMRE's thumbs up has injected some stability -- without ignoring its plan to make offshore drilling safer -- back into a region whose economy is still suffering from the BP oil spill and the moratorium that followed.

Photo from BP

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