Citi: Rebooting Gulf of Mexico Drilling Benefits DO, NE, RIG

By Teresa Rivas

It has been less than a year since the blowout at the Macondo well in the Gulf of Mexico caused the largest oil spill in U.S. history, but plans to restart offshore drilling in the region are progressing more swiftly than many had thought.

The Bureau of Ocean Energy Management has approved Royal Dutch Shell’s (RDSA) proposal to drill three new exploratory wells using Noble‘s (NE) Jim Thompson rig, the first oil and gas exploration plan for the deep waters of the Gulf since the disaster. Shell can now receive permits to drill, given the approval.

This is significant, as the government had previously only approved plans that utilized wells that were already in operation or under construction before the moratorium on drilling, explains Citi analyst Robin Shoemaker. In a research note out this morning, Shoemaker also wrote that environmental protests surrounding the resumption of drilling likely “will not succeed or meaningfully delay the resumption of drilling in the Gulf. While the risk of further delay may keep some investors on the sidelines, the multiple evidences of a broad global upturn in demand for deepwater drilling services is the basis for our positive outlook for the deepwater drillers.”

Shoemaker reiterated Buy ratings on Diamond Offshore (DO), Noble, and Transocean (RIG) in light of the news, writing that they “are the companies that most directly and immediately benefit from growing demand for deepwater oil and gas drilling services,” as they have the greatest Gulf of Mexico exposure and should thus see gains as drilling activity increases.