Capito seeks to use offshore drilling to fund road repairs

Monday September 26, 2011 - Rep. Shelley Moore Capito wants to expand oil and gas drilling off the United States' coasts and use some of the returns to help repair the country's roads and bridges.

Her office said the money from leases oil companies pay the government to drill offshore would amount to $435.5 billion over 30 years.

Capito, R-W.Va., said she thought the idea had support from leaders in the Republican-majority House and "we're going to work on the Democratic side."

The bill is consistent with Capito's desire to broaden as much possible the country's energy portfolio, she said, while also helping to shore up the dwindling road repair budget."I've been on an 'all of the above' energy plan, so let's tap these resources," she said in a telephone interview Friday.

Offshore drilling is currently prohibited in most places around the United States, though there are several exceptions. Environmentalists generally oppose the drilling, pointing to the danger of spills like that of April 2010 at a BP oil rig in the Gulf of Mexico.

Still, the notion isn't without bipartisan support. In March 2010, President Barack Obama said, "in the short term, as we transition to cleaner energy sources, we've still got to make some tough decisions about opening new offshore areas for oil and gas development."

But a move toward expanding drilling was put on hold and reversed three weeks later when the BP rig began belching oil into the gulf.source: www.dailymail.com

Ground broken by offshore drilling platform

NOBLE Energy broke ground yesterday in exploratory drilling for natural gas off Cyprus’ southern coast, as the government again defended the Republic’s right to exploit the country’s natural resources.

The drill of the ‘Homer Ferrington’ oil rig penetrated the seabed, at a sea depth of 1,700 m, said Energy Service director Solon Kassinis.

Drilling would continue to the depth of around 5.8km below sea level, and the process could take up to two or three months, he said.

“It’s going well, without any glitches,” Kassinis told the Cyprus Mail.During this time samples will be taken from the bedrock and analyzed for their hydrocarbon content and quality.

Once the process is complete, the borehole is sealed with cement. If the samples are promising, the borehole would be reopened for commercial extraction at a later date.

Drilling is taking place in a field designated as Block 12 (or “Aphrodite”); energy officials say it could hold up to 10 trillion cubic feet of natural gas.

Texas-based Noble Energy holds the exploration concession for Block 12 that lies very close to a gas field in Israeli waters.

Noble's Israeli partner, the Delek Group, has an option to participate in the Cypriot project.

Delek subsidiaries Avner Oil and Gas LP and and Delek Drilling LP have just received a precedent-setting provisional licence to invest in the Cypriot oil and gas exploration projects. The two companies have an option to buy 15 per cent each of Cypriot offshore Block 12 concession from Noble Energy.

The Cypriot government will have to give Avner and Delek Drilling permission to exercise their option to the concession.

According to business website Globes, Israeli authorities have banned Avner and Delek Drilling from investing in foreign projects due to concerns that their controlling shareholders will abuse the difference between their knowledge and other investors' knowledge about developments in foreign markets. For this reason, the companies' permit is provisional and limited to Cyprus.

Kassinis confirmed yesterday that Noble has asked Cypriot authorities for permission for Avner and Delek Drilling to exercise their option.

He said the request is being assessed by an advisory panel to the Commerce Ministry. Final decision rests with the Cabinet.

Turkey has threatened to send gunships to protect its own planned exploratory work off the island’s northern coastline.

Acting government spokesman Christos Christofides said the President and the government are “closely monitoring developments and are taking all the necessary steps to ensure that our efforts proceed unhampered.”

Appealing for calm in the face of Turkish actions in the eastern Mediterranean, Christofides said there was no cause for “unnecessary alarm” and called on the media to play their part.

Reiterating that Cyprus is well within its rights to explore for hydrocarbons, Christofides added that the Republic has had the unequivocal backing of the international community on this.

The President and the administration would continue efforts overseas to build “a shield” of international support around Cyprus, he said.source: www.cyprus-mail.com

Drilling mud spills from offshore rig east of St. John's

Thousands of litres of synthetic drilling mud spilled at the White Rose oil development hundreds of kilometres southeast of St. John’s on Tuesday, officials say.

Husky Energy said the spill of about 5,000 litres of drilling mud from the GSF Grand Banks oil rig occurred during normal drilling operations.

The White Rose oil project is about 350 kilometres from the island of Newfoundland. Drilling was suspended Tuesday and an investigation was launched, the Canada-Newfoundland Offshore Petroleum Board said.

Drilling mud is used in the oil industry to prevent oil or gas from escaping during drilling operations.The news release suggested the spill is not expected to have a serious impact on the environment near the rig.

“Synthetic based mud is a heavy, dense fluid used during drilling operations to lubricate the drill pipe and balance reservoir pressure. Because of its weight, the mud sinks rapidly in the water column and rests on the sea floor. The synthetic base oil used is a food-grade oil of extremely low toxicity,” said a C-NLOPB news release Tuesday.

Late last March, more than 26,000 litres of drilling mud spilled from another oil rig operating east of St. John's. The Henry Goodrich rig was drilling an exploration well for Suncor at the time.

According to the C-NLOPB, the incident in March was the largest spill of drilling mud since 2007, when 74,000 litres of drilling mud were spilled in the Orphan Basin area of the North Atlantic Ocean.source: www.cbc.ca

Bill aimed at using BP fines to restore Gulf goes to full Senate

Hours after the oil rig explosion in April 2010, fireboats try
to extinguish the blaze on the Deepwater Horizon rig
south of Venice. The BP oil company faces fines,
which a Senate committee said should be used to restore
the Gulf Coast.

A bill that calls for 80 percent of BP penalties to go toward restoring the Gulf of Mexico has moved to the full U.S. Senate.

The Senate Environment and Public Works Committee passed the bill, called the Restore Act. Next, it goes to the full Senate for a vote.

Under the bill, a restoration plan would have to be drawn up and a special council set up to oversee restoration. The bill also calls for money to be set aside for long-term studies of the Gulf.

The bill has been pushed by Gulf Coast senators and backed by environmental groups.The BP spill occurred after the Deepwater Horizon rig exploded April 20, 2010, off the coast of Louisiana, leading to the largest offshore oil spill in U.S. history.source: www.nola.com

Oil Plays: Why Drill When You Can Integrate?

When it comes to the stock market, not all oil companies are created equal. For instance, drillers like Transocean (NYSE:RIG) and Diamond Offshore (NYSE:DO) have fallen 18% and 14%, respectively, in 2011 while integrated energy colossus Chevron (NYSE:CVX) has only dropped 1%. Why?

The answer can be found by looking at what drives their profits. Offshore drillers operate platforms that float over oil deposits beneath the ocean floor. Companies like BP (NYSE:BP) pay offshore drillers a daily rate to drill in search of oil. The goal of companies that hire the offshore drillers is to find the oil and get it pumped out as fast as possible so they can minimize the day rate they’re paying.Of course, BP and Transocean got into a bit of trouble back in 2010 when Transocean’s Deepwater Horizon rig — which BP had hired — blew up, killing 11 crew members. This led to a massive cleanup and a moratorium on drilling in the Gulf of Mexico. That moratorium on drilling cut way back on the number of rig days that Transocean and its competitor, Diamond Offshore, got paid.

The financial results are not pretty. In 2010, Transocean’s net income plunged 69% to $988 million thanks to the loss of that rig’s income and the moratorium in the Gulf. And in the second quarter of 2011, Transocean’s net income plunged 50% to $155 million while only 55% of its fleet was being used.

The numbers for Diamond Offshore are not that much better. Its net income has fallen 31% in the last year while its revenues are down 9%. But in the second quarter of 2011, it reported higher profits of $267 million — up 8%. The bad news, which spooked its stock, is that management forecast more rig downtime — 1,004 days in 2011 and 869 days in 2012.

Chevron is a different story. It has many different ways to make money — including the refining and marketing of oil. If Chevron can keep its cost of buying crude oil low enough and keep its refineries operating close to full capacity, then it likely will make a big profit when it subtracts these costs from the price it gets from consumers at the pump.

That spread worked quite nicely for Chevron in the second quarter. Its profit spiked 43% to $7.7 billion on revenue that climbed 31% to $66.7 billion as higher oil and gasoline prices made up for a decline in oil production.

But that’s all history. Should you buy any of these stocks? Consider Chevron but avoid the offshore drillers. Here’s why:

Chevron: Profitable company, possibly expensive stock. Chevron revenues are up 19% in the past year, and it earns a solid 9.9% net profit margin. Yet its price/earnings-to-growth ratio is a high 3.95 — 1.0 is considered fairly valued — on a P/E of 7.9 on earnings forecast to grow 2% to $13.75 in fiscal 2012 after a 42% rise in 2011. If you think Chevron’s 2012 earnings growth will be better, then the stock might be cheap.
Transocean: Unprofitable company, expensive stock. Transocean loses money: It has a -1% net profit margin. And its PEG is undefined because it trades at a P/E of -129, but its earnings are forecast to rise 63% in 2012 to $5.75. If you like betting on a turnaround, this could be one to consider.
Diamond Offshore: Profitable company, overpriced stock. Diamond Offshore earns a whopping 29% net profit margin. And its PEG is undefined because it trades at a P/E of 8 on earnings forecast to tumble 20% in 2012 after a 10% decline in 2011.

If you had to bet on one of these, I’d go with Chevron. But if we have a recession coming up, then its earnings growth might be on the low end, and that would make its stock overpriced. The offshore drillers look questionable unless demand for their services spikes.

Peter Cohan has no financial interest in the securities mentioned.source: www.investorplace.com