Moratorium Manipulation
Research for Online Investors

by John Dalt

6/23/10

After a federal judge overturned the existing six month moratorium on deep water drilling, the administration announced an appeal.  This was surprising in that they had not taken the time to read the judge’s opinion first.  U.S. Interior Secretary Ken Salazar is also preparing a new revised deep water drilling moratorium.  He will announce this "new" moratorium while appealing the previous six month moratorium.

The administration’s actions give the appearance there is more to the moratorium than protecting the environment.  The beauty of the administration’s appeal while simultaneously issuing a new moratorium is one of manipulation.  The Federal Judge in New Orleans was careful to issue his decision before the U.S. Supreme Court went on summer break.  This gave the administration time to appeal and not be “locked out” of the process.  The administration is now going to use the summer break to issue a new moratorium.  This could also be interpreted as a delay tactic, as it starts the legal process over again.

Bloomberg reports that the new moratorium may allow some deep water activity.  Deep water drilling may be able to continue on development wells, as the pool pressures are known and predictable.  28 of the 33 idled rigs were working on development wells.  The five rigs working on exploratory wells would not be allowed to continue.  Bloomberg reports that some rigs have already started moving out of the gulf.

At a Senate hearing this morning, Senator Lisa Murkowski R-Alaska said “The judge’s decision yesterday…was pretty scathing.” Judge Feldman picked out Salazar’s May 27 report that was used to justify the drilling ban. That report said the moratorium was peer reviewed by seven experts. Five of the experts have criticized that characterization, because they did not endorse a moratorium and the paragraph recommending a halt to drilling was added after they signed off on it. One of the concerns of the experts was halting drilling and abandoning wells, could be more dangerous than completing them.

Offshore companies asked Judge Feldman to enforce his injunction on Wednesday.  They argued the Federal Government is defying his order.  Platts has the latest story.

It is too early to play any of the drillers and support companies based on developments in this changing story.

To the mailbag:
Oil is oil. The price is the same whether is comes from Iran or Indiana, from BP or Chevron. Makes no difference. Ditto all commodities (e. g., gold).  Most of our oil is imported already.  The only legitimate concern you might have is national vulnerability due to having the sea lanes interdicted by our enemies.  Hard to believe that happening, but it's not inconceivable.  We'd have oil, but it would be more costly due to artificially restricted supply.  Frankly, I am betting that the free market will find an energy alternative to fossil fuels in my lifetime —subscriber J.R.

John’s reply:  You are correct on commodities, unless their availability is artificially restricted by government (either friend or foe). We are faced with exporters that can, and will restrict the flow of oil.  Our government continues doing the same thing on a grand scale.  Forbes magazine carried the article Fed Lands Hold Oil and Gas Bonanza on February 2010.  The latest moratorium on deep sea wells is on top of restrictions to drill in Alaska and other Federal acreage across the lower 48 states.  The Forbes article cites a National Association of Regulatory Utility Commissioners report that the U.S. has over 50 years of domestic oil and natural gas reserves, much of it off limits to development.  I have read other reports that estimate our reserves much higher.

It would be wonderful to find an alternative to fossil fuels, but restricting our availability of cheap oil and regulating the use of coal, is counter-productive to our economic health.  The fastest way to reduce Americans standard of living is to raise the cost of energy, slowing the economy, leading to lower wages and higher unemployment.

What good does alternative energy and sustainability do us, if we are reduced to riding Vespa scooters and bicycles, because the new energy sources are so expensive?

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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