New Moratorium, Old Song?
Research for Online Investors

by John Dalt

7/13/10

Diamond Offshore Drilling (DO) was the first company to move a rig out of the Gulf of Mexico last Friday.  Yesterday, they announced a second deepwater rig was moving to waters off the Republic of Congo due to the U.S. drilling moratorium.  The rig was under contract to Murphy Oil through March 2012.  The contract was renegotiated to a one year commitment for operations in the Gulf when Murphy can get permits.

Yesterday, the U.S. Interior Department issued a revised deepwater drilling moratorium through November 30. According to The Australian, the new moratorium is a transparent rewrite of the old moratorium. The new moratorium omits references to deepwater operations over 500 feet, and replaces the targeted operations as ‘any deep-water floating facility with blow-out preventers.’ We covered the Judge’s ruling against the government in Gulf Coast Workers-1, Obama-0 on June 22.

Interior Secretary Ken Salazar said, “I am basing my decision on evidence that grows every day of the industry's inability in the deep water to contain a catastrophic blowout, respond to an oil spill and operate safely."

Sen. Mary Landrieu, a Louisiana Democrat, said in testimony to the presidential oil spill panel that she was "alarmed" at the Interior Department's statement that its decision is supported "by an extensive record of existing and new information.”  Landrieu said that statement "contradicts testimony given by drilling experts and ignores the history of oil and gas operations in the Gulf."

Carl Rosenblum was one of the attorneys for plaintiffs suing to stop the first moratorium. He said of the new moratorium, “we have substantial concerns about its consistency with Judge Feldman's order."   According to AFP, ‘Salazar previously warned he would issue a new order to block deepwater drilling, regardless how the court ruled, to back up the first moratorium.’

In granting a preliminary injunction barring enforcement of the first deep water drilling moratorium, Federal Judge Martin Feldman ruled that the government acted in an arbitrary and capricious manner, causing irreparable harm to the plaintiffs.

It will be interesting to see how Judge Feldman views the latest moratorium.  Judges generally do not look kindly on actions that appear to circumvent their orders.  You can read Judge Feldman’s original order.  It is full of facts and plainly calls the government to task for over-reaching.

Some interesting facts from Judge Feldman’s ruling jumped out at your editor. Gulf production accounts for 31% of total domestic crude oil, and 11% of total domestic, marketed natural gas production. 64% of all active leases are in deepwater over 1000 feet.

A legal challenge to the new government moratorium should come soon.  We will keep you apprised of events as they happen.  One insight, after three rebuffs by the court, the government will have to pay plaintiff’s attorney fees.  There are other remedies a Federal Judge can use to punish bad actors.  This may be fine theatre!

The Wall Street Journal had a good article on Judge Feldman last month, The Judge Behind the Ruling.  The article paints a picture of the kind of judge we would like to have deciding a difficult case.

Alcoa (AA) and CSX Corp. (CSX) reported good earnings with upbeat forecasts.  This was what the market needed, higher gross sales (top line) and increasing profits (bottom line).  Good guidance going forward gave the market confidence that the economy was growing.  Intel (INTC) reports after market close tonight.  The stock is up almost 2% today in anticipation of a good report.

We also received U.S. Trade Balance numbers this morning that showed imports increased 2.9% in May.  Exports increased 2.4%, in spite of the strengthening dollar.  Exporters also are impacted by the Eurozone credit problems and China’s slowdown in imports.  Because of the slowdown in imports to China, the U.S. trade deficit with the Middle Kingdom hit a ten-month high.

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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