Oil: Part of the Problem Is What's Not Happening Here

Mar. 7.11 | About: ATP Oil (ATPAQ)

Oil hit a 29 month high last week. And naturally, the world's focus has been on the geopolitical issues in the Middle East.

But it’s not only about what is happening in the Middle East, it’s also what’s not happening here. While the moratorium on deep water drilling in the Gulf of Mexico was lifted back in October, only one drilling permit has been issued ... and that was just last week. And the act of lifting a drilling ban loses its punch when a total of one permit is issued.

That permit was approved by the Bureau of Ocean Energy Management, Regulation and Enforcement for Nobel Energy. That’s good. But the problem is that the Interior Department is sitting on seven other permits that will likely be rejected, according to the Wall Street Journal. What’s more, the permit that was issued simply allows Nobel to continue drilling a bypass well that it had already started before the ban.

On the upside, the government has issued 37 permits for shallow water and 22 permits for deepwater activity that were not impacted by the moratorium. Still, the reality is that new permits that require new deepwater exploration, as opposed to work that was halted, will likely face a long slog of regulatory delay.

And that reality smacks even more in light of the fact that last month Marine Well Containment Co. announced that its initial response system for oil spills is complete. The system can operate in depths up to 8,000 feet (the BP (NYSE:BP) leak occurred at 5,000 feet), and can store and process 60,000 barrels per day.

The slow call to action in the name of regulation has unintended consequences: Six of the 33 rigs idled by the moratorium have left U.S. waters. And now ATP Oil & Gas (ATPG) is finalizing a deal to explore off the shores of Israel, after permit delays here forced the layoff of 200 contractors and cost the company $330,000 per day. Before the drilling ban, ATP had 10 outstanding permits in the Gulf of Mexico. If those permits were cleared, ATP could double its production within a year. But the company can’t wait.

Granted, ATP is not a big oil company (with a market cap of $800 million), but it was the first company to build a deepwater platform in the U.S. entirely with U.S. labor. And as a small player in the energy industry, ATP knows it has to take safety seriously.

But today, the company’s CEO is happy to work with “a government that understands the importance of domestic energy security."

The bottom line: it took BP 87 days to shut the Macondo leak. It took the government 277 days to issue a deepwater drilling permit. And while that first permit is a move toward normalization of the regulatory process, this pace could lead to “a brain drain of oil and gas talent” (Forbes). And that’s the last thing we need.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.