Snips from covering analysts on drilling permitting prospects

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Snips from covering analysts on permitting prospects
Raymond James Energy Group - October 13, 2010
Moratorium Lifting Doesn\'t Hurt, But We Don\'t Think it Helps too Much Either Before Macondo, we were expecting over 40 rigs to operate in the Gulf of Mexico by 2012. We continue to believe that number is probably closer to 20 as rigs will continue to leave the region. The stock market reacted to the headlines yesterday, as it appeared that deepwater drilling is back on track in the Gulf of Mexico after the Obama administration lifted its moratorium. However, this has all the makings of political grandstanding ahead of the midterms elections.

Capital One Southcoast - October 13, 2010
Deepwater Drilling Moratorium Lifted Ahead of Schedule
Yesterday, Secretary of the Interior Ken Salazar lifted the GOM deepwater moratorium that was set to expire on 11/30. No new rules per se except that contractors and operators have to comply with the previously released NTL 5, NTL 6, and the Drilling Safety Rule. As expected, the BOEM will inspect all deepwater operations for compliance (not limited to just BOPs). While spill containment is already in NTL 6, the DOI appears to be in the process of establishing an industry-wide containment resource. Once operators comply w/ all the new regulations, permits can be issued; however, legislation has been submitted that no longer requires the BOEM to approve permits w/in 30 days. Once companies resume ops, they will also need to comply w/ the previously released Workplace Safety Rule. BOEM\'s Bromwich suggesting that it\'s possible that some deepwater permits could be issued by YE, but we think this is fairly unlikely as the shallow water permit pace has been crawling. DOI and BOEM reserving the right to add additional rules and safety regs in the future such as redundant blind shear rams, remote activation systems for BOPs, and enhanced instrumentation and sensors on BOPs.

Deepwater Drilling Moratorium Lifted, Impact to Companies
We believe the early end to the moratorium benefits ATPG the most in our E&P coverage list as the change opens the possibility that the company could get its 3rd & 4th Telemark wells drilled and online quicker than our current estimate of mid 2Q11 for the 3rd well and mid 3Q11 for the 4th well. CIE also benefits as the change likely gives investors greater confidence that the company will resume drilling its high-impact GOM wells sooner than anticipated. ATPG shares responded up ~10% on the day while CIE was up a more modest 2%. Overall, we currently favor EXXI (27% upside) & MMR (22% upside) among the GOM shelf operators and CIE (55% upside) & PXP (59% upside) among the companies with deepwater exposure.

Permitting will still be slow: From the oil service side the lifting of the moratorium, while a positive step, does not change our modeling mindset regarding minimal deepwater contributions in 1H11 principally due to the need for NTL-6 clarity (perhaps coming given some of Salazar\'s comments about getting closer to an industry-wide containment resource but still would logically take time to iron out) and a slow permitting backlog unwind at the BOEM. Important to remember that BOEM has only issued 12 shallow water permits for new wells since the moratorium began