Offshore drilling company Transocean Ltd. is facing a huge drop in their third quarter profits. The company reported a 48% drop which was fueled by a decrease in their utilization rate, average daily revenue, and the BP Deepwater spill. Transocean has not been held responsible for the spill, but they have been speculated to have been a contributing member to the chain of events that resulted in the disaster.
As I blogged about in late October, the lifting of the Obama administration’s moratorium won’t take real effect until January 2011 in all likelihood, due to the slow process of approving permits for drilling. In conjunction with the additional new regulations that have been imposed, the business climate has been transformed from explosive production and consumption into lukewarm stagnation.
Yet I don’t think that Transocean is a completely fair example of the effects the new regulations are having. Despite that shallow-water drilling companies are already reporting delayed approvals because of the new process, I think that there is something else going on with Transocean. As previously discussed, the company has been in the spotlight since April’s Deepwater disaster, and I think this is the biggest reason for the skepticism around the company. The stock has dropped 23% from this point last year, and while increased costs of production via regulation are contributing, the uncertainty around the legal action the company may face is an even bigger issue.
Sources: The Wall Street Journal
I agree that the current conditions for offshore drilling companies are as rough as they have ever been given the recently removed moratorium and the uncertainty with upcoming regulations. I think it will be interesting to see how companies like Transocean react to the current situation and whether they decide to merge and create alliances with other companies or whether they are acquired by a larger competitor. The next year should be a good indication of how profitable offshore oil drilling can be in the long term and whether it is a sustainable means of income for energy corporations.
ReplyDeleteSince regulations have been passed after the BP's oil spill, it is certainly difficult for company to pertain normal drilling. There is uncertainty about upcoming regulations. However, as Matt posted, it is not necessarily to address Transocean as a company who is subjected to have problems with these new regulations. It is in part used as an example because of the spill that has been discussed since late April.
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