It's Time to Sink or Swim for Offshore Drillers
The Macondo well incident will be imprinted in our minds for years to come about the dangers of offshore drilling. Not only did it put an emphasis on offshore drillers to be more cognizant of their safety precautions, U.S. government oversight has also stepped up its game. The new director of the government body that oversees offshore drilling -- the Bureau of Safety and Environmental Enforcement, BSEE for short -- has made it his agency's mission to go further than just oversight, but also look to help prevent spills. How is this possible? And how will it affect offshore drillers going forward? Let's take a look at what the BSEE has in mind.
Newly appointed BSEE director Brian Salerno wants to do more than just conduct routine inspections at drill rigs in the Gulf of Mexico in hopes that they will reduce the amount of incidents. One major reason this is happening is because even after the Macondo spill in 2010, we have still seen some major rig failures. Earlier this year, a rig owned by Hercules Offshore and operated by private company Walter Oil & Gas suffered an explosion. Luckily, the rig was drilling for natural gas, so the environmental damage was not nearly as great had it been producing oil.
The way that the BSEE wants to prevent spills is through better data collection and analysis. Aside from the Macondo spill and the Hercules Offshore incident, there are dozens of near-accidents that were avoided every year. Most of the time, these incidents go unreported, so it can be difficult for regulators to see what is not working in the drilling space. Salerno wants to set up a confidential data repository where rig companies can report these incidents, which will allow for the agency to understand what could potentially cause a failure in the future and how to design inspection protocols that will more accurately investigate these issues before an incident occurs.
Plague or promise for rig companies?
Drilling in the Gulf of Mexico has become a rather expensive endeavor. Executives at Chevron estimate that the cost of drilling in the Gulf of Mexico has increased by 25% since the Macondo incident. Right now, it's difficult to say if the new detection methods from the BSEE will increase costs even further. At the same time, though, it is hard to argue against a system that could help prevent an oil company from having to fork over the amount of money that BP has so far.
One thing is for certain, operational safety is even more of a priority than it has ever been. This means that companies operating in the Gulf will need to be more selective when picking a rig comany to work with, because the rig itself could be a large determining factor in the operations of the rig. On the deepwater side of the business, this gives a clear advantage to both Seadrill and Ensco because the two companies have the youngest fleets, which means less wear and tear. Also, Ensco has received multiple customer-satisfaction awards and is rated the highest of all rig companies out there. While a younger fleet doesn't perclude these companies from the chance of an incident, it does lower the risk.
What a Fool believes
Making any activity completely risk free is impossible, but that constant chance that something could happen should be incentive for both government officials and the industry to step up their safety game. The idea behind the BSEE's predictive model does sound like an effective tool, but the concept of a project and acutally implementing it is very different. Some rig companies and drillers may scoff at the idea of more stringent regulations, any way to lower the chance of incidents such as the Macondo spill and the Hercules rig explosion could end up saving them big money and potential headaches in the long run.
One company looking to cash in on new government regulations
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The article It's Time to Sink or Swim for Offshore Drillers originally appeared on Fool.com.Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter @TylerCroweFool. The Motley Fool recommends Chevron and Seadrill. The Motley Fool owns shares of Seadrill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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