BP Plc (BP) has executed its first move to resume operation in the U.S. Gulf of Mexico (GoM) region following the catastrophic incident last year. The U.K. oil giant has filed an exploration plan with U.S. regulator, the Bureau of Ocean Energy Management, Regulation and Enforcement, to drill its first exploration well in the GoM with high hopes to enhance its operations in the region.
The filing calls for appraisal drilling at BP’s Kaskida prospect in the Keathley Canyon area. The proposed drilling is part of BP’s 2006 venture located about 290 miles southwest off the Macondo well site, about 800 feet deeper in 5,800 feet of water. In 2009, BP confirmed oil in the Lower Tertiary play of the region via an early appraisal well.
Looking back, on April 20, 2010, offshore driller Transocean Ltd’s (RIG) ultra-deepwater Horizon drilling platform, contracted to BP, sank following an explosion while operating in the U.S. GoM off the coast of Louisiana. The incident killed 11 workers and spewed more than 200 million gallons of crude in what is touted as the country’s worst oil spill ever. Subsequently, a moratorium was imposed on offshore drilling at water depths of more than 500 feet in the region, which was lifted on October 12, 2010.
The moratorium cost BP $41 billion and it awaits approval to drill new wells in the region. Although, other oil giants such as Chevron Corp. (CVX), ExxonMobil Corporation (XOM) and Royal Dutch Shell Plc (RDS.A) have boosted their Gulf operations of late, BP was debarred. Even, the company experienced significant standby costs, which it expects to hurt its third quarter, for five rigs as it faces problems in acquiring permits.
The company remains optimistic on the latest proposal and expects to commence its drilling operations through 2013 for four wells on November 1, following the approval of the application. We believe exploration success will be the key for BP to deliver strong future growth as well as re-establish its position following the oil spill tragedy.
However, its inability to secure the Rosneft deal marks a huge blow for BP and has held back the stock. The contract was supposed to grant BP access to the Kara Sea, which has become a key focus for international oil majors.
As of now, we don't see any obvious catalyst in its business that would significantly push the stock price higher. BP shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. Longer-term, we maintain our Neutral recommendation.
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