The Weekly Wrap: September 3, 2010

Rig fire may signal setback. The fallout continues from the fire that broke out yesterday aboard Mariner Energy’s rig in the Gulf of Mexico. While investigations into the explosion continue, it does not look like there will be any major oil spill at the site, according to the Coast Guard. Still, the incident could carry ...

Rig fire may signal setback. The fallout continues from the fire that broke out yesterday aboard Mariner Energy's rig in the Gulf of Mexico. While investigations into the explosion continue, it does not look like there will be any major oil spill at the site, according to the Coast Guard. Still, the incident could carry broader repercussions for offshore drilling if the Obama administration decides to delay the end of its deepwater drilling moratorium. Analysts told Reuters that any chance of lifting the ban early for certain types of rigs is slim to nil. The Mariner explosion will also add more fuel to demands for tighter drilling regulations from Washington -- politics may force the administration to play tough. But pushing back the moratorium's lifting this November won't be easy; in addition to the rallies by the moratorium's opponents this week, on Wednesday a federal judge struck down the administration's request to dismiss an industry lawsuit challenging the drilling ban.

Rig fire may signal setback. The fallout continues from the fire that broke out yesterday aboard Mariner Energy’s rig in the Gulf of Mexico. While investigations into the explosion continue, it does not look like there will be any major oil spill at the site, according to the Coast Guard. Still, the incident could carry broader repercussions for offshore drilling if the Obama administration decides to delay the end of its deepwater drilling moratorium. Analysts told Reuters that any chance of lifting the ban early for certain types of rigs is slim to nil. The Mariner explosion will also add more fuel to demands for tighter drilling regulations from Washington — politics may force the administration to play tough. But pushing back the moratorium’s lifting this November won’t be easy; in addition to the rallies by the moratorium’s opponents this week, on Wednesday a federal judge struck down the administration’s request to dismiss an industry lawsuit challenging the drilling ban.

BP asset sales near $10 billion, costs rise to $8 billion. On Wednesday BP announced that it had sold its stakes in two Malaysian petrochemical businesses to Malaysian state oil company Petronas for $363 million. The deal brings BP’s total funds raised from asset sales to $9.3 billion, nearly a third of the way to the $30 billion target incoming CEO Bob Dudley set in July. In addition to the Petronas sale, BP is negotiating to sell its stake in the Prudhoe Bay field on Alaska’s North Slope, while other assets on the block include oil and gas projects in Vietnam, Pakistan, and Venezuela. Separately, the company’s costs from the Gulf oil spill rose to $8 billion this week, so the proceeds from the asset sales cannot come fast enough.

Bromwich aims to shut revolving door. Michael Bromwich, chief of the Bureau of Ocean Energy Management, Regulation, and Enforcement, issued new rules this week ordering federal regulators to stand down from offshore oil cases involving companies with personal or familial ties. Regulators were also to report any incidents of industry pressuring to the Bureau. Reports from the Interior Department have revealed that regulators and the energy companies had operated in a close relationship for decades, with regulatory employees often going to work for the energy industry and vice versa. That relationship has come under fire in the wake of the BP spill, as allegations arose of eased regulations and government oversight for the oil companies drilling in the Gulf of Mexico. The Bureau’s tightened rules come as part of the Obama administration’s tougher regulatory stance on offshore drilling.

Petrobras and Brazil reach accord on oil price. Petrobras, Brazil’s state-controlled oil company, reached a deal to buy oil from the Brazilian government yesterday in preparation for its upcoming share offering, the largest sale of stock in the Western Hemisphere in over a decade. The breakthrough ends a two-week impasse between Brasilia and Rio de Janeiro-based Petrobras over how to price Brazil’s oil in terms of the company’s stock. Petrobras agreed to value the oil at $8.51 per barrel, and the company will pay the government $42.5 billion in stock in exchange for rights to 5 billion barrels of Brazil’s rich offshore oil reserves. The stock sale to the government will allow Brasilia to maintain its controlling stake in the company, while allowing Petrobras to issue some $32 billion of stock to minority shareholders later this month. Proceeds from the share sale will also enable the company to service its mounting debt, incurred from the high developmental costs of its technically challenging offshore fields.

Greenpeace attacks Greenland. On Tuesday, four protesters from Greenpeace scaled and occupied Cairn Energy’s drilling rig in Baffin Bay off the west coast of Greenland, triggering denouncements and arrest warnings from Greenland’s government. The action forced the Scottish exploration company to suspend drilling in the area, where they had discovered hydrocarbons last week. Greenpeace has had a ship stationed off the rig for much of the last week, and though the standoff ended on Thursday, the action demonstrates the outcry that Arctic offshore drilling has drawn from environmental activists.

Prices even out, but bigger declines could follow. After some drops below the $72 mark on Tuesday, crude prices began September with gains, settling at $74.60 a barrel in New York as markets closed on Friday for the long weekend. Oil rose Thursday in reaction to Mariner explosion, but investors sent the price back down today after mixed feelings from the Labor Department’s August jobs report. Yet U.S. inventories remain high, and analysts are predicting long-term declines for oil, with one report seeing it fall to $60 per barrel.

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