Nearly 15% of the offshore rig fleet resides in the U.S. Gulf of Mexico. And with a permit moratorium in effect until a review of the BP oil-spill catastrophe and rig-safety procedures is complete, drillers and service firms are certain to be affected.

Those companies most directly involved in the spill—BP, Trans­ocean Ltd., Anadarko Petroleum Corp., Cameron International Corp., and Halliburton Co.—had already experienced a combined $42 billion in market-cap loss in the 10 days following the explosion, notes Scott Gruber, analyst with Bernstein Research.

Even though drilling and completing offshore wells is not a quick process, in the three weeks since the Horizon rig explosion, the backlog of work was diminishing rapidly, says Gruber. In mid-May, the Minerals Management Service (MMS) confirmed that previously approved permits for new wells—totaling 117 permits—had been suspended.

“Furthermore, once the moratorium is lifted, it is unlikely that operators will simply be able to begin drilling the previously permitted wells,” says Gruber. “Rather, these permits will likely be reprocessed to ensure appropriate well plans given the findings of the investigation.”

Some contracts provide for partial to full dayrates to be generated for a limited period of time if force majeure is asserted, which would benefit those drillers working under long-term contracts, according to the analyst. With a short drilling and completion cycle, companies exposed to shallow-water activity—namely Seahawk and Hercules—bear the greatest risk, notes Gruber.

Rowan is also at risk, as further appraisal of recent deep-gas discoveries could be delayed. “The permit hiatus comes at a bad time for drillers on the shelf, as it should accelerate the drop in demand initiated by weak gas prices. Moreover, if the moratorium extends well into summer, operators may not go back to work until after hurricane season.”

The large-cap drillers, including Transocean, Noble and Diamond, are also significantly exposed to the high-margin exploration drilling of the Gulf. The moratorium puts this revenue stream at risk. The same holds true for large-cap services, which looked to expand deepwater activity in the Gulf to lessen the impact of low natural gas prices. Baker Hughes and Halliburton would be most negatively impacted, says the analyst.

Further, the entire services industry in the region is affected, Gruber says, from suppliers of support vessels to helicopter operations and numerous product/equipment suppliers.

On the other hand, these same suppliers are obtaining work from the spill-response effort and rig-platform inspections. And, over the medium-term, equipment providers could see increased demand if the MMS requires enhanced drilling and pressure- control equipment to minimize the blowout risk, Gruber notes.

“Overall, we expect the permit moratorium to be lifted soon after the initial investigation into the Horizon rig explosion is complete,” says Gruber. “While the hearings on Capitol Hill are revealing a number of potential missteps, politicians appear to broadly recognize the importance of hydrocarbon production in the Gulf.”

The region contributes 1.5 million barrels per day, or a quarter, of U.S. oil supply, and 6.6 billion cubic feet per day, or 11%, of U.S. gas production.

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