FBR Capital: EPS Estimates for Gulf Services Group Lowered

FBR Capital Markets has lowered its earnings-per-share estimates for its services coverage group to reflect the current six-month deepwater-drilling moratorium in the Gulf of Mexico. One of the biggest variables: the status of the market’s 32 deepwater rigs and others headed toward the Gulf.

FBR lowered EPS estimates in response to the permitting hiatus in shallow water, the likelihood of delays in drilling start-ups in 2011, and FBR’s assumption that some of the drilling rigs will leave the Gulf, leading to downtime in 2011 as they relocate, according to analysts Robert MacKenzie and Doug Garber.

At press time, the federal government’s deepwater-drilling moratorium was expected to last through November. FBR expects start-up delays will keep drilling from resuming until January; it expected shallow-water permitting to restart in July 2010.

MacKenzie and Garber warn the moratorium could be extended past November; however, they believe that federal revenues from oil and gas are too important to risk a longer moratorium.

Regarding prospects for a longer hiatus, FBR expects the vast majority of deepwater rigs to depart the U.S. Gulf for an average of at least several years. Five to six rigs are already preparing to depart the Gulf for other markets, according to the analysts, and it remains unclear how many will leave in total.

A positive note: This reduction in rigs will drive up day rates in the Gulf, benefiting the service companies owning them and perhaps yielding upside to FBR’s revised estimates.