Will Obama Flip-Flop Sink Oil Stocks?

NEW YORK( TheStreet) -- There was a lot of grumbling this week from the oil industry about President Obama's flip-flop on offshore drilling. The Obama administration announced this week that it was reneging on its plans to offer leases for new drilling in Atlantic and Pacific waters, and the eastern Gulf of Mexico, as part of the next five-year U.S. government offshore drilling plan.

President Obama's original drilling plan turned out to be one of the worst-timed White House agenda items of the year, being released shortly before the BP oil spill even put the brakes on permits for existing drilling leases.

Yet even amid the "U.S. energy self-sufficiency" hoopla back at the time of the Obama drilling plan, energy market experts said investors should not get carried away by the news. A long-term drilling plan, even one that signaled a shift in Democratic Party strategy, would be at best a long time coming, and it was anybody's guess as to the value of the untapped assets anyway.

Now, even if the offshore drilling plan is not to come at all, Obama's reversal hasn't slowed oil sector stocks, regardless of energy sector complaining. In fact, 52-week highs were the norm for energy stocks in the past week, a week during which the PHLX Oil Service Sector Index reached an annual high and stocks across the energy sector joined the index in pulling this feat.

All three of the major oil service companies, Halliburton ( HAL), Schlumberger ( SLB) and Baker-Hughes ( BHI), touched 52-week high levels on Friday.

"This is an unfortunate decision that will eliminate badly needed government revenues, inhibit employment growth and increase reliance on imported energy," Kenneth Cohen, Exxon Mobil's v.p. of public and government affairs told Dow Jones. The Exxon-Mobil executive said Obama's reversal on drilling, "ignores the industry's track record and commitment to improving environmental and safety performance as well as the overwhelming evidence that the Gulf of Mexico spill resulted from practices far outside industry norms."

Louisiana State University business chair and Wharton School fellow Joseph Mason came out swinging against Obama, saying that if the White House denies U.S. companies the opportunity to buy new offshore drilling leases in 2011, American policymakers will put an astounding amount of economic potential in jeopardy.

"I determined that America stood to gain $8 trillion in additional GDP, $2.2 trillion in tax revenue over the next 30 years, and 1.2 million new jobs annually by opening access to our offshore resources," Mason wrote. "Given that those estimates were based on federal inventories of offshore oil and gas reserves that have not been updated for decades, the actual economic benefits are likely much greater. In the same vein, the economic opportunities denied would be much greater too," he added.

In an upgrade of Superior Well Services ( SPN) to a buy this week, Barclays Capital wrote, "Investor sentiment on the Gulf of Mexico is low and we believe a sentiment shift towards the positive is likely to unfold as the permitting process improves and deepwater rigs return to work. We now believe the number of deepwater rigs working by year end 2011 will be in the high teens and perhaps higher."

The 52-week highs in the oil sector being hit as the Obama administration reverses its promise to open up more drilling seems contradictory on the surface.

There's no doubt that potential jobs in the America energy sector could be lost as a result of the Obama reversal on drilling. It also calls into question the rhetoric about America becoming energy self-sufficient. An additional trillion dollars or two in tax revenue wouldn't have been such a bad thing for the federal deficit, either.


Yet, if the rebound in the Gulf of Mexico is set to begin, and oil service stocks were trading at 52-week highs to end the week, should it matter to oil stock investors that new drilling leases in the untapped eastern Gulf of Mexico aren't going to be part of the energy future?

Should it matter to oil-stock investors that new drilling leases in the untapped eastern Gulf of Mexico aren't going to be part of the energy future?

Yes
No

-- Written by Eric Rosenbaum from New York

>To contact the writer of this article, click here: Eric Rosenbaum.

>To follow the writer on Twitter, go to Eric Rosenbaum.

>To submit a news tip, send an email to: tips@thestreet.com.

More from Opinion

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Apple Needs to Figure Out Its Self-Driving Vehicle Strategy

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

Throwback Thursday: Tesla, Chip Stocks, TheStreet's Picks

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

12 Stocks That Our Writers and Their Sources Recommend You Buy Here

Musk Goes on Unoriginal Media Tirade

Musk Goes on Unoriginal Media Tirade

What's Happening in Video Games This Week: On the Road to E3

What's Happening in Video Games This Week: On the Road to E3