UPDATE:Offshore Drillers Soar On Judge's Ruling, Then Fall Back

22nd Jun 2010 21:41

(Updates with more analysts' comments, closing prices) By David Benoit Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--A Louisiana judge's ruling against the Obama administration's moratorium on deepwater drilling momentarily sent offshore drilling shares soaring Tuesday before they sank right back into the red as the White House said it would appeal. A U.S. federal judge overturned the six-month moratorium on new deepwater oil and gas drilling, a ruling that could spell important relief for an industry that has been hampered by the disaster in the Gulf of Mexico as well as the ban. Analysts have urged caution regarding the industry until there is more clarity on how long the ban will last, but also said the drop in share prices may be a bit overdone, leaving investors anxious. Although shares initially spiked dramatically on the news around 1:30 p.m. EDT, they fell back just as quickly as the White House said it would appeal the ruling, meaning the moratorium will stick for now at least. Diamond Offshore Drilling Inc. (DO), which had been down as much as 1.5% Tuesday, shot 6% above its Monday close and then fell back into the red, all within 15 minutes. The decline later accelerated, with its shares closing down 2.9% at $62.85 in a weak market for energy stocks. Hercules Offshore Inc. (HERO) and Pride International (PDE) saw similar volatility. They were off 5% and 4.4%, respectively. Other offshore companies also remained in the red, with Noble Corp. (NE) down 4% at $30.09 and Baker Hughes Inc. (BHI) down 4.4% at $42.15. Transocean Ltd. (RIG) fell 2.6% to $52.49. These stocks all also experienced a high-volume spike shortly after 1:30 p.m. American depositary shares of BP PLC (BP, BP.LN), the company at the center of the Gulf disaster, closed off 2.1% at $29.68. The energy sector of the Standard & Poor's 500 index was also the market's weakest, down 2.7%. Morningstar analyst Stephen Ellis said that while the appeals process would still take time, this bit of good news could help a separate lawsuit filed by Diamond Offshore. He also said the possibility of the moratorium being lifted might cause drillers to hesitate before declaring force majeure on their contracts and leaving the Gulf in droves. Other analysts said it was clear an appeals process would take time and the news wasn't positive enough to explain the spike seen in some shares. Some said the stocks have seen an increase in short trading, which could have led to some of the headline spike, before more rational traders took hold. Others said concerns also remain about new rules being imposed by regulators, and even if the moratorium ends, how profitable the companies can be. "This isn't necessarily a green light for these guys to start drilling," said Jefferies & Co. analyst Judson Bailey. "It's a small victory for the industry, but I think there's so much uncertainty left that I'd be selective." He said in general the industry may be oversold a bit because of all the bad news around it, but that there is still "a tremendous amount of headline risk." Still, Bailey said if the moratorium were somehow lifted ahead of schedule, it would indeed be a positive for the shares. -By David Benoit, Dow Jones Newswires; 212-416-2458; [email protected]; (END) Dow Jones Newswires June 22, 2010 16:41 ET (20:41 GMT)