September 2, 2010 | In: Energy

Another Oil Rig Explosion

An oil rig Owned by Mariner Energy exploded moments ago. I hope everyone’s OK.

This throws another question at the safety and the reliability of the oil rigs currently used in production. This is the second oil rig that explodes in 6 months, the first one was blamed fully on the owner of the rig (BP), but this one will probably be blamed on the manufacturer of the oil rig, regardless of the contract between the manufacturer and the explorer (or owner). It is unclear who manufactured this oil rig.

Both RIG and ME are experiencing very high volatility and very high volume (ME will probably be trading 20 times its average volume by the end of the day), but they’re still at decent levels as little information is known, and investors have still not calculated the aftermath of this tragedy on ME and the oil rig industry in general. I expect both stocks to be down considerably by the end of the week (RIG in the 40s, and I don’t know about ME).

All oil rig stocks will be affected, as this will probably mean that the ban for new oil rig exploration will be extended, and this time the regulators will investigate oil rig companies more than the owners of the rigs.

Whoever is buying RIG and ME at this very moment is, in my opinion, doing the very wrong thing. RIG will tumble this week. ME is even more dangerous.

Some of the things that investors have to keep in mind:

– Oil cleanup costs
– Payouts to affected businesses / individuals
– Legal costs
– More regulation

Not to mention many other little details. Mariner Energy is a tiny company when compared to BP, and this event may potentially bankrupt the company, even if aftermath costs are 10% of those of BP’s.

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