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Originally published Friday, April 30, 2010 at 8:26 AM

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Drilling stocks sell off amid industry scrutiny

Investors sold shares of companies with ties to oil drilling in the Gulf of Mexico as the industry came under greater scrunity as oil from a massive spill reached the marshlands of Louisiana.

The Associated Press

NEW YORK —

Investors sold shares of companies with ties to oil drilling in the Gulf of Mexico as the industry came under greater scrunity as oil from a massive spill reached the marshlands of Louisiana.

As the extent of the spill unfolded, investors tried to determine the near- and long-term impact. Shares of companies that operate offshore rigs fell while major oil producers that reported healthier first-quarter earnings this week fared better.

Oil spewing from the deepwater well where an explosion occurred 10 days ago reached Louisiana's wetlands as storms threatened to deter efforts to protect the environment.

President Barack Obama directed that no new offshore oil drilling leases be issued unless rigs have new safeguards. He gave Interior Secretary Ken Salazar 30 days to report on what new technologies are needed.

Representatives of energy companies are following the investigation into the cause of the explosion. They're awaiting more details of what Obama's position will be on drilling after Salazar's report is complete.

"Our operations in the Gulf to date have not been impacted," Chevron Chief Financial Officer Pat Yarrington told analysts during a conference call Friday. "I really just don't know how this is going to play out. It is just too early to say."

Spokesman Bill Mintz of Apache Corp., which operates wells in shallower water in the Gulf, said they look at operations on a daily basis to ensure safety measures are being utilized.

"Whenever anything like this happens, people are going to take a look at what they're doing now to make sure they're doing all they can," he said.

Argus Research analyst Phil Weiss said the government may ultimately put more restrictions in place on drilling. But, he said, production likely will continue in the Gulf because the U.S. is trying to reduce its dependence on foreign oil and the industry employs hundreds of workers in the Gulf region.

The explosion occurred April 20 at BP's Deep Horizon oil rig, a mile underwater in the Gulf of Mexico.

BP operated the rig with a majority interest. Anadarko Petroleum Corp. had a 25 percent non-operating interest. The rig was owned by Transocean and other companies provided related services.

Halliburton said it provided a variety of services, including cementing, on the rig. The company said in a statement Friday employees completed cementing the final production casing about 20 hours before the explosion. A lawsuit filed this week by two Mississippi shrimpers claims the cementing work created increased pressure at the well that contributed to the explosion.

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Halliburton said it is assisting in the investigation and providing support for options to secure the well.

"A legitimate concern of investors is the impact of the blowout and oil spill on the reputations of the drilling services companies that were working on the rig at the time of the accident," Citigroup Global Markets analyst Robin Shoemaker stated.

The analyst said Halliburton, Transocean, Cameron International Corp. and Smith International Inc. have built solid reputations in past years. "They now see their safety record blemished in ways that could impact future business," Shoemaker wrote in a research note to clients.

But RBC Capital Markets analyst Kurt Hallead said the sell-off in the three stocks was overdone. Cameron shares rallied to close higher.

BP had lost about $25 billion in market value as of the close of trading Thursday. Shares fell just slightly on Friday.

Shares of Anadarko lost $5.17, or 7.7 percent, to $62.16; Transocean fell $6.19, or 7.9 percent, to $72.32; while Cameron gained 76 cents, or 2 percent, to $39.46. Shares of Halliburton lost 95 cents, or 3 percent, to $30.65 and Smith fell $1.07, or 2.2. percent, to $47.76.

Other major rig operators fell as well. Shares of Diamond Offshore Drilling Inc. fell $3.64, or 4.4 percent, to $79.10; Hercules Offshore Inc. lost 32 cents, or 7.5 percent, to $3.95; and Pride International Inc. fell $1.34, or 4.2 percent, to $30.33.

Meanwhile, shares of Chevron lost 85 cents to $81.44; ConocoPhillips gained 9 cents to $59.19 and Exxon Mobil Corp. fell 89 cents to $67.77.

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