Drilling shares pace early gains in energy sector

NEW YORK (MarketWatch) -- Oil-service shares led gainers in the energy sector Wednesday, rising after the Interior Department moved to allow drilling to resume in shallow waters on the heels of new safety regulations.

The Philadelphia Oil Service Index(OSX 170.56, +7.00, +4.28%) rose 1.6% to 166.

Also higher, the NYSE Arca Natural Gas Index (XNG 517.90, +8.94, +1.76%)advanced 1% to 514 as the NYSE Arca Oil Index (XOI 922.83, +9.61, +1.05%) rose 0.3% to 916.

U.S.-listed shares of BP PLC(BP 33.59, -1.09, -3.14%) fell 3.7% to $33.40 as the company grapples with fallout from the unprecedented spill in the Gulf of Mexico.

Analysts at Societe Generale forecast a 50% chance that the oil major's board of directors would vote to cut its dividend.

Separately, a British newspaper reported that shareholders and insiders would prefer that CEO Tony Hayward stay on and that Carl-Henric Svanberg step aside as chairman if the U.S. government agitates for a change in the corporate suite.

The Times of London report cited unnamed sources. Svanberg was accused of being "almost invisible" during the Gulf of Mexico oil spill.

Also in the spotlight, Diamond Offshore (DO 60.12, +3.18, +5.58%) rose 2.8% to $58.57, bouncing back after unconfirmed reports that it operated an oil rig at the site of a leak in the Gulf of Mexico.

Late Tuesday, Taylor Energy, a private energy firm that is leasing a rig from Diamond Offshore, said it's been working with Unified Command on repairing a well damaged by Hurricane Ivan in 2004. An initial leak of 9 gallons a day "has been substantially reduced," Taylor Energy said.

Meanwhile, the government's Minerals Management Service released Tuesday new guidelines for offshore drilling, a move expected to expedite the permitting process for new wells in shallow waters.

A drilling ban in waters deeper than 500 feet continues. The new rules include additional equipment for blowout preventers -- the last layer of defense against leaking wells.

The Interior Department will be also be issuing expanded requirements for exploration plans and development plans on the outer continental shelf, said Bob Abbey, the director of the Bureau of Land Management. Abbey's been tapped to serve as director of the Minerals Management Service.

"We are following an orderly, responsible process for implementing stronger safety and environmental requirements of offshore drilling," said Abbey. "We need to make sure that drilling is done right, that it is done safely, and that oil and gas operators are following the law."

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