Amid Moratorium, Allis-Chalmers Looks for Other Business

(This article was originally published Monday.) By Siobhan Hughes Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--As uncertainty about the direction of offshore drilling in the U.S. persists following a BP PLC (BP, BP.LN) oil spill, companies like Allis-Chalmers Energy Inc. (ALY) provide clues about the response by U.S. business. The Houston oil- and gas-services company rents pipe for drilling in coastal waters. It also says that it rents blowout preventers--the equipment that is supposed to shut off undersea wells as a last resort in the event of a catastrophic blowout. Following a deepwater-drilling moratorium imposed by the Obama administration after gas surged through a BP well in the Gulf of Mexico, sinking the Deepwater Horizon drilling rig and killing 11 workers, Allis-Chalmers has taken a hit to a business that accounts for just shy of 5% of revenues, according to chief financial officer Victor Perez. "We do expect that our business in the offshore is going to suffer," Perez said in an interview. "We have begun to see some delays in projects that were expected to go out as people try to get clarification on where things stand." Allis-Chalmers says that about 60% of revenue comes from abroad while about 40% of revenue comes from the U.S. Amid the six-month moratorium on new oil- and gas- exploration, the company has begun focusing more heavily on a growth area in the U.S.: drilling for gas locked into the rock--or shale--regions of the U.S. "We do feel like we will be mitigating some of the impact because of our additional business onshore and focusing on increasing our penetration in the international markets," Perez said. "If you talk about the rental business, we've shifted our focus to that kind of pipe that is in demand in the domestic land market: the non-conventional shale gas in Pennsylvania and in South Texas." The technique for accessing shale gas, known as hydraulic fracturing, is coming under its own scrutiny. The U.S. Environmental Protection Agency has announced a proposal to study the effects of the drilling technique on drinking water. It is also planning a series of public meetings, beginning with a July 8 meeting in Fort Worth, Texas. The deepwater-drilling moratorium, which is tangled up in court, has been in place since late May, when President Barack Obama announced that he wanted a ban on new exploratory wells while a presidential commission studied how to ensure that offshore drilling could be made safer. The six-month ban had the effect of suspending activity at all 33 rigs developing exploratory wells in deep water. It also posed new hardships for the hundreds of oil-services companies, already hurt by an economic recession, that supply the steel tubing, engineering services, drilling crews and marine-supply boats critical to offshore exploration. U.S. Interior Secretary Ken Salazar has told lawmakers Wednesday that he is considering issuing a new, scaled-back moratorium that would replace a moratorium that was struck down last week by Judge Martin Feldman. The Justice Department has appealed the judge's decision, asking a court to allow the ban to remain in place during a legal challenge. -By Siobhan Hughes; Dow Jones Newswires; (202) 862-6654; siobhan.hughes@dowjones.com (END) Dow Jones Newswires June 29, 2010 07:36 ET (11:36 GMT)