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Judge Overturns Drilling Ban

Source: WSJ

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Posted on 23 Jun 2010

A federal judge Tuesday overturned the Obama administration's six-month moratorium on new deepwater oil and gas drilling, delivering a temporary victory to the oil industry and a rebuke to the White House.

The temporary injunction by U.S. District Judge Martin L.C. Feldman appears unlikely to bring a swift resumption of deepwater drilling: Oil companies say they're reluctant to start new ventures as an uncertain appeals process unfolds.

Ratcheting up the legal battle, Interior Secretary Ken Salazar announced late Tuesday he would issue an order in the coming days to effectively reinstate the moratorium, which he said is "needed to protect the communities and the environment of the Gulf Coast."

In addition, White House spokesman Robert Gibbs said the administration would appeal the decision by Judge Feldman. The case's next destination is the U.S. Fifth Circuit Court of Appeals in New Orleans, which is expected to put the case on a fast track.

President Barack Obama and other administration officials have said the halt is necessary to give the government time to investigate the causes of the April 20 spill at a rig operated for BP PLC, and develop new safety measures to prevent a similar accident.

Mr. Gibbs on Tuesday said allowing companies to continue drilling in waters deeper than 500 feet "does not make sense" until the government knows what caused the BP rig disaster, which is dumping thousands of barrels of oil a day into the Gulf of Mexico.

But Judge Feldman said the administration trivialized the economic impact of the moratorium, and he expressed discomfort over the "probity" of the process that led to the ban.

"An invalid agency decision to suspend drilling of wells in depths of over 500 feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in this country," Judge Feldman wrote.

"Are all airplanes a danger because one was?" the judge wrote. "All oil tankers like Exxon Valdez? All trains? All mines? That sort of thinking seems heavy-handed, and rather overbearing."

Judge Feldman's tartly worded ruling will intensify the debate over how the U.S. government should respond to the Gulf oil spill.

Analysts have estimated that oil-field service companies with major operations in the Gulf of Mexico could lose a third or more of their profits as the moratorium drags on. And with more regulations under consideration for the industry, the judge's ruling doesn't suggest a jump-start for the Gulf's offshore oil and gas industry.

"Fundamentally nothing has really changed," said Jud Bailey, an analyst with Jefferies & Co.

The administration's moratorium has idled 33 rigs, including eight that had received permits to drill but which had not started drilling wells yet, according to the International Association of Drilling Contractors.

The drilling industry has estimated the moratorium will cost rig workers as much as $330 million a month in direct wages, not counting businesses servicing those rigs.

The White House decision to halt new deepwater drilling, and the Interior Department's recent delay in issuing new permits for new shallow water wells, has been cheered by environmental groups and officials in Florida. But it has caused an uproar in Louisiana and other Gulf Coast communities dependent on the offshore oil and gas industry.

The White House sought to deflect some of the political heat by pressing BP to contribute $100 million to a fund to compensate oil workers idled by the moratorium. But BP has said it won't contribute more.

Just days after imposing the moratorium, a top aide to Mr. Salazar defended the move as necessary, no matter what the economic impact.

"We didn't have time to do a full economic analysis," the aide said. "But I am not sure what economic data would have mattered in the face of the fact that you cannot compromise public safety, given the potential for another incident."

Judge Feldman's decision came in response to a lawsuit filed in early June by Hornbeck Offshore Services LLC, an offshore oil-services provider based in Covington, La., that said it would be crippled because of the six-month ban, decreed on May 28 by the Interior Department. Hornbeck Offshore was soon joined by other small oil-field-service companies and got support from the state of Louisiana.

In a statement, Hornbeck said the ruling "is important for the tens of thousands of workers across the Gulf Coast states and beyond who make their living serving the offshore oil industry."

Royal Dutch Shell PLC praised Judge Feldman's decision, and said "Shell remains confident in its expertise and procedures to safely drill and complete deepwater wells."

Leading Democrats in Congress reacted with dismay to the judge's ruling.

"This is another bad decision in a disaster riddled with bad decisions by the oil industry," Rep. Edward Markey (D., Mass.) said in a written statement.


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