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Louisiana Governor Asks Judge to Lift Drilling Ban; Ruling May Be Tomorrow

Louisiana Governor Bobby Jindal and state Attorney General Buddy Caldwell asked a U.S. judge to lift a six-month moratorium on deepwater drilling in the Gulf of Mexico within 30 days to avoid “turning an environmental disaster into an economic catastrophe.”

The drilling ban may cost Louisiana’s economy, “which was already weakened by Katrina and is now crippled by the Deepwater Horizon disaster,” almost 11,000 direct and indirect jobs in five months, Caldwell said in papers filed yesterday in federal court in New Orleans.

“Even after the catastrophic events of Sept. 11, the government only shut down the airlines for three days,” Caldwell said in support of Hornbeck Offshore Services LLC’s lawsuit seeking to end the moratorium.

U.S. President Barack Obama temporarily halted all drilling in water deeper than 500 feet on May 27 in response to the worst oil spill in U.S. history, caused by the April sinking of the Deepwater Horizon drilling rig off the Louisiana coast. The ban, implemented at the recommendation of Interior Secretary Kenneth Salazar, gives a presidential commission six months to study ways to improve the safety of deepwater drilling.

Hornbeck and more than a dozen Louisiana offshore service and supply companies have sued U.S. regulators to lift the ban, which has idled 33 deepwater drilling rigs in the Gulf of Mexico. The companies claim the ban is costing between $165 million and $330 million each month in lost wages for Louisiana jobs tied to the drilling.

‘Horrible Event’

U.S. District Judge Martin Feldman said today that he will rule on the request for a preliminary injunction that would lift the ban as early as noon tomorrow, and no later than June 23.

“You are admittedly struggling with a horrible event in the Gulf,” Feldman told government lawyers at a hearing in New Orleans. “But your decision has to be faithful to the law before it can be accepted by the public.”

Feldman had ordered regulators and the offshore companies to appear in his court after rejecting the U.S. government’s request to delay the litigation until late July. “The issues presented are of national significance and to delay resolution would be irresponsible.” Feldman said in a handwritten note at the bottom of the order denying that request.

Today, Feldman asked lawyers whether the government considered “doing something terrible to the tanker industry” after the Exxon Valdez oil spill in Alaska in 1989. “Why shouldn’t the entire railroad industry be stopped until the government looks at the safety of all railroad crossings” following a fatal train accident, he said.

‘Game-Changer’

“That’s exactly our point,” Carl Rosenblum, a lawyer for the companies, replied. U.S. regulators didn’t shut down the automobile industry when Toyota Motor Corp.’s cars developed acceleration problems, either, Rosenblum said. “We’re here to make sure the government follows the law.”

“The Deepwater Horizon was a game-changer, a real illustration of the risks that are inherent in deepwater drilling,” Guillermo Montero, a Justice Department lawyer, told Feldman. “We want to be sure it is as safe as we thought it was the day before this happened.” added Brian Collins, another government lawyer.

The oil-industry jobs at risk from the ban should be weighed against the thousands of fishing and tourism jobs imperiled by the spill, Collins said.

In court papers last week, lawyers for U.S. regulatory agencies said the ban is necessary to “ensure more lives are not lost and that new blowouts and spills do not occur.

‘Balanced Approach’

“A second deepwater blowout could overwhelm the efforts to respond to the current disaster and dramatically set back recovery,” the government said.

Caldwell argued that drilling can be safely resumed within 30 days if federal inspectors are permanently stationed on each rig. The inspectors would re-certify all blowout prevention equipment, enforce compliance with all drilling procedures, and ensure training of all rig personnel to industry standards, including any new safety recommendations made by the presidential commission.

“After confirming the correctness and preparedness of each rig and well design, these deepwater rigs should be permitted to resume work, and the Department of Interior should resume issuing permits,” Caldwell said in yesterday’s brief. Such a “balanced approach” would allow safe resumption of a vital portion of the state’s economy “without the necessity of shutting down an entire industry segment,” he said.

Caldwell and Jindal said regulators failed to consult with state officials or conduct a “risk benefit analysis” of the impact an extended ban would have on Louisiana’s economy. A moratorium lasting as long as 18 months could cost the state 20,000 new and existing jobs, the Louisiana Department of Economic Development estimates

‘Long-Term Disaster’

Deepwater rigs probably will ship out for work overseas during the U.S. ban, Caldwell said, so “there will likely be no deepwater rigs available to resume drilling in the Gulf of Mexico. Having to wait an additional year or more for available rigs will turn the short-term adverse effects of the moratorium into a long-term economic disaster for Louisiana.”

Hornbeck’s suit was joined by Bollinger Shipyards Inc., Chouest Shipyard Cos., Bee Mar LLC and other deepwater support companies that employ a total of more than 13,000 workers and 7,000 vendors. The companies told Feldman they have been contacted by customers planning to cancel contracts because of the deepwater ban.

Diamond Offshore Co., owner of the world’s second-largest fleet of floating drilling rigs, sued last week in federal court in Houston seeking to overturn the moratorium. Houston-based Diamond accused the government of illegally “taking” its drilling contracts, worth as much as $500,000 a day, and causing analysts to downgrade the company’s shares because of the ban.

The case is Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporter on this story: Laurel Brubaker Calkins in New Orleans at laurel@calkins.us.com.

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