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Oil Companies in Limbo as Obama Promises Appeal of Drilling Ban Reversal
Oil companies and contractors with operations in the deep waters of the Gulf of Mexico won’t resume drilling until they see how a federal judge’s decision to lift a U.S. ban plays out, analysts said.
U.S. District Judge Martin Feldman yesterday granted a preliminary injunction, lifting a six-month moratorium President Barack Obama put in place May 27 on new deep-water drilling permits. The president also called for work to be stopped on 33 wells.
The moratorium followed an April 20 explosion on a rig Transocean Ltd. leased to BP Plc. That accident killed 11 workers and created the worst oil spill in U.S. history. Justice Department attorney Michael Thorp said yesterday that the U.S. will ask the judge to stay his ruling pending an appeal. The government didn’t say how soon it would ask for a stay.
“No one’s going to go back to work,” said Brian Uhlmer, an analyst at Pritchard Capital Partners in Houston, citing new federal standards that allow the government to recall drilling permits and require new filings. “You can have a non-moratorium moratorium.”
Feldman in a separate order yesterday “immediately prohibited” the U.S. from enforcing the drilling moratorium, finding the offshore companies would otherwise incur “irreparable harm.” The moratorium affects drilling in waters deeper than 500 feet (152 meters).
New Ban Order
Interior Secretary Kenneth Salazar said in a statement last night that he will issue a new order that “eliminates any doubt” a moratorium is justified.
“We see clear evidence every day, as oil spills from BP’s well, of the need for a pause on deep-water drilling,” Salazar said. “Based on this ever-growing evidence, I will issue a new order in the coming days that eliminates any doubt that a moratorium is needed, appropriate, and within our authorities.”
Salazar said today at a hearing before a Senate Appropriations Committee panel that the Obama administration may let certain deep-water drilling operations resume during the six-month halt.
White House press secretary Robert Gibbs told reporters yesterday that “continuing to drill at these depths without knowing what happened does not make any sense.”
Energy companies won’t resume operations until they have more certainty on drilling and what the federal government plans to do, Louisiana Governor Bobby Jindal said yesterday during a press conference.
“You can’t just turn this switch on and off,” Jindal said. “Once these rigs leave the Gulf, they may be gone for years.”
‘Back to Work’
The American Petroleum Institute said in a statement that it welcomes Feldman’s decision. “With this ruling, our industry and its people can get back to work to provide Americans with the energy they need, and do it safely and without harming the environment,” the industry trade group said yesterday.
Resumption of deep-water drilling will depend on what permits have been approved by the federal government and what happens with the appeals process, said Andy Radford, senior policy adviser for offshore issues at the Institute. It will take at least a few days for the situation to play out, he said.
Hornbeck Offshore Services Inc., which brought the suit that led to yesterday’s decision, said it appreciated Feldman’s quick decision.
‘Small Victory’
“It’s a small victory for the industry, but clearly the administration has dug in its heels and is going to try to keep this moratorium, come hell or high water,” said Jud Bailey, an analyst at Jefferies & Co. in Houston. “Investors, as it relates to the drillers, are for the most part staying away. There’s too much uncertainty, too much headline risk.”
Even if operators don’t have to get re-permitted for previously approved drilling projects, Bailey of Jefferies & Co. said he doesn’t think many operators would immediately try to resume operations. Companies don’t want to incur the cost or potential wrath of the government, he said.
“You run the risk of this getting overturned by the appellate court,” Bailey said.
Even if the injunction against the moratorium sticks, it’s not clear whether companies operating in the deep-water Gulf of Mexico have all the government approvals they need to go back to work, said Geoff Kieburtz, an analyst at Weeden & Co. in Greenwich, Connecticut.
“They’ve got to have some confidence in the regulatory stability,” Kieburtz said.
Markey Supports Appeal
U.S. Representative Edward Markey, a Democrat from Massachusetts, said in a statement yesterday that he supports the Obama administration’s plan to appeal. The “judge’s decision flies in the face of mounting evidence that there are serious safety risks that must be examined with these 33 deep- water rigs before they start drilling again,” Markey said.
Bill Tanner, a spokesman for Royal Dutch Shell Plc, said in an e-mailed statement yesterday that Feldman’s ruling is “an important step in returning thousands of oil service workers to their jobs.” He said Shell is confident in its procedures and expertise to drill and complete deep-water wells.
Margaret Cooper, a spokeswoman for Chevron Corp., said the company is pleased with the decision. Certain other companies with deep-water operations, such as Pride International Inc. and Transocean, either declined to comment on the judge’s decision or didn’t respond to requests for comment.
To contact the reporters on this story: Edward Klump in Houston at eklump@bloomberg.net; David Wethe in Houston at dwethe@bloomberg.net.
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