Appeals Court Rejects Bid to Delay U.S. Drilling Ban Order

The U.S. government’s request to reinstate a deep-water oil-drilling moratorium while it challenges a lower-court order rejecting the ban was denied by a federal appeals panel.

The Obama administration sought to delay an order by U.S. District Judge Martin Feldman that scrapped the six-month ban, imposed May 27 after the explosion and sinking of the Deepwater Horizon oil rig in April. The three-judge panel of the U.S. Court of Appeals for the Fifth Circuit denied the stay after a hearing yesterday in New Orleans.

The denial may lead to a quick return to drilling in the Gulf of Mexico, said Anthony Sabino, a law professor at St. John’s University in New York who specializes in complex litigation and oil-and-gas law.

“Drilling will begin, not necessarily immediately and not necessarily 110 percent,” Sabino said. “You’d see some of the braver souls go out there. They’d think, ‘We’ve got a green light now.’”

The U.S. can ask the full Fifth Circuit to review its request for a stay, Sabino said.

“That has a snowball’s chance in heck of being granted,” he said. “Even getting a hearing is unlikely.”

Feldman’s June 22 ruling came in a lawsuit against U.S. regulators, including Interior Secretary Kenneth Salazar, by oil-service companies claiming the suspension would cause them irreparable economic harm. The U.S. appealed the ruling and asked the Fifth Circuit to delay enforcement of Feldman’s order.

‘Failed to Demonstrate’

“The secretary has failed to demonstrate a likelihood of irreparable injury if the stay is not granted,” the appeals court said yesterday in a 2-1 ruling. “He has made no showing that there is any likelihood that drilling activities will be resumed pending appeal.”

The U.S. appeal of Feldman’s order will be argued at a hearing during the week of Aug. 30, the court said.

Laura Sweeney of the Justice Department didn’t immediately respond to phone calls or e-mails seeking comment on yesterday’s ruling.

The U.S. is developing a new drilling-suspension plan, Salazar said last month after Feldman rejected the six-month moratorium. Any new order won’t be dependent on the appeals court’s decision, Michael Gray, a Justice Department lawyer, told the judges at yesterday’s hearing.

‘Economic Catastrophe’

Hornbeck Offshore Services Inc. and more than a dozen other offshore service and supply companies sued U.S. regulators last month seeking to lift the moratorium.

They were joined by Louisiana’s Governor Bobby Jindal and Attorney General Buddy Caldwell, who said the drilling suspension is turning an “environmental disaster into an economic catastrophe.”

Hurricanes Katrina and Rita, the economic recession and the Deepwater Horizon have created a “trifecta of economic catastrophe that has left Louisiana hanging on by a thread,” Henry Dart, counsel for Jindal, told the judges yesterday. “The drilling moratorium would be the coup de grace.”

Feldman rejected the ban as too broad. The U.S. said the six-month ban’s potential economic effect was outweighed by the risk of another spill.

“You haven’t looked at the individual case at all,” Circuit Judge Jerry Smith told the U.S. at yesterday’s hearing. “The secretary just issued a blanket moratorium.”

‘Taxed to the Max’

“The individual case is we have an oil spill we haven’t contained,” replied Gray, the Justice Department attorney. “Our resources are taxed to the max. It makes perfect sense.”

The appeals panel unanimously granted the U.S. the right to seek emergency attention if oil rigs go back to work while the appeal is pending. Circuit Judge James Dennis, who sided with the government in supporting a stay, said Salazar has the authority to halt deep-water drilling.

“The law says he’s entitled to a lot of deference and he’s vested with the authority to make this decision,” Dennis said during yesterday’s hearing.

The case is Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans). The appeal case is 10-30585, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

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To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net; Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

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