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U.S. Asks Appeals Court to Reinstate Moratorium on Deep-Water Oil Drilling

U.S. regulators, seeking to overturn a judge’s ruling throwing out a moratorium on deep-water oil drilling in the Gulf of Mexico, said opponents of the ban should be required to file a new lawsuit to pursue their claims.

The shorter, less restrictive moratorium was imposed this month after U.S. District Judge Martin Feldman in New Orleans threw out a six-month ban on oil and gas drilling in waters deeper than 500 feet. In the lawsuit brought by offshore services companies, Feldman blocked the government from enforcing the ban, calling it overly broad and punitive to the regional economy.

The government yesterday asked the U.S. Court of Appeals in New Orleans to reject Feldman’s June 22 order, arguing that the risk of a second spill outweighs the economic effects of the drilling ban. On July 8, a three-judge panel of the same appellate court refused regulators’ request to put Feldman’s order on hold while the government appeals.

The government’s drilling moratorium “is fully supported in the record and consistent with Interior’s authority to suspend lease operations,” the U.S. said yesterday in its filing. “The district court’s order misperceives the secretary’s authority, the rationale for the suspensions, and the relative harms present in the Gulf, and was an abuse of its discretion.”

The appeals court is scheduled to hear oral arguments in the case on Sept. 1. The U.S., which previously filed motions to dismiss the lawsuit over the six-month ban, said in yesterday’s filing that the plaintiffs should be required to file a new lawsuit if they want to challenge the revised moratorium, which expires Nov. 30.

Deep-Water Moratorium

President Barack Obama imposed the suspension on deep-water drilling in May in reaction to the BP Plc oil spill, the worst in U.S. history, caused by the sinking of the Deepwater Horizon drilling rig off the Louisiana coast in April.

Government lawyers stressed in hearings and court papers that the public interest requires improvement in drilling safety before a resumption of deep-water operations to prevent another disaster.

“Our resources are taxed to the max,” Justice Department environmental lawyer Michael Gray told the appeals panel on July 8. “It makes perfect sense.”

Hornbeck Offshore Services Inc. and other offshore service and supply companies on June 7 sued U.S. regulators, including Interior Secretary Kenneth Salazar, seeking to lift the moratorium.

“It’s not over,” Hornbeck General Counsel Samuel Giberga said yesterday in a phone interview. “We believe Judge Feldman’s original ruling was correct and is still the ruling that governs this dispute overall, and will be upheld by the appellate court.”

Irreparable Harm

The offshore companies, which were joined by Louisiana Governor Bobby Jindal, argued the firms and regional economy would suffer irreparable economic harm from the suspension in drilling.

Government lawyers said in court papers that the ban was based on findings in an Interior Department safety report made following the sinking of the Deepwater Horizon, owned by Transocean Ltd.

Feldman said the six-month ban was too far-reaching a response to that investigation.

“The court is unable to divine or fathom a relationship between the findings and the immense scope of the moratorium,” Feldman said in his 22-page decision. “The blanket moratorium, with no parameters, seems to assume that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger.”

The U.S. filed a notice of appeal on June 24 and sought a delay in enforcement of Feldman’s decision. Two members of the appellate panel voted July 8 to reject the government’s request to keep the ban in place during its appeal. The third sided with Salazar.

Lawsuit Irrelevant

On July 12, Salazar issued new restrictions on deep-water oil drilling that may allow new wells if the industry shows it has raised safety standards. The U.S. that day filed motions in the appeals court and before Feldman to dismiss the Hornbeck suit, calling the original claim irrelevant in light of the new order.

Hornbeck and the other offshore companies asked Feldman on July 20 to reject the government’s request for a dismissal. Feldman has scheduled arguments on the government’s motion in the lower-court case for Aug. 11.

While pursuing the appeal, the U.S. believes the original lawsuit should be dismissed, government lawyers said in yesterday’s filing.

‘Abused’ Discretion

“If the preliminary injunction is not moot,” the appellate panel should rule that Feldman “abused his discretion by entering a preliminary injunction,” they said.

The plaintiffs “have not demonstrated that they will suffer irreparable harm absent the injunction,” the U.S. said. “And the public interest in developing the resources of the outer continental shelf in an orderly and safe manner weighs against injunctive relief given the serious harm a second spill would entail.”

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).

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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