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U.S. Delays Permits, Meetings on Offshore Drilling

The U.S. Interior Department halted offshore drilling permits until at least the end of May and delayed public meetings on expanding drilling as an oil slick began to come ashore in Louisiana from a damaged BP Plc well.

Interior Secretary Ken Salazar said yesterday no new drilling permits will be issued until after a May 28 report on the incident is sent to President Barack Obama. The department will postpone meetings on a plan to allow oil and natural-gas drilling off Virginia as it reviews “safety issues” that led to the April 20 explosion of the BP-leased rig.

Oil washed up on the southeastern Chandeleur Islands of Louisiana yesterday, according to the U.S. Coast Guard. Members of the House Energy and Commerce Committee, including Democratic Representative Edward Markey of Massachusetts and Republican Representative Joe Barton of Texas, will tour the area today.

“There is going to be a pause, naturally, after an event like this,” Robert Dudley, BP’s executive vice president for the Americas and Asia, said in a Boston speech yesterday. The political will for expanding offshore drilling may have been lost for the short-term, he said.

Florida may call a special legislative session to consider banning offshore drilling in its waters, Republican Governor Charlie Crist said yesterday.

The blaze that engulfed and destroyed the Deepwater Horizon rig about 40 miles (64 kilometers) off Louisiana caused the deaths of 11 crew members and oil leaks at the estimated rate of 5,000 barrels a day. BP has stopped one of three leaks, without slowing the estimated spill rate. By the third week of June, the leak may surpass the amount spilled by the Exxon Valdez in 1989.

Drilling Permits

Interior Department officials are focused on the explosion of the rig, and won’t be available for the previously scheduled meetings on East Coast drilling, Julie Rodriguez, a department spokeswoman said yesterday. The delay won’t necessarily postpone offshore lease sales, expected in 2012.

Some “very major mistakes” were made by companies involved in the drilling by the rig, owned by Geneva-based Transocean Ltd., Salazar said in Houston yesterday. He spoke after being briefed by BP officials on their attempts to stop leaks from the Macondo well in the Gulf of Mexico.

The freeze on permits won’t bring a halt to drilling, Salazar said. “There are already many wells being drilled under existing permits,” he said. “But we are not granting permits for new wells until we complete this review.”

Shallow-Water Drilling

Shallow-water drilling contractors, including Hercules Offshore Inc., Seahawk Drilling Inc., Ensco Plc and Rowan Cos., could suffer as a result of the department’s drilling-permit suspension, said Brian Uhlmer, an analyst at Pritchard Capital Partners in Houston.

“This is definitely new,” Uhlmer said yesterday in a telephone interview. “It seemed like it wasn’t going to happen.”

If the permitting process is put on hold for only a few weeks, it shouldn’t lead to delays for deep-water drillers since most of their projects are permitted 90 to 180 days before actual drilling begins, he said.

“Strangely enough this step may have least affect on deep-water drilling in the Gulf of Mexico,” Geoff Kieburtz, a Weeden & Co. analyst in Greenwich, Connecticut, said today. “In general, for the deeper water drilling programs, the wells take longer, so the impact on deeper water activity will probably be pretty minimal.”

Difficult to Assess

It’s difficult to assess the impact of the lack of new permits because “there is no specificity as to whether receipt of the report will restart permitting, or evaluation needs to take place,” Kieburtz said. “It’s not clear if all permits will be suspended and we don’t know how long the permitting is going to be suspended.”

The government is still processing leases from prior sales, James C. Flores, chief executive officer of Houston-based Plains Exploration & Production Co., said yesterday on an investor conference call.

“I have talked to every operator that I know in the Gulf of Mexico, from the majors to the independents -- everybody has their well permits approved,” said Flores. “The Gulf of Mexico is functioning normally,” albeit with “a heightened sense of awareness,” he said.

BP is working to stanch the flow of oil from the well by lowering a containment dome over the largest of the leaks, the company said this morning. BP will know in about a week whether the efforts were successful, Dudley said yesterday.

Burning Oil

Oil continues to be burned on the surface or sprayed with detergent-like dispersant chemicals, Doug Suttles, BP’s chief operating officer for exploration and production, said yesterday.

President Obama on March 31 proposed drilling for oil and natural gas off the U.S. East Coast and portions of the Gulf of Mexico while scrapping development in Bristol Bay, Alaska, part of an effort he said will boost energy independence and protect the environment.

Obama said April 30 no new offshore drilling leases will be issued until a “thorough review” of the BP Deepwater Horizon incident determines whether more safety systems are needed.

The decision to cancel public meetings “is a prudent step to ensure the Deepwater Horizon rig accident is appropriately studied and investigated, and the lessons learned are implemented moving forward,” Stacey Johnson, spokeswoman for Republican Governor Bob McDonnell of Virginia, said yesterday in a statement.

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