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Obama’s Drilling Ban No Longer Needed, Report Finds

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Oil Drilling in The Gulf of Mexico
The Transocean Development Driller III leased by BP Plc is seen at sunset. Photographer: Derick E. Hingle/Bloomberg

Aug. 26 (Bloomberg) -- President Barack Obama’s moratorium on deep-water drilling is no longer needed because new rules reduce the risk of an uncontrolled spill, according to a report for a panel investigating BP Plc’s blowout.

Rules issued in June by the Interior Department “provide an adequate margin of safety to responsibly allow the resumption of deep-water drilling,” according to the report today from the Bipartisan Policy Center, a Washington-based research group. The rules, if followed by BP, Apache Corp. and other drillers, and enforced by regulators, “will achieve a significant and beneficial reduction of risk.”

The report was prepared for the presidential commission investigating the BP spill. Its leaders, former Environmental Protection Agency Administrator William Reilly and former Democratic Senator Bob Graham of Florida, have questioned the need for the moratorium, which is scheduled to expire Nov. 30.

“It confirms what we’ve been saying in Louisiana, that a six-month moratorium is arbitrary and capricious,” Louisiana Lieutenant Governor Scott Angelle, a Democrat, said today in an interview. The rules “have created an environment where a bipartisan, independent group says we can get back to work. We need to start issuing permits.”

The president’s commission, charged with making policy recommendations to prevent future oil spills, didn’t endorse the report’s findings. The “analysis will help inform considerations as we continue our examinations of the Gulf spill,” Reilly said in a statement.

Hearings to Mid-September

Interior Secretary Ken Salazar and Michael Bromwich, head of the Bureau of Ocean Energy Management, the Interior office that oversees offshore drilling, have said the ban in the Gulf of Mexico can be lifted early if the industry shows it has improved safety and developed means to contain another spill.

The moratorium is unlikely to end before a series of public hearings on the oil spill conclude in mid-September, Bromwich said today.

“I am in the process of conducting meetings across the country with technical experts to see how we can allow deep-water drilling to safely resume,” Bromwich said in a statement. “Before that, however, we need to ensure that workplace and drilling safety, spill response and containment issues are appropriately addressed by industry.”

The administration halted drilling in waters deeper than 500 feet after BP’s Macondo well, about 40 miles (64 kilometers) off the Louisiana coast, blew out April 20. The explosion killed 11 workers and set off an uncontrolled oil spill that spewed 4.9 million gallons, the most in U.S. history.

Government, Industry ‘Unprepared’

“The need to impose a moratorium in the first place demonstrates just how unprepared both government and industry were to deal with an accident of this magnitude,” said Jason Grumet, president of the Bipartisan Policy Center. “The Interior Department has done a good job of quickly implementing a far more rigorous regime for deep-water drilling.”

He said oil companies worked with the department to develop the standards.

Contributors to the report issued today also include Elgie Holstein, senior director for strategic planning at the New York-based Environmental Defense Fund, and Joe Perkins, former global management development director at Schlumberger Ltd., the world’s largest oilfield-services contractor.

Government officials from Gulf Coast states say the drilling ban is damaging a region of the country already suffering because of the spill. The moratorium idled 33 rigs and may cost 23,247 jobs, by the administration’s own estimate. Two Gulf rigs, owned by Houston-based Diamond Offshore Drilling Inc., have since left the Gulf to drill elsewhere.

Verification Required

Offshore drillers must now provide third-party verification that equipment such as blowout preventers, a device that failed at BP’s well, is working. Operators must also estimate the amount of oil that could gush from an undersea well if systems designed to cap the flow fail in an emergency.

The regulations present “impediments to drilling now,” regardless of when the moratorium ends, Jim Tisch, chief executive officer of Loews Corp., said in an interview yesterday at Bloomberg headquarters in New York. Loews owns 50 percent of Diamond Offshore, the largest U.S. deep-water oil driller.

It may take until mid-2011 before new permits are issued as companies work through the new regulations, according to Michael McKenna, president of MWR Strategies, an oil-industry consulting firm in Washington.

“All companies must be held to a consistent set of safety standards even if it delays or even discourages some rigs from drilling in the Gulf,” Grumet said.

‘More Questions’

Earlier this month, the commission asked Bromwich if the moratorium should be lifted for rigs that present lesser risks. His response fell short, Reilly said yesterday during a commission hearing.

“What we heard was a recital of the number of the things, some very good things, that have happened since the Macondo blowout,” Reilly said at a press conference. “But we have more questions.”

To contact the reporters on this story: Jim Efstathiou Jr. in New York at jefstathiou@bloomberg.net: Alison Fitzgerald in Washington at afitzgerald2@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net.

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