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Lifting of Deep-Water Drilling Ban Fails to Win Praise

Interior Secretary Ken Salazar
Interior Secretary Ken Salazar. Photographer: Mark Wilson/Getty Images

The Obama administration’s decision yesterday to lift its ban on deep-water drilling ahead of schedule satisfied neither energy companies nor critics of offshore oil and natural-gas exploration.

Drillers are waiting for approval to go back into operation under new rules intended to prevent a repeat of BP Plc’s oil spill in the Gulf of Mexico, Randall Luthi, president of the Washington-based National Ocean Industries Association, said in a statement. Drilling contractors extended gains for a second day in New York trading.

“Our companies remain doubtful that this announcement is anything more than symbolic until permits are actually issued for new drilling,” said Luthi, whose group’s members include Exxon Mobil Corp. and Marathon Oil Corp.

Environmental organizations such as Greenpeace said it was reckless to remove the ban before the full impact of the BP spill is known and companies meet higher standards. Both sides accused President Barack Obama of playing politics ahead of the November mid-term elections.

“There’s a broader recognition this is a political move and that activity is not going to come roaring back in the Gulf of Mexico,” Collin Gerry, an analyst at Raymond James Financial Inc. in Houston, said in an interview. “This is more of a token measure.”

Obama halted oil and natural-gas drilling in waters deeper than 500 feet (152 meters) after BP’s Macondo well off the Louisiana coast blew out April 20, killing 11 workers and setting off the biggest U.S. oil spill. Yesterday, Interior Secretary Ken Salazar ended the ban, which was scheduled to expire Nov. 30, while saying companies must meet new safety requirements.

‘Higher Bar’

“I have decided that it is now appropriate to lift the suspension on deep-water drilling for those operators that are able to clear the higher bar that we have set,” Salazar said on a conference call with reporters.

The new rules will add $183 million a year to the cost of drilling on the Outer Continental Shelf, the Interior Department said in a notice to be published tomorrow in the Federal Register. That will mean an extra $1.42 million in costs for each new deep-water well that uses a floating rig. Shallow-water wells will cost an extra $90,000.

The requirements will add less than 2 percent to the cost of a deep-water well and 1 percent for shallow wells, the Interior Department said. Deep-water wells drilled from floating platforms typically cost about $90 million to $100 million.

Anadarko’s Statement

“We are hopeful that the government will move expeditiously to process the permits that will enable our industry to put people back to work finding and developing these domestic energy resources,” John Christiansen, a spokesman for Anadarko Petroleum Corp., based in The Woodlands, Texas, said in an e-mail. Anadarko is a minority partner in the Macondo well.

Drilling contractors active in the Gulf extended gains from yesterday after the administration’s announcement, reflecting relief by investors in “an industry they’ve been chastising for the last six months,” Gerry said.

Transocean Ltd., owner of the Deepwater Horizon, the rig leased by BP that exploded, rose 2.02, or 3 percent, to close at $66.83 in New York Stock Exchange composite trading. Noble Corp., the world’s third-largest deep-water oil and natural gas driller, rose 79 cents, or 2.3 percent, to $35.45. Oceaneering International Inc., which supplied the underwater robots used to help stop the leaking Macondo well, increased $1.53, or 2.8 percent, to $55.70.

Response Muted

Otherwise the response was muted, Gerry said. The Philadelphia Oil Service Sector Index of 15 oil-drilling, services and equipment companies rose 2.2 percent today. The Standard and Poor’s 500 Oil & Gas Drilling Index gained 2.2 percent.

Permits for renewed deep-water drilling are likely to be issued before the end of the year, Michael Bromwich, director of the Bureau of Ocean Energy, the Interior Department unit that oversees energy production, said on the conference call.

“We are open for business,” Salazar said.

The assurances didn’t win over business groups. Karen Harbert, president of the U.S. Chamber of Commerce Institute for 21st Century Energy, said in a statement that Obama lifted the moratorium “in name only.”

“Even more needs to be done to get American workers back on the job,” of exploring for oil, Jack Gerard, president of the American Petroleum Institute, a Washington-based oil industry group, said in a statement.

Landrieu’s Hold

Senator Mary Landrieu, a Louisiana Democrat, said she won’t release her hold on Obama’s nomination of Jack Lew to lead the White House budget office.

Landrieu, who has said the drilling ban further hurt the Gulf Coast economy already devastated by the effects of the BP spill, had said she would delay Lew’s Senate confirmation until the moratorium was lifted.

“Today’s decision is a good start, but it must be accompanied by an action plan to get the entire industry in the Gulf of Mexico back to work,” Landrieu said in a statement yesterday. “I am not going to release my hold on Jack Lew.”

Environmental groups were no more enthusiastic. Peter Lehner, executive director of the New York-based Natural Resources Defense Council, called the decision premature.

“Multiple panels are still investigating the accident, and we need to have their answers -- and their solutions implemented -- before we can confidently move forward with deep-water drilling,” Lehner said in a statement.

‘Pure Politics’

“This is pure politics of the most cynical kind,” Phil Radford, executive director of Greenpeace USA, said in a statement. “The White House wants us to believe that they have solved all the dangers of offshore drilling and we can return to business as usual. It is a false promise, if not a big lie.”

The Interior Department rules are aimed at tightening workplace safety on offshore rigs and beefing up standards for equipment. Chief executive officers will have to certify that their companies comply with the regulations. Drillers also must provide third-party verification that blowout preventers, devices designed to cut off oil flow in a leak, are properly designed and can stand up to pressure under all conditions. A blowout preventer failed in the BP spill.

“The overwhelming share of the cost imposed by these regulations will fall on companies drilling deep-water wells, which are predominately the larger companies,” the department said. “In fact, 90 percent of the total costs will be imposed on deep-water lessees and operators where small businesses only hold 12 percent of the leases.”

The true test will be how the administration handles applications for drilling, said Michael McKenna, president of MWR Strategies, an oil-industry consulting firm in Washington.

“Until the lawyers and consultants and companies get experience with the permitting process as it actually happens on the ground, things are going to go very slowly,” he said in an interview.

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