Court refuses stay in deepwater drilling case

By Jeremy Pelofsky and Tom Doggett

NEW ORLEANS/WASHINGTON (BestGrowthStock) – The Obama administration is preparing to unveil a revised deepwater oil drilling moratorium after a federal court refused on Thursday to reinstate an earlier ban imposed after BP Plc’s massive oil spill.

The Interior Department reiterated late on Thursday that it would issue the new order on deepwater drilling below 500 feet to address the concerns raised by federal courts. It did not say when the new ban would be issued.

“Based on what we have learned since the BP oil spill, it has become increasingly clear that companies may not have adequate containment and response capabilities to respond to a spill and therefore, as the secretary has said previously, he will be issuing a new moratorium,” Interior Department spokeswoman Kendra Barkoff said.

Earlier, the U.S. Court of Appeals for the Fifth Circuit ruled 2-1 against the administration’s request to stay a lower court decision lifting the six-month drilling ban, saying the government failed to show how it would be irreparably harmed if it were not granted.

The court, based in New Orleans, added that the administration also “made no showing that there is any likelihood that drilling activities will be resumed pending appeal.”

The political stakes in the drilling battle are high for U.S. President Barack Obama as he tries in the face of public criticism to show he is responding forcefully to the BP crisis — it is the biggest offshore oil spill in U.S. history.

The oil industry fears the disaster could put costly projects on hold.

The White House said on Thursday it had sent BP a list of questions about the company’s efforts to cap the ruptured well that has been leaking crude oil into the Gulf of Mexico since late April and ordered it to respond within 24 hours.

The British energy giant, which had seen its share price plummet by about half at one point during the 80-day crisis, extended its market rally in London and New York trading on Thursday.

Its stock has soared 24 percent in the previous eight trading days, largely on reports that company executives were seeking new investors and optimism the worst of the spill might be over.

The Obama administration imposed the moratorium amid public criticism over its response to the unfolding disaster and had argued that its reinstatement was needed to investigate the cause of the BP well blowout and ensure other rigs were operating safely.

Drilling companies, like Hornbeck Offshore Services Inc. and Diamond Offshore Drilling Inc., had pressed to have the moratorium lifted, saying it was too broad and was causing significant economic harm.

The administration said it imposed the moratorium to allow for an investigation of the April 20 drilling rig explosion that killed 11 men and triggered the spill.

A federal judge stopped the administration’s drilling ban last month, ruling in favor of the drilling companies.

Analysts said the ongoing battle over the ban had produced gridlock for the oil drilling companies.

“Effectively the government’s getting what they want by default. It’s too risky for companies to start up the deepwater drilling process when you know the rug could be pulled out from underneath you,” said Dan Pickering, head of research at Tudor, Pickering, Holt & Co.


The head of Royal Dutch Shell’s U.S. arm said the company could be interested in some BP assets.

“If BP decided to sell assets clearly there are some things that would make sense for our portfolio. But that’s a later decision because of what’s happening now,” Shell Oil Co. President Marvin Odum told CNBC.

The Philadelphia oil services sector index rose more than 3 percent ahead of the hearing.

Exxon Mobil Corp, the largest U.S. oil company, expects heightened government scrutiny for the industry following the BP spill, CEO Rex Tillerson told analysts on Thursday.

The flow of oil from BP’s leaking well is killing birds, sea turtles and dolphins, imperiling multibillion-dollar fishing and tourist industries at a time of high unemployment, and soiling the shores of all five U.S. Gulf Coast states.

U.S. Attorney General Eric Holder said that suspected targets in the criminal investigation into the spill may cover more than BP.

“There are a variety of entities and a variety of people who are the subjects of that investigation,” Holder said a taping of CBS’s “Face the Nation” scheduled for broadcast on Sunday, reported.

“For people to conclude that BP is the focus of this investigation might not be correct.”

BP also sought to lower expectations after a report it could stop the well by July 27 — the same day the company is due to report second-quarter earnings. The target for completing a relief well to stop the flow had been mid-August.

The head of BP’s Gulf Coast restoration unit, Bob Dudley, told The Wall Street Journal that stopping the well between July 20 and July 27 could be possible “in a perfect world with no interruptions.

“He (Dudley) gave that as the very, very best scenario if everything went absolutely superbly according to plan and there are no interruptions, but the expectation is that it will be August,” a spokeswoman said.

Those perfect conditions would include good weather — in the middle of the six-month hurricane season that began on June 1 — and a tropical disturbance prompted BP to evacuate some workers from four Gulf of Mexico platforms this week.

Retired Coast Guard Admiral Thad Allen, who oversees the U.S. government’s spill response, said that by Thursday the relief well was just 220 feet from the bottom of BP’s blown-out well.

However, a serious storm in the Gulf could disrupt efforts to contain the spill.

Meanwhile, BP Chief Executive Tony Hayward was on an international marketing drive to boost the company.

Hayward met an Abu Dhabi state investment fund on Wednesday, which followed visits to Azerbaijan and Russia. Singapore state investor Temasek Holdings dismissed as “speculation” reports it had talked to BP about a strategic stake.

BP has committed to a $20 billion fund for clean-up and other spill costs. Its costs to date have topped $3 billion.

But hard-hit coastal residents say what has been done so far is nowhere near enough.

“We have been asking for more protection since the oil began spewing into the Gulf and we are so frustrated because it seems that BP wants the oil to come on shore,” said Tommy Longo, mayor of Waveland, Mississippi, where high tides were washing sheets of the black crude onto the beaches.

(Additional reporting by Mary Rickard in New Orleans, Matthew Bigg in Mississippi, Rodrigo Campos in New York and Caren Bohan and Joanne Allen in Washington; Writing by Ed Stoddard and Patricia Zengerle; Editing by Paul Simao)

Court refuses stay in deepwater drilling case