PREVIEW-Obama administration fights to keep deepwater drill ban

* U.S. appeals court considers request to keep moratorium

* Rare oral argument slated for Thursday at 3 p.m.

* Court decision on lifting ban expected quickly

* Obama administration expected to issue more flexible ban

By Jeremy Pelofsky

WASHINGTON, July 7 (BestGrowthStock) – The oil drilling industry
goes head-to-head with the Obama administration in court on
Thursday over the White House effort to suspend deepwater oil
drilling in the Gulf of Mexico for six months in the wake of
the catastrophic BP Plc (BP.L: )(BP.N: ) well blowout.

Given the business and environmental stakes, the U.S. Court
of Appeals for the Fifth Circuit in New Orleans is expected to
rule quickly, after a rare one-hour oral argument on Thursday,
on whether deepwater drilling should be temporarily halted
again.

A federal judge, also in New Orleans, lifted the
administration’s moratorium last month after Hornbeck Offshore
Services Inc (HOS.N: ) argued it was arbitrary and unfair because
it was a blanket ban on all new drilling in depths below 500
feet (152.5 meters).

The Obama administration appealed the decision, defending
the suspension as needed to provide time to probe the BP oil
spill’s cause and ensure other drilling rigs operate safely.

The administration is seeking a stay of the judge’s ruling
at the hearing, slated for 3 p.m. (2000 GMT) on Thursday.

Oral arguments will be heard by a three-judge panel — two
of whom were appointed by Republican President Ronald Reagan
and one by Democratic President Bill Clinton.

The vessel that was drilling the BP well, Deepwater Horizon
owned by Transocean Ltd (RIGN.S: ), sank after an explosion on
April 20 which killed 11 people.

The suspension order affected new exploratory and
development drilling and halted work at 33 sites, but did not
include wells already producing oil.

‘COMPELLING ARGUMENTS’

“I think the arguments for a stay are pretty compelling
here,” said David Uhlmann, a University of Michigan Law School
professor and the former section chief of the Justice
Department’s environmental crimes unit.

He said the argument for a moratorium was fairly convincing
given the enormous spill, which could sway the appeals court to
grant the stay until they can consider the case’s full merits.

“I would expect there to be a fair amount of tough
questioning for industry lawyers about whether the district
court judge was simply substituting his judgment for that of
the secretary of the Interior. That of course was not his
role,” he said.

It would take weeks, if not months, for drillers to get
their operations restarted even if they win.

And no matter who is the victor at the appeals court, the
losing side could go to the Supreme Court. Some oil companies
like Shell (RDSa.L: ) have said they will not resume operations
until the litigation reaches a final resolution.

Complicating matters is a plan by the Interior Department
to revise the moratorium to make it more flexible for drilling
companies. It was not immediately clear what would happen to
the court case if and when that happens, potentially leaving
the industry in limbo.

DRILLERS BACKED BY LOUISIANA

The drilling companies have the backing of key local
leaders including Louisiana Republican Governor Bobby Jindal
and Democratic Senator Mary Landrieu, who have argued the ban
should be lifted in part because the drilling industry is worth
$3 billion annually to the state’s economy.

The timing could not be much worse for the Gulf coast
because the communities were just starting to get back on their
feet after the devastating 2005 Hurricanes Katrina and Rita.

But the Obama administration has fired back that the ban
was essential given the catastrophe unfolding, as millions of
gallons (liters) of oil spew from the well. The administration
also said the suspension was narrowly tailored and the Interior
Department’s expertise should have carried more weight.

“Because this deepwater spill has been impossible to fully
contain, Interior had to take immediate action to minimize the
risk of another spill,” the Justice Department told the appeals
court. “The stakes are even higher now that it is hurricane
season.”

Hurricane Alex interrupted the cleanup effort last week,
and bad weather and high seas from less powerful storms this
week have hampered skimming and oil spotting.

U.S. District Judge Martin Feldman said the original
blanket moratorium was overly broad and the analysis supporting
it inadequate given the enormous economic impact it has on
thousands of workers as well as the local communities that
support the industry.

The industry has noted that inspections after the BP well
blowout found only minor infractions of regulations at two
other deepwater drilling rigs.

“There is no rational connection between the facts found by
Interior and the issuance of a blanket moratorium which has
shut down the Gulf of Mexico drilling industry in water over
500 feet deep,” the companies told the appeals court.
(Editing by Kristin Roberts and Jerry Norton)

PREVIEW-Obama administration fights to keep deepwater drill ban