Laurel Brubaker Calkins & Margaret Cronin Fisk at Bloomberg.com
Jun 22, 2010
A New Orleans federal judge lifted the six-month moratorium on deepwater drilling imposed by President Barack Obama following the largest oil spill in U.S. history. Drilling services shares jumped on the news.
Obama temporarily halted all drilling in waters deeper than 500 feet on May 27 to give a presidential commission time to study improvements in the safety of offshore operations. More than a dozen Louisiana offshore service and supply companies sued U.S. regulators to lift the ban. The U.S. said it will appeal the decision.
U.S. District Judge Martin Feldman today granted a preliminary injunction, halting the moratorium. He also “immediately prohibited” the U.S. from enforcing the ban. Government lawyers told Feldman the ban was based on findings in a U.S. report following the sinking of the Deepwater Horizon rig off the Louisiana coast in April.
“The court is unable to divine or fathom a relationship between the findings and the immense scope of the moratorium,” Feldman said in his 22-page decision. “The blanket moratorium, with no parameters, seems to assume that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger.”
“The court cannot substitute its judgment for that of the agency, but the agency must ‘cogently explain why it has exercised its discretion in a given manner,’” Feldman said, citing a previous ruling. “It has not done so.”
Feldman in a separate order today “immediately prohibited” the U.S. from enforcing the drilling moratorium, finding the offshore companies would otherwise incur “irreparable harm.”
White House press secretary Robert Gibbs told reporters that “continuing to drill at these depths without knowing what happened does not make any sense.”
The U.S. will ask Feldman to stay his ruling pending an appeal, Justice Department attorney Michael Thorp said today at a court hearing in a separate lawsuit challenging the ban. The government didn’t indicate how soon it will request a stay.
If Feldman denies the request to halt enforcement of his order, the U.S. could file an emergency application to the U.S. Court of Appeals in New Orleans to stay enforcement, said Anthony Sabino, a law professor at St. John’s University.
The appeals court isn’t likely to reinstate the moratorium, said Sabino, an expert in complex federal litigation.
The U.S. argued that the moratorium was necessary to assure public safety.
“We need to make sure deepwater drilling is as safe as we thought it was the day before this incident,” Brian Collins, a lawyer for the government, told Feldman in a court hearing June 21. “It is crucial to take the time because to fail to do so would be to gamble with the long-term future of this region.”
“An invalid agency decision to suspend drilling of wells in depths over 500 feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in the country,” Feldman said.
Realistically, not a lot has changed, said Jud Bailey, an analyst at Jefferies & Co. in Houston.
“It’s a small victory for the industry, but clearly the administration has dug in its heels and is going to try to keep this moratorium, come hell or high water,” Bailey said today in a telephone interview. “Investors, as it relates to the drillers, are for the most part staying away. There’s too much uncertainty, too much headline risk.”
Bailey said he doesn’t think many operators would run out and immediately try to resume operations. “You run the risk of this getting overturned by the appellate court,” he said.