Obama to Reopen Drilling

WASHINGTON (Dow Jones Newswires), June 8, 2010

The Obama administration, facing rising anger on the Gulf Coast over the loss of jobs and income from a drilling moratorium, said Monday that it would move quickly to release new safety requirements that would allow the reopening of offshore oil and gas exploration in shallow waters.

Gulf Coast residents, political leaders and industry officials said delays in releasing the new rules, along with the administration's six-month halt on deepwater drilling -- both issued amid public pressure -- threatened thousands of jobs.

Well-owner BP PLC, meanwhile, faces penalties "in the many billions of dollars," for the Deepwater Horizon drilling disaster that has been spewing an estimated minimum 12,000 to 19,000 barrels of oil a day into the Gulf, said White House Press Secretary Robert Gibbs. The costs of the spill will "greatly exceed" the amount BP could recoup by selling any of the captured oil on the market, he said Monday.

U.S. Coast Guard Admiral Thad Allen, who heads the federal response, said BP's latest emergency containment system is on track to capture as much as 15,000 barrels of oil per day. Officials said BP's latest oil capping system, put in place at the end of last week, was so far collecting about 11,000 barrels a day.

The oil industry is awaiting new safety regulations from the Interior Department's Minerals Management Service, which canceled some offshore drilling permits last week and has had others on hold since early May. Administration officials say new rules for shallow water oil and gas drilling could be released as soon as Tuesday.

President Barack Obama met with Cabinet officials on the spill Monday and expressed optimism that the spill would be contained, but he pointed to the potential for long-term economic damage. "What is clear is that the economic impact of this disaster is going to be substantial and it is going to be ongoing," he said.

The new drilling regulations are expected to require drillers to have independent operators certify that the blowout preventers work as designed to shut off the flow of oil; that independent operators certify the well design plan is adequate, including proper casing, or cement lining; that the driller certifies it is in compliance with all regulations and have done all needed tests.

The moratorium on offshore drilling is shaping up to be one of the most contentious elements of Mr. Obama's response to the April 20 explosion that sank the rig and touched off the worst offshore oil spill in U.S. history.

The White House is working on a legislative package that will include further unemployment benefits for people who have lost work due to the spill or the drilling moratorium.

The Small Business Administration is offering economic injury loans to Gulf Coast businesses that have been impacted.

Industry trade groups say that each deepwater rig employs 180 to 280 workers, with each of those jobs supporting another four industry workers, for a total potential loss of more than 40,000 jobs. The moratorium "will result in crippling job losses and significant economic impacts for the Gulf region," the National Ocean Industries Association said in a letter Monday.

The House passed an economics package in May that more than quadruples a levy on oil companies for spill mitigation, to 34 cents a barrel from eight cents.

House Democratic leaders will meet on Tuesday with committee chairs to work out the House's next steps on raising liability limits, reorganizing the federal regulatory structure on oil drilling and forcing the oil industry to spend more on safety and environmental technology research.

The White House said Monday that it supported lifting the cap on liability damages altogether for any oil companies drilling offshore. The cap is $75 million unless the government can show criminal negligence.

Some Republicans and industry groups have cautioned that putting the liability cap too high could make it tough for smaller companies to drill offshore.

The debate over how to respond to the Gulf spill disaster has put Mr. Obama in a difficult spot. He has sought to answer environmental concerns in part by ordering a six-month moratorium on new wells in water deeper than 500 feet, and calling for tougher safety regulation.

But during a trip to the Gulf on Friday, Mr. Obama also heard widespread complaints about the deepwater moratorium.

A group of political leaders demanded the administration issue new safety regulations for shallow-water drilling, since no new permits were being approved until the oil firms can show they will abide by the tougher standards.

During a meeting at a bait shop between the president and local fishermen in Grand Isle, La., local shrimper Terry Vegas told the president that oil companies were not necessarily the bad guys.

"We're not bitter at the oil companies for what's happening. We're just bitter at those that cut the corners and cause the havoc that we're having right now," Mr. Vegas said.

On Monday, the widows of two Deepwater Horizon crewmembers called at a congressional hearing for stepped up safety enforcement in the offshore drilling industry, and voiced their support for continuing to drill offshore.

"I fully support offshore drilling and I always will," said Natalie Roshto, of Liberty, Miss., whose husband, Shane, was among 11 people killed in the blast.

Mr. Obama defended the deep-water moratorium on Friday, and administration officials said Monday that it wasn't being reconsidered.

"A repeat of the BP Deepwater Horizon spill would have grave economic consequences for regional commerce and do further damage to the environment," the White House said Monday.

Copyright (c) 2010 Dow Jones & Company, Inc.


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