Obama Administration Ends Deepwater Drilling Ban

WASHINGTON (Dow Jones Newswires), Oct. 12, 2010

The Obama administration said Tuesday it will end a controversial moratorium on deepwater oil drilling, but it's unclear how quickly idled oil rigs can go back to work in the Gulf of Mexico.

Interior Secretary Ken Salazar, in a statement, said drilling in waters deeper than 500 feet can resume, as long as rig operators can demonstrate they comply with new safety regulations imposed since the April 20 rig explosion that began the three-month Gulf oil spill.

Among the new conditions on deepwater drilling: the chief executives of rig operator companies must certify to the government that they comply with all safety regulations; and members of the industry must demonstrate they have the equipment necessary to contain a deepwater well blowout.

The Interior Department reiterated in its statement that it intends to institute more rules aimed at preventing deepwater blowouts -- regulations some industry officials say could sharply escalate the costs of operating in U.S. waters.

The deepwater drilling moratorium, originally scheduled to end Nov. 30, has become an election-season political headache for the administration, drawing fire from the oil industry, Republicans and some Democrats who say the ban has added to the economic distress of the Gulf coast region.

The government's top offshore drilling regulator, Michael Bromwich, separately told reporters that it is unlikely companies could resume drilling immediately, even when the moratorium is lifted. Mr. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, said his agency will need to time to carefully vet companies' applications to ensure they comply with new safety and environmental regulations established since the April 20 explosion of the Deepwater Horizon oil rig and the subsequent oil spill in the Gulf of Mexico.

He emphasized that the pace of approvals will depend on the quality of companies' applications and whether they adhere to the new safeguards.

A decision to scale back the moratorium could help ease political pressures on the Obama administration from Gulf Coast lawmakers, who complain the policy has cost their region thousands of jobs. Those pressures have grown with the recent move by Sen. Mary Landrieu (D., La.) to block the confirmation of Jacob Lew to serve as Mr. Obama's budget director.

Industry officials reacted to the administration's statements with a mix of relief and apprehension.

"The lifting of the formal moratorium is the important first step that Hornbeck and others have been fighting for in the courts, but what the industry really needs is clarity in the regulatory framework, so we can get back to work," said Samuel Giberga, senior vice president and general counsel of Hornbeck Offshore Services, Inc., a Covington, La.,-based firm that successfully challenged an earlier version of the moratorium in federal court.

Mr. Giberga said it was unclear how much response equipment the government would require companies engaged in deepwater drilling to have on hand in the event of future spills.

The Obama administration has defended the moratorium, imposed in response to the BP Plc Deepwater Horizon oil spill, as necessary to give regulators and oil companies time to figure out what should be done to prevent a repeat of the disaster. But the ban on new deepwater drilling quickly became entangled in the politics of jobs.

In July, Mr. Browmich told Salazar in a memorandum that a six-month moratorium on deepwater drilling would cost roughly 23,000 jobs. The memorandum was made public by the Justice Department in August in response to litigation over the moratorium. A federal district judge in June ruled the original moratorium invalid, and an appeals court backed that ruling. The administration responded with a new ban that is now also under review by the court.

The administration now says the impacts have been less severe than first thought. A study published in September by the Commerce Department said that roughly 2,000 of the 9,700 workers aboard the more than three dozen offshore rigs affected by the moratorium had lost their jobs or moved away from the gulf since the moratorium was imposed in late May. Another 6,000 to 10,000 workers in related industries also lost work because of the moratorium, the study found.

But overall employment in the five Louisiana parishes most dependent on the offshore oil and gas industry has remained steady, the study found, partly because of the jobs created by the spill cleanup.

The oil industry and its advocates have challenged the administration's estimates as overly rosy. The administration's figures, they point out, do not include jobs lost due to a slowdown in shallow-water drilling. Since April, the Bureau of Ocean Energy Management has permitted only a dozen new shallow-water wells, compared with 10 to 15 a month before the April 20 explosion of the Deepwater Horizon rig.

The administration's study also concluded that hiring would pick up once the moratorium is lifted. Industry officials have challenged that assumption.

"The shallow water situation suggests that the [permitting] will be dragged out considerably," says Joseph Mason, a professor of finance at Louisiana State University who has studied the economic impact of the moratorium.

Speaking to reporters at an event organized by Platts, an energy news service, Mr. Bromwich said he would not succumb to what he called "political pressure" to speed up the processing of drilling permits.

"We do want to be responsive to applications but we need to be careful and make sure the permit applications satisfy the new and old regulatory requirements," Mr. Bromwich said. "If that has the effect of slowing the rate of [approvals] I think we ought to accept that as the cost of improving safety."

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

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