A federal appeals panel in New Orleans on Thursday denied the federal government's bid to reinstate a six-month moratorium on offshore deepwater oil drilling issued by the Department of Interior, as part of the Obama administration’s response to the ongoing BP oil spill in the Gulf of Mexico.
The ruling, though it buttresses the position of companies fighting the moratorium, is not likely to mean a return to drilling in the deepwater Gulf any time soon. The Obama administration will challenge Thursday's court decision, and companies are likely to wait for the legal issues to be fully settled before incurring the expense of reinstalling drilling equipment.
The moratorium, issued six weeks ago, suspended operations on 33 exploratory wells and halted the approval of new permits for deepwater drilling. The suit to lift the moratorium was brought by Hornbeck Offshore Services Inc. and a dozen other oil industry service providers, who say the ban will cause them irreparable economic harm.
The federal government says the risks of another spill in the Gulf, while the blown well remains uncontained and before new safety rules have been implemented, outweigh the potential economic effects of the drilling ban. Rejecting the ban as too broad, US District Judge Martin Feldman struck down the moratorium on June 22, and on Thursday a panel of the Fifth US Circuit Court of Appeals refused, in a 2-to-1 ruling, to delay Judge Feldman's order to scrap the moratorium.
A hearing before the full appeals court is scheduled for Aug. 30. The Justice Department says Feldman committed legal error and abused his discretion in his decision. The Obama administration said Thursday it is developing a new, refined moratorium, based on findings about the April 20 accident on the Deepwater Horizon rig and assessments of the spill response and containment efforts, and will issue a revised ban if the appeals court blocks it from reinstating the original six-month moratorium.
The three-judge appeals panel showed a diversity of opinion in questioning government and plaintiffs lawyers on Thursday. Judge Jerry Smith aggressively questioned US Attorney Michael Gray on the government’s challenge to Feldman’s ruling, the rationale for the moratorium, and whether a stay from the panel was even necessary to prevent new drilling before the full hearing in August.
"We give deference, as you should, to what that court has done," Judge Smith said in reference to Feldman's ruling. Pointing out that the burden was on the government in the appeals process to prove that drilling would not cause irreparable injury, Smith – recalling that 27 of 29 deepwater rigs in the Gulf passed safety inspections after the disaster – called the government’s claims speculation. “You haven’t looked at the individual case at all. The secretary [of the Interior] just issued a blanket moratorium.”
“The individual case is, we have an oil spill we haven’t contained,” answered Mr. Gray. “We have an oil spill we haven’t stopped, and our resources are taxed to the max.”
Judge James Dennis, the dissenting vote on the panel, said Interior Secretary Ken Salazar has legal standing to halt deepwater drilling. Addressing the companies’ lawyers, Judge Dennis said a ruling in their favor would require saying that Secretary Salazar is acting irrationally. “That’s a long reach for us,” he said. “The law says he is entitled to a lot of deference and he’s invested with the authority to make this judgment.”
Carl Rosenblum, attorney for the companies, invoking Marbury vs. Madison, argued that the “judicial branch needs to review whether the federal government is following its own rules and regulations.” He also claimed that the Obama administration is trying to intimidate the court with its statement about issuing a second moratorium. “To come out with this is overreaching and an insult to judicial review,” Mr. Rosenblum said. [Editor's note: The original version misnamed Marbury vs. Madison.]
He told the judges that the plaintiffs could prove actual harm from the moratorium, citing lost oil industry jobs and oil rigs moving from the Gulf to foreign countries to operate.
Louisiana Gov. Bobby Jindal (R), a critic of the moratorium, filed a friend of the court brief supporting the oil companies and attended Thursday's hearing. Henry Dart, counsel for Governor Jindal, told the judges that a drilling moratorium would be a “coup de grace” for the state’s economy, which is still recovering from hurricanes Katrina and Rita and is now facing the ongoing oil spill disaster.
Later, Jindal said outside the courthouse that such a moratorium would lead to thousands of lost jobs. "The federal government not being able to do its job is not a reason for thousands of Louisianians to lose theirs," he said.
Legal and oil industry experts say oil companies are unlikely to resume exploratory drilling in the Gulf anytime soon, with or without a ban, with so much uncertainly regarding new federal safety and environmental regulations and possible congressional action affecting offshore drilling.
Questioned by Judge Smith, US Attorney Gray said he did not know when Secretary Salazar might issue the new moratorium. “The secretary is looking at a new decision based on new information,” Gray said. “It is not tied to this court’s decision.”