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Oil firms challenge U.S. deepwater drilling ban


Mary Rickard and Ernest Scheyder

Mon Jun 21, 2010 6:17pm ED

Louisiana (Reuters) – Oil services companies went to court on Monday seeking to overturn President Barack Obama’s six-month ban on deepwater drilling in the Gulf of Mexico after the worst oil spill in U.S. history.

U.S. District Court Judge Martin Feldman said he would decide by Wednesday whether to temporarily lift the ban while the case is heard. More than a dozen companies involved in offshore drilling operations filed the lawsuit, calling the ban “arbitrary and capricious.”

“The government’s unchecked authority has shut down this entire industry,” argued lawyer Carl Rosenblum, representing the oil industry.

The lawsuit is the first seeking to reverse Obama’s May 28 moratorium, which the companies say will force job cuts in the labor force needed to service offshore oil platforms. The ban has caused the shutdown of 33 deepwater drilling rigs.

Obama imposed the ban after an explosion aboard an oil rig in the Gulf of Mexico on April 20 killed 11 workers and ruptured a well owned by BP Plc, unleashing millions of gallons of crude into the ocean.

The Obama administration argues that the moratorium is necessary to prevent further accidents while a presidential commission investigates the cause of the BP spill.

Louisiana Governor Bobby Jindal, a Republican critic of the Obama administration’s handling of the spill, has sided with the companies in the case.

The lawsuit is another example of the administration’s strained relations with big business, which was on display last week when BP bowed to pressure from Obama and agreed to set up a $20 billion oil spill damages fund.

The spill, now in its 63rd day, has soiled the coastline of four U.S. states, threatening tourism and fishing industries; seeped into ecologically sensitive wetlands and marshes; battered BP’s image; and tested Obama, who has come under fire over his handling of the crisis.

If spill spreads, BP could face challenges beyond the Gulf Coast. Attorneys general from 11 states on the U.S. East Coast warned they would hold the company responsible for injury to wildlife that could affect their coastline.


An independent federal agency that investigates chemical accidents — the U.S. Chemical Safety Board — is launching a probe into the root causes of the spill. The case will be handled by the investigators who examined BP’s safety practices after a deadly 2005 refinery explosion in Texas.

BP said it has spent $2 billion so far on clean-up.

Fueling investor concern about BP’s final bill for the spill, a Democratic U.S. lawmaker on Sunday released an internal company document that said, in a worst-case scenario, up to 100,000 barrels (4.2 million gallons/15.9 million liters) of oil a day could gush from its ruptured deep-sea well.

The British energy company dismissed it, saying the figure was being taken out of context. But investors, apparently worried it could mean higher fines and clean-up costs for BP, drove its shares down 4.5 percent in New York trading.

BP plans to raise cash from banks to ensure it has enough money on hand to pay for the clean-up but does not plan a bond offering, sources familiar with the company’s thinking told Reuters on Monday. Banking sources said last week that BP was seeking some $7 billion from banks.

BP has considered several ways to raise more money, such as selling assets. But for now, it is confident its cash resources can cover the bulk of the clean-up costs, one source said.

Seeking to keep the focus on the ecological disaster, New Orleans Mayor Mitch Landrieu hosted mayors from 17 U.S. cities on a visit to the Mississippi Delta, where oil has coated fragile marshlands, tarred wildlife and decimated fisheries.

During the mayors’ visit to marshes in Louisiana’s Barataria Bay, the stench of coagulating oil hung in the air as miles of boom encircled oil-stained marshes and scores of boats skimmed oil from the bay’s waters.

BP continued to siphon more oil from the blown-out deep-sea well. It said it collected or burned off 23,290 barrels (978,180 gallons/3.7 million liters) of crude on Sunday, still well below the 35,000-60,000 barrels a day that government scientists estimate are gushing from the well.

Both BP and the U.S. government are placing their hopes on two relief wells that are being drilled to permanently cap the leak. Those wells are expected to be finished in August.

BP Managing Director Bob Dudley is in day-to-day charge of the company’s response to the spill after Chief Executive Tony Hayward returned to Britain last week, the company said.

(Additional reporting by Kristin Hays in Houston and Tom Bergin, Sarah Young and Victoria Bryan in London; Writing by Ross Colvin; editing by Chris Wilson)


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