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Vol. 15, No. 26 Week of June 27, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Court halts moratorium

Administration will appeal court injunction against DOI deepwater drilling ban

Alan Bailey

Petroleum News

As part of the ever-changing fallout from the Gulf of Mexico Deepwater Horizon disaster, a federal judge on June 22 issued an injunction stopping the U.S. Department of the Interior’s recently imposed six-month moratorium on deepwater drilling on the U.S. outer continental shelf. A day later Interior Secretary Ken Salazar told a U.S. Senate committee that the administration would appeal the injunction while also preparing a new, refined version of the moratorium.

Interior issued the drilling ban at the end of May. But on June 7 oil services company Hornbeck Offshore Services appealed the moratorium in the U.S. District Court of the Eastern District of Louisiana, citing the impact of the moratorium on the company’s business and on the general economy of the Gulf of Mexico region, and claiming that the government action was illegal. A long list of other service companies subsequently joined the court case, with a long list of environmental organizations pitching in on the side of the government.

“The court has found the plaintiffs would likely succeed in showing that the agency’s decision was arbitrary and capricious,” said District Court Judge Martin Feldman in granting the injunction on June 22. “An invalid agency decision to suspend drilling of wells in depths of 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 this country.”

Some of those supporting the moratorium promptly cried foul, saying that the judge could not be impartial in the case because he owns stock in Transocean and other companies involved in the oil industry (Transocean owned the Deepwater Horizon rig that was destroyed in the Gulf of Mexico disaster).

New moratorium?

On June 23, in a hearing of the U.S. Senate Appropriations Subcommittee on Interior, Environment and Related Agencies, Sen. Lamar Alexander, R-Tenn., asked Salazar if Interior now plans to issue a new moratorium on deepwater drilling.

“The answer to that is ‘yes,’ Sen. Alexander,” Salazar responded, adding that the administration’s policy is to “press the pause button” rather than to let drilling continue as it was before, or alternatively to “press the stop button forever.”

Enforcing a pause in drilling will “allow us to learn the lessons from the Deepwater Horizon explosion and to deal with the issues of standards and enforcement, and also make sure that many measures that are supposedly in place to prevent this kind of thing from ever happening again are in fact in place,” Salazar said.

In general, senators in the hearing sympathized with the concept of enforcing a pause in drilling while also expressing concern about the need to consider the economic ramifications of a drilling ban. Some senators questioned the need to ban all deepwater drilling, rather than consider the difference in risk profile between, for example, exploration drilling and field development drilling or the drilling of gas wells.

“We will in the weeks and months ahead take a look at how it is that the moratorium in place might be refined, and it may be that there are demarcations that can be made based on reservoirs where we actually know the pressures and the risks associated with that, versus those reservoirs that are exploratory in nature where you don’t know as a company what it is that you are drilling in,” Salazar said. “So the moratorium order that we issue will include the criteria under which it is appropriate to take a look at the lifting of the moratorium.”

Interior will also work with the president’s Deepwater Horizon commission, to seek its views on an appropriate time to “lift the safety button,” Salazar said.

Arctic drilling ban

As part of its safety measures in response to the Gulf of Mexico disaster, Interior has also put a hold on new drilling in the Arctic offshore, thus placing planned exploration drilling by Shell in the Beaufort and Chukchi Seas off limits in 2010. But the Arctic drilling ban was not mentioned in the MMS notice to lessees that officially implemented the deepwater drilling moratorium, nor was it referenced in the judge’s findings in the Louisiana district court case.

And Shell’s planned Arctic drilling would take place in water considered “shallow,” under the terms of the moratorium.

“Why are we not allowing offshore (drilling) to proceed in the shallow waters in the north?” asked Sen. Lisa Murkowski, R-Alaska. “I’m still trying to determine whether or not the Alaska leases are technically under this same moratorium that relates to deepwater, or are they subject to a special delay of their own?”

Spill response concerns

“Our view is that there are a number of different issues that are important in addressing oil and gas development in the Arctic,” Salazar responded. “The highest (issue) … with respect to the exploration wells that you refer to is the question of whether or not there is the oil spill response capability that would be sufficient in the event that you would have some kind of unexpected disaster. … So the pause button gives us an opportunity to look at the whole set of issues in the OCS and that will be one that we will be looking at.”

“But how are you defining that pause?” Murkowski asked. Funding available from BP could assist people in the Gulf of Mexico impacted by a drilling moratorium triggered by the Deepwater Horizon disaster, whereas the approximately 600 people who had planned to work in Shell’s 2010 Arctic drilling program face an uncertain and confusing future.

This is a dynamic crisis-control situation, Salazar said. Whereas the Gulf of Mexico currently has massive spill response capability, “we don’t have that same oil spill response capability through the Coast Guard or anybody else in the Arctic, and so it’s my view that the pause button is very appropriate for these wells,” he said.

“(But) are we in a moratorium? Is it a special delay of its own?” Murkowski pressed, expressing concern about the need for a process to deal with potential issues such as the lapse of oil and gas permits and leases, and commenting on the high level of scrutiny that, she said, Shell’s plans had already received.

“The moratorium that is in place does in fact apply to the Alaska wells,” Salazar said. “… We need to have a greater level of certainty that the kind of tragedy that is unfolding in the Gulf doesn’t occur up there.”

Salazar said that Interior would be working on the Alaska issues in the weeks and months ahead.

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