US prepares new drilling moratorium

The Obama administration scrambled today to respond to a court's refusal to reinstate a ban on deepwater drilling imposed after…

The Obama administration scrambled today to respond to a court's refusal to reinstate a ban on deepwater drilling imposed after BP Plc's massive oil spill, while insisting the ruling was not a major setback for the policy.

The interior department said it will issue a new order on deepwater drilling below 500 feet (152.5 metres) to address the concerns raised by federal courts.

It did not say when the new moratorium would be issued, but officials said it was not likely to come on Friday.

The US Court of Appeals for the Fifth Circuit ruled 2-1 yesterday against the administration's request to stay a lower court decision lifting the six-month drilling ban, saying the government failed to show how it would be irreparably harmed if it were not granted.

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The court, in New Orleans, added that the administration also "made no showing that there is any likelihood that drilling activities will be resumed pending appeal."

The ruling pushed shares of Transocean Ltd, the world's largest offshore drilling contractor, up more than 4.5 per cent on the Swiss exchange today. They had lost almost half their value since April.

Transocean owns the BP-leased rig that exploded in the Gulf of Mexico in April, triggering the biggest oil spill in US history.

The flow of oil from BP's leaking well is killing birds, sea turtles and dolphins, imperiling multibillion-dollar fishing and tourist industries at a time of high unemployment, and soiling the shores of all five US Gulf Coast states.

But the administration said the ruling was not an outright rejection of its policy, because it lets the Interior Department apply to stop a project if an operator attempts to start deepwater drilling in the Gulf.

"We continue to believe that it is not appropriate to drill new deepwater wells in the Gulf until we can be assured that future drilling activity can be conducted in a safe and environmentally responsible manner," interior spokeswoman Kendra Barkoff said.

"Based on what we have learned since the BP oil spill it has become increasingly clear that companies may not have adequate containment and response capabilities to respond to a spill and therefore as the Secretary has said previously, he will be issuing a new moratorium," she said.

Interior secretary Ken Salazar is due to speak in California later today.

Analysts said they did not expect more drilling projects any time soon.

"Effectively the government's getting what they want by default. It's too risky for companies to start up the deepwater drilling process when you know the rug could be pulled out from underneath you," said Dan Pickering, head of research at Tudor, Pickering, Holt & Co., based in Houston.

The political stakes in the drilling battle are high for US president Barack Obama as he tries in the face of harsh criticism to show he is responding forcefully to the crisis.

The administration said it imposed the moratorium to allow enough time for an investigation of the disaster. The energy industry fears the ban could put costly projects on hold.

The White House said yesterday it had sent BP a list of questions about the company's efforts to cap the ruptured well that has been leaking crude oil into the Gulf since late April and ordered it to respond within 24 hours.

Shares of the British energy giant, which had seen its share price plummet by about half at one point during the 81-day crisis, were off more than 2 per cent, after rallying to gain more about 25 per cent over the past two weeks.

Investors had been cheered by reports that company executives were seeking new investors and optimism that the worst of the spill might be over, amid talk of progress on a relief well considered the best chance to finally stop the environmental disaster.

But the shares were hit on Friday by concern about the expected new moratorium and talk that the relief well was not as advanced as had been hoped.

Shares in drilling companies Hornbeck Offshore Services Inc and Diamond Offshore Drilling Inc were also down on Friday.

Corporate pain from the spill could spread well beyond BP as the government investigates.

"There are a variety of entities and a variety of people who are the subjects of that investigation," US Attorney General Eric Holder said a taping of CBS's Face the Nation scheduled for broadcast on Sunday, Politico.com reported.

Reuters