5th UPDATE: Salazar: US Could Issue New Drilling Moratorium

23rd Jun 2010 00:09

(Updates to reflect new legal challenge filed by Hornbeck.) By Siobhan Hughes and Tennille Tracy Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--U.S. Interior Secretary Ken Salazar, responding to a federal judge who struck down a six-month ban on deepwater drilling in the U.S. imposed after a vast BP PLC (BP, BP.LN) oil spill, told lawmakers Wednesday that he is considering issuing a new, scaled-back moratorium in the "weeks and months ahead." "We will in the weeks and months ahead take a look at how it is that the moratorium in place might be refined," Salazar told a Senate Appropriations subcommittee. "It might be that there are demarcations that can be made based on reservoirs where we actually do know the pressures and the risks associated with that versus those reservoirs that are exploratory in nature," Salazar said. "The moratorium order that we will issue will include the criteria under which it is appropriate to take a look at the lifting of the moratorium." The announcement came amid a flurry of activity on Capitol Hill, where lawmakers are rushing to rewrite laws as oil gushes from a broken BP well after an April 20 rig explosion. The House Judiciary Committee on Wednesday voted to repeal a century-and-a-half-old law that Transocean Ltd. (RIG), the owner of the rig leased by BP, has sought to use to limit its liability in the Gulf oil-spill disaster. The House of Representatives passed a bill to give a presidential commission investigating the disaster the power to issue subpoenas. Around Washington, companies and government officials scrambled to deal with a Tuesday ruling by New Orleans Judge Martin Feldman, who struck down the moratorium, saying the Obama administration's policy went too far. A White House spokesman said Wednesday the administration still intends to appeal the ruling, while also working on a new drilling moratorium. Hornbeck Offshore Services Inc. (HOS) and other plaintiffs who originally challenged the moratorium filed new papers in a New Orleans federal court Wednesday accusing the Obama administration of defying the judge's injunction. The oil-services companies argued that Salazar had effectively announced a de facto continuation of the moratorium during his appearance on Capitol Hill. Salazar's comments "have the obvious effect" of chilling the resumption of deepwater drilling activities, Hornbeck and the other companies said. The oil industry would prefer the White House to scrap the entire ban, but would be open to a more modest moratorium. Deepwater drilling already accounts for about a quarter of U.S. oil production. The U.S. Energy Information Administration has said that the six-month ban could reduce production by about 26,000 barrels per day in the fourth quarter of 2010 and roughly 70,000 barrels a day in 2011. "We're just hoping that we will ultimately see a decision that allows for more activity than what was allowed previously," said Erik Milito, a director at the American Petroleum Institute. "Anything would be better than a blanket moratorium." Salazar said that one issue as the government develops new policies is that BP's blowout preventer--a last-resort device used to shut off the well in the event of a pressure surge--remains on the floor of the Gulf of Mexico. The government is not going to have "critical evidence" until "after we get this well killed." That is unlikely to happen until August at the earliest, when the first of two relief wells is supposed to be completed. The moratorium has been in place since late May, when President Barack Obama announced that he wanted a ban on new exploratory wells while a presidential commission studied how to ensure that offshore drilling could be made safer. The ruling had the effect of suspending activity at all 33 rigs developing exploratory wells in deep water. It also posed new hardships for the hundreds of oil-services companies, already hurt by an economic recession, that supply the steel tubing, engineering services, drilling crews and marine-supply boats critical to offshore exploration. Sen. Lisa Murkowski (R., Alaska) told Salazar that the Obama administration should distinguish between the rigs that had already completed a significant amount of work and those that were only in the early stages of developing exploratory wells. She suggested that 28 rigs that are already deep into their operations should be permitted to proceed. "There is a distinction between the exploratory wells, the five that are out there, and the 28 others that are in that subsequent phase," Murkowski said. "If there could be a process that allows them to move forward, perhaps, just perhaps, some of what we're seeing in terms of the economic devastation won't be as pronounced." Sen. Dianne Feinstein (D., Calif.), who heads the Appropriations subcommittee that funds the Interior Department, said that drilling would resume at all 33 rigs unless the moratorium were reinstated. "This, to me, is deeply troubling," she said. She said that the rigs might not have adequate safety equipment. The debate came at Salazar's first appearance before the Senate Appropriations Committee since the April 20 explosion of the Deepwater Horizon, which BP was leasing to bore a well into the floor of the Gulf of Mexico a mile below the sea. As Salazar was testifying, BP suffered a major setback with the malfunction of a key part of its system to contain the gushing oil. A robot collided with a cap placed on the broken well. If the cap is not replaced quickly, BP will be unable to increase its capture rate to 53,000 barrels a day by next week as planned, the U.S. Coast Guard said. Salazar appeared on Capitol Hill to ask for funding for more inspectors to oversee offshore drilling as the Interior Department reorganizes the agency formerly known as the Minerals Management Service into three separate divisions. He said the Interior Department would need to hire an additional 228 people--adding to 380 existing workers--to staff a newly planned bureau of safety and environmental compliance. Feinstein urged Salazar to make a formal request quickly, since the committee was working on a funding bill and would have to cut other spending requests in order to come up with the money. -By Siobhan Hughes and Tennille Tracy, Dow Jones Newswires; 202-862-6654; [email protected] (Susan Daker, Brent Kendall, David Bird, Jared Favole and Isabel Ordonez contributed to this article.) (END) Dow Jones Newswires June 23, 2010 19:09 ET (23:09 GMT)