UPDATE 3-U.S. judge rules against White House on drilling ban

Wed Jun 23, 2010 2:38am IST

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* A victory for drillers

* White House to challenge ruling

* Offshore operators say they await appeal outcome (Adds comment from industry, Sierra Club)

By Mary Rickard

NEW ORLEANS, June 22 (Reuters) - A U.S. judge ruled on Tuesday against the six-month moratorium that President Barack Obama's administration imposed on deepwater drilling over the Gulf of Mexico oil spill.

The order, in a New Orleans federal court, was a blow to the White House which had insisted a ban on offshore drilling below 500 feet (152 meters) would allow enough time to ensure other exploratory drilling was proceeding safely.

The White House swiftly pledged to appeal the ruling to the U.S. Court of Appeals for the Fifth Circuit in New Orleans.

"Continuing to drill at these depths without knowing what happened does not make any sense, and puts the safety of those involved ... at a danger that the president does not believe we can afford," said White House spokesman Robert Gibbs.

The ruling in the case, the oil industry's first challenge to a moratorium that had halted operations of 33 offshore rigs, was a victory for big offshore energy producers like BP Plc. (BP.L)(BP.N), Chevron Corp (CVX.N) and Royal Dutch Shell (RDSa.L). Their operations have been hamstrung by the ban and they considered relocating their giant drilling rigs to other basins like Brazil.

A suit was filed by Louisiana-based Hornbeck Offshore Services LLC (HOS.N) and was joined by more than a dozen companies involved in offshore drilling operations to reverse the drilling ban imposed by the U.S. Department of Interior.

The April 20 explosion of the Transocean Ltd RIGN.S(RIG.N) Deepwater Horizon rig killed 11 people and caused the worst oil spill in U.S. history. The well is majority-owned by BP.

Deepwater drilling, newer than shallow-water drilling, is also riskier because the bit must bore through many more layers of rock and salt under more extreme pressures and temperatures.

APPEAL AWAITED

Federal Judge Martin Feldman, appointed by former President Ronald Reagan in 1983, granted the drillers' request for a preliminary injunction that prevents the ban from taking effect, saying that they would likely succeed in showing that the suspension was "arbitrary and capricious".

"The court is unable to divine or fathom a relationship between the findings and the immense scope of the moratorium," the judge wrote a day after hearing arguments in the case.

Environmental groups lambasted Feldman's decision as a gift to Big Oil. "To open more drilling now would be to invite a second disaster of the same magnitude, or a third," said Sierra Club executive director Michael Brune.

The Center for American Progress, headed by former President Bill Clinton's White House chief of staff John Podesta, circulated public documents showing that he held shares in offshore rig owner Transocean Ltd in 2008.

The American Petroleum Institute, an oil industry lobbying group, applauded the ruling and said it means that "our industry and its people can get back to work."

But big offshore operators like Shell said they would wait until the outcome of the appeal by the Obama administration before they restart drilling operations.

"We need to understand what the lower court's decision was, and we'll await the outcome of the appeal," said Shell spokesman Bill Tanner.

"It would be very difficult to see someone start up an ultra deepwater operation with just one court's ruling because there is so much at stake," said Pierre Conner, an analyst with Capital One Southcoast in New Orleans.

Standard & Poor's Equity Research analysts said legal battles over the moratorium are far from over and they "anticipate some rigs to leave the U.S. Gulf for international drilling regions given elevated domestic uncertainty."

The moratorium on drilling in deep waters does not affect existing producing platforms but halts new development plans by the oil industry.

Wood Mackenzie, an energy consulting agency, previously estimated a six-month ban would delay 80,000 barrels a day in U.S. oil production that was expected in 2011. (Additional reporting by Patricia Zengerle, James Vicini, Jeremy Pelofsky and Deborah Zabarenko in Washington and Kristen Hays in Houston. Writing by Chris Baltimore; editing by Howard Goller and Chris Wilson)

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