Appeals Court Rejects U.S. Bid to Keep Drilling Moratorium

July 8, 2010: A federal appeals court on Thursday rejected the federal government's effort to restore an offshore deepwater drilling moratorium. (AP)

NEW ORLEANS -- A federal appeals court on Thursday rejected the federal government's effort to restore an offshore deepwater drilling moratorium, opening the door to resumed drilling in the Gulf while the legal fight continues.

The ruling is not the final word on the Obama administration's fight to suspend new drilling projects so it can study the risks revealed by the disastrous BP oil spill.

The same appeals court is expected to hear arguments on the merits of the moratorium case in late August or early September.

While it's possible that 33 exploratory wells suspended by the moratorium could resume drilling, companies might not bother with the expense while the ultimate future of the projects hangs in the balance.

Catherine Wannamaker, a lawyer for several environmental groups that support the moratorium, said she was disappointed by the ruling but expressed confidence that the Obama administration ultimately will win its appeal.

Wannamaker said it's unclear whether any offshore companies would resume drilling because Thursday's ruling doesn't resolve the case.

"Clearly, it's legally allowed," he said. "The question is, practically speaking, will anybody do it given the uncertainty? It's hard to know what will happen."

The CEO of one of the companies that sued to stop the moratorium, Covington-based Hornbeck Offshore Services, said he didn't know if any of the companies involved planned to resume drilling.

"We need to get back to work," Todd Hornbeck said of his company, which provides vessels that serve the offshore industry. "We can't work without any drilling units working."

The moratorium, which prompted a lawsuit from oil and gas service companies, was first rejected June 22 by U.S. District Judge Martin Feldman.

The Interior Department appealed, asking the 5th U.S. Circuit Court of Appeals to let the temporary ban stand until it ruled on the merits of the case.

Justice Department lawyer Michael Gray argued Feldman abused his discretion when he overturned the moratorium, which halted the approval of any new permits for deepwater projects and suspended drilling on the 33 exploratory wells.

Lawyers for the several oilfield service companies argued the administration failed to show that "irreparable harm" would take place if the drilling ban was lifted.

A three-judge panel rejected the government's arguments less than two hours after a hearing on Thursday afternoon.

Two of the 5th Circuit judges seemed to disagree about who should be shown more deference: the lower-court judge or Interior Secretary Ken Salazar, who imposed the moratorium.

Judge Jerry E. Smith leaned toward the judge, while Judge James L. Dennis said Salazar "is entitled to a lot of deference." Dennis partially dissented in the ruling, saying that he would have let the moratorium remain in place.

"Why are we in a position to second-guess the secretary on whether or not there's a threat of irreparable harm?" Dennis asked at the hearing.

After Feldman overturned the moratorium in June, Salazar announced he would issued a new, refined moratorium that reflects offshore conditions. Gray, the Justice lawyer, said Salazar was still considering crafting a new moratorium.

Hornbeck said he can only "wait and see" whether the Interior Department tries to impose a new moratorium.

"It's not solving any problems. It's creating new problems," he said. "There are better solutions than that."

Louisiana Gov. Bobby Jindal, a vocal critic of the moratorium, observed the hearing from the courtroom gallery. Outside, he said a second moratorium would further chill plans for drilling in the Gulf and cost thousands of jobs.

"The federal government not being able to do its job is not a reason for thousands of Louisianians to lose their jobs," Jindal said.