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Businessweek, June 17, 2010

U.S. Won’t Lift Deepwater Drilling Ban, Lawyers Tell Judge
By Margaret Cronin Fisk and Laurel Brubaker Calkins

June 17 (Bloomberg) -- The six-month moratorium on deepwater drilling ordered in the wake of the Gulf of Mexico oil spill is essential to ensure public safety and shouldn’t be lifted, U.S. regulators said yesterday in a court filing.

Hornbeck Offshore Services Inc. and other offshore service and supply companies last week sued U.S. Interior Secretary Kenneth Salazar, the head of the Minerals Management Service, and both federal agencies, asking a federal court in New Orleans to lift an executive ban on oil and gas exploration in waters more than 500 feet deep.

The moratorium was imposed May 27 after the April explosion and sinking of the Deepwater Horizon off the Louisiana coast, which triggered the largest oil spill in U.S. history. Hornbeck and the other companies contend they will suffer irreparable economic harm from the suspension in drilling. The U.S. said further investigation is needed before the ban can be lifted.

“The Secretary’s decision was a valid exercise of his discretion predicated on the need to ensure that no further drilling accidents occur pending review and implementation of safety protocols and procedures,” lawyers for the agencies said yesterday. “The short-term economic harm asserted by the plaintiffs fails to meet their burden of demonstrating irreparable harm.”

Relief Wells

The moratorium applies to all floating rigs in the deepwater Gulf of Mexico except two hired by BP Plc to drill relief wells to try to cap the runaway well spewing from 35,000 to 60,000 barrels of oil daily.

The lawsuit was originally filed June 7 by Covington, Louisiana-based Hornbeck. Since then more than it has been joined by more than a dozen companies that build rigs, operate supply-boat fleets, provide remotely-operated submarines, clean tanks, load cargo and provide other support for the 33 rigs drilling in the deepwater Gulf of Mexico when the ban was imposed.

Many of the plaintiff companies are based near Port Fourchon, Louisiana, and have subsidiary operations scattered throughout the Louisiana coastal zone. Among these are Bollinger Shipyards Inc., Bee Mar LLC and Chouest Shipyard Companies, which along with Hornbeck collectively employ more than 13,000 workers and 7,000 vendors, according to court papers.

‘Immediate Losses’

“The potential immediate losses include, but are not limited to, the loss of 3,000 to 6,000 Louisiana jobs directly and indirectly related to the deepwater drilling operations at the 33 wells,” Hornbeck attorney Carl Rosenblum said in court papers June 9. “Lost wages for direct and indirect jobs lost could be over $165 million to $330 million per month for every month the 33 platforms are idle.”

Rosenblum didn’t immediately return a call seeking comment yesterday.

The plaintiffs showed no reason a judge should lift the ban and the moratorium was necessary to “ensure that more lives are not lost and that new blowouts and spills do not occur,” the U.S. said. “A second deepwater blowout could overwhelm the efforts to respond to the current disaster, and dramatically set back recovery.”

The ban won’t shut down the Gulf’s oil and gas industry, the U.S. said.

“There are nearly 7,000 active leases in the Gulf of Mexico, with approximately 3,600 structures that account for 31 percent of total domestic oil production in the United States,” the U.S. said. “None of this ongoing production is affected.”

The case is Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans).

--With assistance from Justin Blum in Washington. Editors: Fred Strasser, Michael Hytha.

©2010 Bloomberg L.P.

Photo © Paul S. Hamilton