While acknowledging the country's growing frustration with BP plc's inability to stop the oil gushing in the Gulf of Mexico (GOM), a major producer group last Thursday called on President Obama to reconsider his decision to halt or suspend drilling or planned drilling in the GOM and offshore Alaska and Virginia in response to the explosion on the Deepwater Horizon rig and mammoth oil spill.

"While understanding and correcting the causes of the [GOM] accident are essential, the American Petroleum Institute [API] opposes lengthy or open-ended delay of offshore oil and natural gas development, as proposed...by the administration," said Jack Gerard, president of API, which represents major producers.

"We understand the concerns many people have about offshore drilling in the wake of the incident, and the frustration many feel toward oil companies," he said. But "an extended moratorium on safely producing our oil and natural gas resources from the [GOM] would create a moratorium on economic growth and job creation -- especially in the Gulf states whose people and economies have already been most affected by the oil spill."

A high-ranking Halliburton executive last week said he didn't believe drilling in the offshore could remain at a standstill for long as a result of the oil spill. "It cannot afford to be dead," said Marc Edwards, Halliburton senior vice president, at the Natural Gas Roundtable in Washington, DC. "There's a lot of oil in the offshore environment around here, and if we are truly to have a policy that develops energy security, it cannot be ignored."

In a mid-day conference last Thursday, the president said the government is suspending planned exploration in the Arctic Ocean; canceling a pending lease sale in the GOM and a lease sale off the coast of Virginia for 2012; extending the existing moratorium and suspending issuance of new permits to drill for new deepwater wells until a a presidential commission investigating the BP oil spill has completed its six-month review; and suspending action on 33 deepwater exploratory wells currently being drilled in the GOM. The pause will only apply to drilling in water depths of 500 feet or greater.

Significantly, the directive requires that permitted wells currently drilling in the GOM deepwater to (not counting the emergency relief wells being drilled to stop the oil gusher) halt their drilling at the first safe stopping point, and then take steps to secure the well.

Baker Hughes reported 48 rigs were in the GOM as of May 21. The firms that have at least one drilling rig in the GOM include Transocean Ltd., Diamond Offshore, Noble Energy, Rowan Companies, Hercules Offshore, Seahawk Drilling and Nabors Industries.

The administration has postponed consideration of Shell's proposal to drill up to five exploration wells in the Arctic this summer. It took this action despite Shell's attempts to assuage the Obama administration's concerns (see NGI, May 24). Shell said that following the Deepwater Horizon incident it undertook a number of steps to reinforce safety by reviewing operating practices, testing frequencies and training protocols.

"We respect and understand today's decision in the context of the tragic spill in the Gulf of Mexico, but we remain confident in our drilling expertise, which is built upon a foundation of redundant safety systems and company global standards," Shell said. "In Alaska our drilling plans have undergone an unprecedented level of review, including scrutiny from the courts, regulators and stakeholders. We welcome this scrutiny and will work closely with the government and other experts during this suspension in drilling activities."

Obama, who visited the Gulf for a second time Friday (see related story), placed the restrictions on new drilling 38 days after the BP-leased Deepwater Horizon rig exploded and sank off the southern coast of Louisiana. Obama's announcement came as the success of the latest procedure -- "top kill" -- to cap the damaged riser 5,000 feet below the surface was uncertain, and the disclosure that BP's initial estimate of 5,000 b/d gushing from the riser was woefully conservative. The well could be spewing 12,000 to 19,000 b/d, making it the worst oil spill disaster in U.S. history, according to the U.S. Geological Survey.

If the "top kill" procedure fails, Interior Secretary Ken Salazar told a House Appropriations subcommittee last Thursday that the government had "plan Bs, plan Cs and plan Ds" as back-up.

On top of the drilling clampdown, Salazar called for aggressive new operating standards and requirements for offshore energy companies, including recertification of all blowout preventers (BOPs) for floating drilling operations; stronger well control practices, BOP and intervention procedures; tougher inspections for deepwater drilling operations; and expanded safety and training programs for rig workers.

The latest high-ranking casualty of the spill was Liz Birnbaum, director of the Minerals Management Service (MMS), which is responsible for the safety inspections of offshore rigs and platform. She resigned "effective immediately" last Thursday or she was forced out, depending on whose account you believe. "I found out about her resignation today. I don't know the circumstances," Obama said.

Rep. Jim Moran (D-VA), chairman of the House Appropriations' Subcommittee on Interior, Environment and Related Agencies, said he didn't "personally blame" Birnbaum for the mess at MMS "because she's not part of that culture." He added she shouldn't be treated as a scapegoat. Even Salazar, who had testified at a subcommittee hearing, said she had done "tremendous work." Birnbaum was appointed MMS director in June 2009, succeeding Randall Luthi who served under the Bush administration.

Moran said he believes much of the problem at MMS stems from the fact that environmental experts have been shunted aside at the agency. "For the last several years...they were treated almost [like] they were the crazy paranoids in the attic...We want to put them back at least at the table," he noted.

Birnbaum's announced departure came a week after Salazar signed a secretarial order that will lead to splitting the beleaguered MMS into three separate entities to avoid future conflicts of interest between the agency and oil and gas producers (see NGI, May 24). Bureau of Land Management Director Bob Abbey will serve as acting director of the MMS and oversee the agency restructuring.

Obama agreed that MMS was a troubled agency, having a "cozy and sometimes corrupt relationship" with the oil and gas industry that led to "little or no regulation at all." This was underscored in a recent Interior Department inspector general's report, which suggested that MMS employees accepted gifts, including hunting and fishing trips, from an oil and gas production company working on oil platforms regulated by the agency (see related story).

Despite the number of reforms that Salazar has made at the Interior agency, the "culture had not fully changed [at] MMS," and the president said he took "full responsibility" for that.

Obama said he still believes oil production will be an "important part of the overall energy mix," and he supported his recent decision to expand drilling in the federal Outer Continental Shelf (see NGI, April 5). But he said he was "wrong" in assuming that "oil companies had their act together when it came to worse-case scenarios" for spills and cleanups.

He defended the federal government's response to the GOM disaster. "Those who [say] we were slow in our response...don't know the facts," Obama said. From day one, he said the White House and federal government have been "singularly focused on how do we stop the leak and mitigate the damage to our coastline."

The "notion that the federal government has been sitting on the sidelines" and letting BP make the decisions about capping the well "is simply not true," Obama said, although he acknowledged that BP has superior technology for capping the well. The federal teams are authorized to direct BP.

"I take responsibility. It is my job to make sure that everything is done to shut this down. That doesn't mean it's going to be easy. It doesn't mean it's going to happen right away or the way I'd like it to happen. It doesn't mean that we're not going to make mistakes. But there shouldn't be any confusion here, the federal government is fully engaged," Obama said.

In related action, the president's commission to investigate the BP explosion and spill will be co-chaired by former federal officials with a decidedly environmental bent. They are former Democratic Sen. Bob Graham of Florida and William K. Reilly, former administrator of the Environmental Protection Agency (EPA). In addition, the panel will have five other members with "broad and diverse representations" of expertise, including scientists, engineers and environmental advocates. No sitting government workers or elected officials will be named to the commission. The commission is expected to issue a report within six months of having convened, according to the White House.

Graham's term as Florida governor spanned from 1979 to 1987, and he served in the U.S. Senate from 1987 to 2005. As governor, he launched the most extensive environmental protection program in the state's history, focused on preserving endangered lands. During his tenure thousands of acres of threatened and environmentally important lands in Florida were brought into state ownership for permanent protection. His primary accomplishment was the establishment of the "Save the Everglades" program.

Reilly was EPA administrator between 1989 and 1993, president of the World Wildlife Fund ((1985-1989), president of The Conservation Foundation (1973-1989), and director of the Rockefeller Task Force on Land Use and Urban Growth (1972-1973). He also headed up the U.S. delegation to the United Nations Earth Summit at Rio in 1992. Reilly serves on several boards of directors, including ConocoPhillips.

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