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Interior Lifts Moratorium, But Drilling Not likely to Resume Soon

The Obama administration's moratorium on deepwater drilling in the Gulf of Mexico has been lifted, but only for those operators that can show that they have complied with existing and the tougher new safety and drilling regulations. The action immediately came under attack from producers and Capitol Hill lawmakers, who question whether it will significantly change the status quo in the Gulf.

Because of the higher bar the administration has set for deepwater operators, "it will clearly not be tomorrow" or next week when the Interior Department's Bureau of Ocean Energy Management, Regulations and Enforcement (BOEMRE) will approve the first permits to resume drilling, said Director Michael Bromwich. He signaled that he expects this to occur by the end of the year. While this may cause "real and substantial pain" for the industry, Bromwich said it was necessary to carefully evaluate permit applications.

"Some will say that [the] bar we have set is too high," while others will say it doesn't address all of the risks associated with deepwater drilling, said Interior Secretary Ken Salazar, who imposed the second deepwater drilling moratorium on July 14 (see Daily GPI, July 14). Interior issued the second moratorium after a federal judge in New Orleans blocked the federal government from enforcing the first moratorium.

Interior believes it is "now appropriate" to remove the ban for operators who can clear the higher bar, which includes a slew of workplace safety, environmental and drilling safety requirements, he said.

The administration removed the moratorium based on an Oct. 1 report by Bromwich. "There has been significant progress over the last few months in enhancing the safety of future drilling operations, and in addressing some of the weaknesses in spill containment and oil spill response," Bromwich said. "More needs to be done...But we believe the risks of deepwater drilling have been reduced significantly to allow drilling under existing and new regulations."

Before an operator can resume deepwater drilling, it must demonstrate that it has sufficient containment resources that are available in the event of a deepwater blowout; the CEO of each operator seeking to perform deepwater drilling must certify to BOEMRE that it has complied with all regulations, including the new drilling safety rules; and BOEMRE plans to conduct inspections of each deepwater drilling operation for compliance with regulations, including but not limited to the testing of blowout preventers.

The administration just replaced the moratorium with a "permitorium," said Thomas J. Pyle, president of the Institute for Energy Research. "What was announced today will result in no change in domestic energy production in the Gulf of Mexico until...Salazar begins to issues permits once again. In the meantime, thousands of Gulf Coast families will continue to be out of work. It can't be explained any other way," he noted.

"While we are pleased today that Secretary Salazar has opted to end the job-killing moratorium on deepwater drilling in the Gulf of Mexico, our companies remain doubtful that this announcement is anything more than symbolic, until permits are actually issued for new drilling," said Randall Luthi, president of the National Ocean Industries Association, which represents the offshore industry.

"In the shallow-water Gulf, where no official moratorium was imposed, permitting slowed to a snail's pace under the government guidelines imposed this summer...It is therefore not a stretch to assume that, despite today's action, companies operating in the deepwater Gulf may suffer a similar de facto moratorium," he said.

American Petroleum Institute CEO Jack Gerard said the administration's action fell far short. "Without additional resources and a serious commitment by the government to process and approve permits and other requirements expeditiously, the moratorium will give way to a de facto moratorium, which will continue to cripple the already hard-hit Gulf region and cost more than 175,000 American jobs a year," he noted.

"Today's decision is a good start, but it must be accompanied by an action plan to get the entire industry in the Gulf of Mexico back to work. This means that the administration must continue to accelerate the granting of permits in shallow and deepwater, and provide greater certainty about the rules and regulations the industry [operators] must meet," said Sen. Mary Landrieu (D-LA).

Despite Tuesday's action, Landrieu said she will continue her hold on the nomination of Jack Lew for director of the Office of Management and Budget (see Daily GPI, Sept. 24) . "Instead I will take this time to look closely at how BOEMRE is handling the issuing of permits and whether or not drilling activity in both shallow and deepwater is resuming. When Congress reconvenes for the lame duck session next month, I will have had several weeks to evaluate if today's lifting of the moratorium is actually putting people back to work."

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