In a classic David vs. Goliath struggle, small oil service companies in Louisiana last week won the first two rounds of the court battle over the enforcement of the Obama administration’s six-month moratorium on deepwater drilling in the Gulf of Mexico (GOM). But while the Interior Department may have been defeated, the fight is far from over.

The victory for Hornbeck Offshore Services LLC and other oil services firms came last Tuesday when U.S. District Judge Martin Feldman in New Orleans granted their motion for a preliminary injunction barring Interior from enforcing the moratorium (see NGI, May 31).

Feldman said Interior failed to justify its decision to impose a prolonged ban on deepwater drilling in the wake of the April 20 explosion on board the Deepwater Horizon rig, and essentially sought retribution against an entire industry for the actions of one company — British oil giant BP plc (see NGI, April 26).

The second win came last Thursday when Feldman denied the Obama administration’s request for a stay of his decision pending an appeal to the U.S. Circuit Court of Appeals for the Fifth Circuit. The case is likely to be fast-tracked at the Fifth Circuit, and could go to the Supreme Court.

Feldman also altered part of his initial decision, giving Interior Secretary Ken Salazar and other Interior officials 30 days, rather than the initial 21 days, to report their compliance with the terms of the order barring the enforcement of the moratorium. The temporary injunction is to remain in place until a full trial can be held on the merits of the case, or it is overturned on appeal.

Meanwhile, Salazar told a Senate panel last Wednesday that he was planning to issue a new moratorium order, which may be narrower in scope (see related story).

In his ruling, Feldman said Salazar’s “determination that a six-month moratorium on issuance of new permits and on drilling by 33 rigs is necessary does not seem to be fact-specific and refuses to take into measure the safety records of those [other companies] in the Gulf.” Thirty-three deepwater sites in the GOM were suspended as a result of the moratorium, although they were reinspected following the rig explosion and deemed safe.

“There is no suggestion that the secretary considered any alternatives [to the moratorium]: for example, an individualized suspension of activities on targeted rigs until they reached compliance with new federal regulations said to be recommended for immediate implementation,” the judge said.

Covington, LA-based Hornbeck asked the court for the preliminary injunction earlier this month. Within days, a number of other oil services and shipbuilding companies joined the lawsuit.

The National Ocean Industries Association, which represents offshore companies, said it was encouraged by the court’s ruling. “The lawsuit’s success underscores that federal decisions must be made on the basis of demonstrable proof that ongoing operations pose some risk, not on the simple political expediency of declaring a stop-work order,” it said.

Thomas J. Pyle, president of the Institute for Energy Research, echoed the sentiment. “This moratorium, wisely overturned, was never about safety — it was about politics, and politics at its worst,” he said. Both the American Petroleum Institute and the Independent Petroleum Association of America also applauded the court’s ruling.

The oil and gas industry realizes, however, that this is only the beginning of what may turn out to be a prolonged legal battle.

“Whether the decision will stand up on appeal is not clear,” said H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis. “But what is clear is that the judge understands two important things. First that agency decisions that have major effects should not be made lightly based on extremely rare, and in this case, unique events. Decisions should be made in keeping with the law and established rules, not by presidential fiat.

“Secondly the judge seems to understand the profound harm the offshore drilling moratorium imposes on the Gulf region and the economy as a whole. Two wrongs don’t make a right, and since there is no evidence that offshore operators routinely make the same errors in judgment, the rig workers, the workers in ancillary fields and the public as a whole should not be faced with collective punishment in order to satisfy the anti-energy appetites of environmentalists and their allies in the administration,” he said.

Salazar recommended the moratorium in a May 27 report to President Obama after a 30-day safety inspection review of the Gulf rigs was conducted in the wake of the explosion and sinking of the Deepwater Horizon rig off the southeastern coast of Louisiana. In its arguments before the court, Feldman said Interior “failed to cogently reflect the decision to issue a blanket, generic, indeed punitive, moratorium with the facts developed” in that report.

The court also cited its “uneasiness” with Interior’s claim that the report had been peer-reviewed by seven experts identified by the National Academy of Engineering. “Although the experts agreed with the safety recommendations contained in the body of the report, five of the National Academy experts and three…other experts have publicly stated that they ‘do not agree with the six-month blanket moratorium’ on floating drilling. They envisioned a more limited kind of moratorium, but a blanket moratorium was added after their final review,” Feldman said in his ruling.

Salazar testified on Capitol Hill last week that the offshore moratorium decision was his and Obama’s alone. The seven experts were not asked for their recommendations or opinions in this area (see related story).

“After reviewing the secretary’s report, the moratorium memorandum [to the Minerals Management Service] and the Notice to Lessees, the court is unable to divine or fathom a relationship between the findings and the immense scope of the moratorium.

“The report patently lacks any analysis of the asserted fear or threat of irreparable injury or safety hazards posed by the 33 permitted rigs [covered] by the moratorium. It is incident-specific and driven: Deepwater Horizon and BP only. None others,” Feldman wrote.

While the Deepwater Horizon oil spill is an “unprecedented, sad, ugly and inhuman disaster, what seems clear is that the federal government has been pressed by what happened on the Deepwater Horizon into an otherwise sweeping confirmation that all Gulf deepwater drilling activities put us all in a universal threat of irreparable harm.”

In last Thursday’s order, Feldman also granted a request for the disclosure of his financial interests, which became an issue after JudicialWatch reported that Feldman held stock in energy companies that were involved in the Deepwater Horizon incident. “The court’s most current financial disclosure report will be released by the administrative office of the United States Courts as soon as their security protocol on the release of federal judge’s financial disclosure reports has been satisfied,” the order said.

Feldman’s 2008 financial disclosure report published by JudicialWatch (a conservative watchdog over government, legal and judicial systems) showed that the he received dividends from Transocean stock that he held. Transocean owned the Deepwater Horizon rig. BP leased the rig from Transocean. The rig explosion and subsequent oil spill prompted the Obama administration to impose the moratorium in late May. The judge’s financial disclosure report for 2009 was not available.

The 2008 filing and other financial reports dating back to 2003 showed that Feldman had holdings in several other energy companies, including Hercules Offshore, Quicksilver Resources, Prospect Energy, Peabody Energy, Halliburton Co., Parker Drilling, El Paso Corp. and Chesapeake Energy. Halliburton was also involved in the Deepwater Horizon incident. Feldman reported last year that he sold his stock in Halliburton. It appeared however, that Feldman did not have any holdings in the more than 20 small companies that filed the suit.

Associated Press reported early this month that 37 of the 64 active or senior federal judges in the Gulf states of Louisiana, Texas, Alabama and Florida have links to oil, natural gas or related industries.

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