U.S. District Judge Martin Feldman overturned the Obama Administration’s six month deepwater drilling moratorium this afternoon citing the “immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in this country.”  Click on this link for the full text of the court order.  Here is a brief excerpt from the ruling:

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. While the implementation of regulations and a new culture of safety are supportable by the Report and the documents presented, the blanket moratorium, with no parameters, seems to assume that because one rig failed and although no one yet fully knows why, all companies and rigs drilling new wells over 500 feet also universally present an imminent danger.

On the record now before the Court, the defendants have failed to cogently reflect the decision to issue a blanket, generic, indeed punitive, moratorium with the facts developed during the thirty-day review. The plaintiffs have established a likelihood of successfully showing that the Administration acted arbitrarily and capriciously in issuing the moratorium.

“Arbitrary and Capricious” Actions vs. Prudent Regulation

Previous articles on The Rational Walk have acknowledged the need to understand the causes of the Deepwater Horizon disaster and to put in place prudent regulatory changes designed to prevent a repeat in the future.  In the days immediately following the disaster, it made sense to briefly pause to assess the situation.  However, over the past several weeks, the Administration created confusion regarding the policy for shallow water drilling even though the risk profile is completely different from deepwater exploration.  Additionally, information has come to light regarding human error being the most likely cause of the disaster, particularly related to the faulty well design that BP chose to use.  None of this appears to have influenced the Administration’s stance on the moratorium.

What is the Commission’s Role?

The moratorium has caused significant disruption to the economy in addition to the economic turmoil to fishing and tourism caused by the oil spill itself.  The moratorium itself was justified in part based on the recommendation of a number of experts who have now come forward to say that they did not support the six month moratorium.  The judge agreed that the experts were clearly misrepresented.  Additionally, the commission itself lacks experts familiar with offshore drilling or oil exploration as the Wall Street Journal points out in an editorial today.

The Obama Administration quickly announced an intent to appeal today’s decision.  According to the Washington Post, Obama Administration Press Secretary Robert Gibbs made a revealing comment regarding the President’s views on the subject:

Press Secretary Robert Gibbs said Obama believes strongly that drilling at such depths does not make any sense and puts the safety of workers “at a danger that the president does not believe we can afford.”

If Mr. Gibbs was quoted accurately, the comment is highly disturbing because it implies that the President has already come to the conclusion that drilling at deeper depths “does not make any sense”.  Yet, this is precisely the question that the expert commission is supposed to be deciding over the next six months.

Note:  The Washington Post quote from Mr. Gibbs displayed above was later changed to indicate that the President does not think drilling at deeper depths makes any sense “until safety issues are understood.”  It is still notable that the initial quote failed to make any qualifications regarding the President’s views on the matter.

Disclosure:  The author holds investments in companies engaged in oil and gas exploration in the Gulf of Mexico.

Deepwater Drilling Moratorium Overturned; Obama Administration Plans Appeal

2 thoughts on “Deepwater Drilling Moratorium Overturned; Obama Administration Plans Appeal

  • June 22, 2010 at 9:42 pm
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    Despite this decision, most of the drillers were down today – NE, ESV, DO, etc. Why do you think that is?

    If you had to pick one of the off-shore drillers, which do you think has the greatest potential going forward?

    Great blog, BTW. Glad to see comments open again.

  • June 22, 2010 at 9:51 pm
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    I’m really not sure how to account for today’s action. Apparently, the sector initially shot up and then came down once news of the appeal surfaced, although one would have thought that the appeal would be a foregone conclusion. I can never figure out short term market moves like this.

    I am long NE. I like ESV as well. IMO, ESV is less exposed to a permanent ban on drilling because they have fewer deepwater rigs in the GOM than NE. However, NE seemed cheaper to me assuming that the moratorium is eventually lifted. I think the political pressure on the Administration will force at least a partial pullback soon.

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