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US to announce new drilling moratorium soon

New Orleans, July 10, 2010

The Obama administration promised on Friday it would announce a new deepwater oil drilling moratorium shortly, and a US company became the first to pull a rig out of the Gulf of Mexico because of uncertainty surrounding the ban.

Diamond Offshore Drilling said it was moving its Ocean Endeavor rig to Egypt from the Gulf, where deepwater drilling has been halted because of the 81-day-old BP oil spill.

The US official overseeing the spill cleanup said it could be contained -- but not plugged -- by Sunday or Monday, when a new cap is installed on top of the well.

'When we have the cap on, and it's sealed and we know that we've got a seal, yes' (it will be contained), retired Coast Guard Admiral Thad Allen said at a news conference. He said the well will not be killed until a relief well is finished. The target for that is mid-August.

Hoping to capitalize on an expected stretch of good weather at the spill site, Washington is pressing BP to switch now to the bigger, more storm-proof containment cap at the sea floor that would capture up to 80,000 barrels (3,360,000 gallons/12,700,00 litres) of oil a day, versus 25,000 barrels currently.

However, BP must remove the existing cap, which will lead to an unrestrained gush of thousands of barrels of oil per day into the Gulf until a new one is in place. But Allen said the new cap could be installed by late Sunday or early Monday.

Moratorium uncertainty

A federal court in New Orleans on Thursday refused to reinstate the six-month ban on drilling below 500 feet (152.5 metres) that the Obama administration imposed after BP's Macondo undersea well blew out on April 20.

But uncertainty over the situation -- and the administration's plans to impose a new moratorium while it investigates the causes of the explosion that triggered the well blowout -- are keeping the drilling rigs shut.

'In the next several days we'll be making an announcement about keeping the moratorium in place,' Interior Secretary Ken Salazar said during a visit to California.

'It will be a new moratorium,' he said.

The 5th US Circuit Court of Appeals panel ruled against the administration's request to stay a lower court decision lifting the ban, saying the government failed to show how it would be irreparably harmed if it were not granted.

The administration said it did not consider the ruling a major setback because it lets Interior apply to stop a project if an operator attempts to start deepwater drilling in the Gulf.

'Our view on the moratorium is that it was right when it was issued and it's right today,' Salazar said.

Companies view the ban as too broad and an unwarranted intrusion into their business that cuts into profits and costs jobs as rigs are idled or, like Diamond's, moved.

The drilling industry and some US lawmakers have been warning that the policy could lead to an exodus of rigs, and with them thousands of jobs.

Environmental and political toll

The flow of oil from the blown-out well is killing birds, sea turtles and dolphins, imperiling multibillion-dollar fishing and tourist industries, and soiling the shores of all five US Gulf Coast states.

The disaster has taken its place firmly atop President Barack Obama's domestic agenda, and complicated the US relationship with close ally Britain, while subjecting Obama to fierce criticism that his handling of the disaster has been too slow and too easy on the British oil giant.

The massive environmental disaster has also sapped the administration's energy as it grapples with high unemployment and tries to pass major legislation like financial regulatory reform months before elections in November in which Obama's Democrats could lose their majorities in Congress.

Thursday's court ruling pushed shares of Transocean Ltd, the world's largest offshore drilling contractor, up more than 5 per cent on the Zurich exchange on Friday. They had lost almost half their value since April.

Transocean owns the BP-leased rig that exploded.

BP, which has seen its share price plummet by about half during the crisis, closed fractionally higher, after rallying to gain about 25 per cent from a low over the past two weeks.

Investors have been cheered by reports that BP is seeking new investors and optimism that the worst of the spill might be over, amid talk the relief well was ahead of schedule.

Shares in Diamond and fellow drilling company Hornbeck Offshore Services Inc were down. – Reuters




Tags: BP | Drilling | Obama | New Orleans | oil spill | Moratorium |

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