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Gov. Jindal, Oil Firms Challenge Obama Deepwater Drilling Ban

by Mary Rickard and Ernest Scheyder

NEW ORLEANS/LAFITTE, La. - A U.S. judge promised to rule by Wednesday on an oil industry challenge to the Obama administration's six-month moratorium on deepwater drilling in the Gulf of Mexico after the worst oil spill in U.S. history.

U.S. District Court Judge Martin Feldman heard opening statements in New Orleans on Monday in a case in which more than a dozen companies involved in offshore drilling operations called the ban "arbitrary and capricious."

The lawsuit is the first case seeking to reverse Obama's May 28 moratorium, which the companies say will force job cuts in the labor force needed to service offshore oil platforms. The ban has caused the shutdown of 33 deepwater drilling rigs.

Obama imposed the six-month ban after an explosion aboard an oil rig in the Gulf of Mexico on April 20 killed 11 workers and ruptured a well owned by energy giant BP, unleashing millions of gallons of crude into the ocean.

The Obama administration argues that the moratorium is necessary to prevent further accidents while a presidential commission investigates the cause of the BP spill.

Louisiana Governor Bobby Jindal, a Republican critic of the Obama administration's handling of the spill, has sided with the companies in the case. Jindal argued that the ban could cripple the offshore industry.

The lawsuit is another example of Obama's strained relationship with big business. These tensions also were in the spotlight last week when BP bowed to pressure from Obama and agreed to set up a $20 billion fund to pay damage claims arising from the spill.

The spill, now in its 63rd day, has soiled the coastline of four U.S. states, threatening tourism and fishing industries; seeped into ecologically sensitive wetlands and marshes; battered BP's image; and tested President Barack Obama, who has come under fire over his handling of the crisis.


BP said on Monday it has spent $2 billion so far on cleaning up the spill.

Fueling investor concern about BP's final bill for the spill, a Democratic U.S. lawmaker on Sunday released an internal company document that said, in a worst-case scenario, up to 100,000 barrels (15.9 million liters) of oil could gush from its ruptured deep-sea well.

The British energy company dismissed it, saying the figure was being taken out of context. But investors, apparently worried it could mean higher fines and clean-up costs for the company, drove down BP shares more 3 per cent in New York trading.

BP plans to raise cash from banks to ensure it has enough money on hand to pay for the clean-up but does not plan a bond offering, sources familiar with the company's thinking told Reuters on Monday. Banking sources said last week that BP was seeking some $7 billion from banks.

BP has considered a number of different scenarios to raise more money, should the need arise, such as selling assets. But for now, the company is confident its cash resources can cover the bulk of the clean-up costs, one source said.

Seeking to keep the focus on the unfolding ecological disaster, New Orleans Mayor Mitch Landrieu on Monday was taking mayors from 17 U.S. cities to visit the slick-damaged Mississippi Delta, where oil has coated fragile marshlands, tarred wildlife and decimated fisheries.

"Educating the rest of the country is what's going to help us win this fight," said Tim Kerner, mayor of Lafitte, Louisiana, where the mayors gathered for a presentation from BP and the U.S. Coast Guard.

"Every day it's a new oil spill," said Coast Guard Captain Roger Laferriere. "In previous spills, we always had a known quantity of oil."


Kenneth Feinberg, the administrator of a $20 billion fund set up by BP to compensate victims of the spill, said on Monday he would "err on the side of the claimant" in paying emergency relief. "We've got to ease the burden on these folks in the Gulf," he told CNN.

BP continued to siphon more oil from the blown-out deep-sea well. It said it collected or burned off 23,290 barrels (3.7 million litres) of crude on Sunday, still well below the 35,000-60,000 barrels a day that government scientists estimate are gushing from the well.

Both BP and the U.S. government are placing their hopes on two relief wells that are being drilled to permanently cap the leak. Those wells are expected to be finished in August.

BP also rejected claims by its partner in the oil well, Anadarko Petroleum, that it had been negligent in the way it operated the installation.

The Anadarko criticism, along with the release of the internal document, hit BP's share price. It was down about 3.2 per cent in afternoon trading in New York after closing down 2.22 per cent in London.

BP Managing Director Bob Dudley is in day-to-day charge of the company's response to the spill after Chief Executive Tony Hayward returned to Britain last week, the company said.

A company spokesman was unable to say when Hayward would return or whether it remains BP's plan for Dudley to take full-time control of the effort only after the well is capped.

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