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U.S. District Judge Grants Preliminary Injunction Against the General Moratorium

|Includes: HOS, Transocean Ltd. (RIG)

 Today, in the case of Hornbeck Offshore Services, L.L.C et al. versus Kenneth Lee Salazar et al. Martin L. Feldman, a United States District Judge, granted a preliminary injunction against the general moratorium on deepwater drilling for oil in the Gulf of Mexico.  According to Feldman's ruling, the Administrative Procedure Act allows an agency action to be overruled if it is "arbitrary, capricious, an abuse of discretion, or not otherwise in accordance with law."  The ruling states that the current six-month federal moratorium was arbitrary and capricious.  It goes on to state that the report issued by the Department of Interior regarding the Deepwater Horizon incident:

lacks any analysis of the asserted fear of threat of irreparable injury or safety hazards posed by the thirty-three permitted rigs also reached by the moratorium.  It is incident-specific and driven: Deepwater Horizon and BP only. None others.

Furthermore, the U.S. Department of the Interior's report appeared to define deepwater as drilling beyond the 1000 feet, but the moratorium defined deepwater as more than 500 feet - although no reference is made to the 500 feet figure in the report.  The ruling goes on to mention tests and studies that were performed on deepwater rig equipment that showed some rates of failure.  Yet, the ruling asks:

If some drilling equipment parts are flawed, is it rational to say all are? Are all airplanes a danger because one was?  All oil tankers like Exxon Valdez? All trains? All mines? That sort of thinking seems heavy-handed, and rather overbearing.

Moreover, the ruling claims:

the Secretary's determination that a six-month moratorium on issuance of new permits and on drilling by the thirty-three rigs is necessary does not seem to be fact-specific and refuses to take into measure the safety records of those others in the Gulf.  There is no evidence presented indicating that the Secretary balanced the concern for environmental safety with the policy of making leases available for development.  There is no suggestion that the Secretary considered any alternatives...

We believe this is a small step forward for the offshore drillers in the Gulf of Mexico.  The Obama Administration will appeal this ruling and continue to fight to keep the moratorium in effect.  Yet, the use of checks and balances have revealed that this blanket moratorium may not last longer than the six-months some analysts have assumed.  It is much too early for us to form a confident opinion on this matter due to the uncertainty that continues to surround the fallout and the political situation of the Deepwater Horizon incident.  Logic appears to indicate that drilling will have to resume in the near future, but when politics are greatly involved in a situation logic does not always prevail. For those who wish to read the 22-page ruling in its entirety it can be accessed here. This month we've produced the following pieces dealing with Transocean and offshore drilling: An Analysis of Transocean's Risk of Default, Is There an Overreaction in Offshore Drilling Companies?, and Analysis of Transocean and its Backlog.

Disclosure: Long RIG