Obama Administration Appeals Deepwater-Drilling Ruling

The Obama administration late Wednesday appealed a decision by a U.S. federal judge, who a day earlier had invalidated a six-month ban on drilling new deepwater wells in the Gulf of Mexico enacted after a catastrophic BP PLC (BP) oil spill.

U.S. Interior Secretary Ken Salazar and the Department of the Interior's newly-created Bureau of Ocean Energy Management filed a notice of appeal to the Fifth U.S. Circuit Court of Appeals.

Salazar and the bureau separately asked Judge Martin Feldman to put on hold his Tuesday order, which set aside the six-month moratorium.

Salazar "will undertake a process to issue a new suspension decision that reflects information learned since the original suspension decision and provides further explanation of the need for a pause in deepwater drilling operations," according to a document supporting the request for a stay. "A stay pending appeal would maintain the legal status quo prior to the Court's issuance of the preliminary injunction while the Secretary undertakes this process."

Separately, Judge Feldman faced a challenge from a group of environmentalists, who asked the court to release information sufficient to determine if the judge "has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding."

Judge Feldman in past years has been an active investor in the energy sector through an extensive investment portfolio that included stock holdings in several oil and gas companies, many based in Houston.

Earlier Wednesday, Salazar had told a U.S. Senate panel that he was considering issuing a new, scaled-back moratorium in the "weeks and months ahead." He said that "it might be that there are demarcations that can be made based on reservoirs where we actually do know the pressures and the risks associated with that versus those reservoirs that are exploratory in nature."

The moratorium has been in place since late May, when President Barack Obama announced that he wanted a ban on new exploratory wells while a presidential commission studied how to ensure that offshore drilling could be made safer. The ruling had the effect of suspending activity at all 33 rigs developing exploratory wells in deep water. It also posed new hardships for hundreds of oil-services companies, already hurt by an economic recession, that supply the steel tubing, engineering services, drilling crews and marine-supply boats critical to offshore exploration.

In the court filing, the Interior chief also said that Hornbeck Offshore Services (HOS) and other oil-services companies that had challenged the moratorium had failed to demonstrate that the Obama administration's "exercise of their broad discretion" to protect the environment and human health and safety was "arbitrary and capricious."

He said that suspending drilling was intended to prevent the risk of more loss of life and "long-term" environmental damage. The risk to Hornbeck and other plaintiffs was of "short-term economic harm," according to the court filing.

According to the filing, "the temporary suspension of operational drilling will allow the Department to ensure that operators install additional safety equipment before more deepwater drilling can take place, and to implement new safety measures and regulations through the use of various regulatory mechanisms."

Judge Feldman's most recent financial disclosure form for 2009 wasn't immediately available. But in 2008 financial disclosures the judge indicated that he held shares in Transocean Ltd. (RIG), the operator of the Deepwater Horizon oil rig at the center of the current gulf disaster. Feldman's chambers haven't responded to a request for a copy of the 2009 disclosure form or for comment on his participation in the case.

Federal judges are required to step aside from cases that present financial conflicts. They are also required to fill out annual disclosure forms that are distributed to the public by the Administrative Office of the U.S. Courts following a written request.

-By Siobhan Hughes and Brent Kendall, Dow Jones Newswires; 202-862-6654; siobhan.hughes@dowjones.com

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