Oil Companies in Limbo as Judge Halts Drilling Ban

Oil companies and contractors that work in the deep waters of the Gulf of Mexico are likely to wait to restart drilling operations until there’s more clarity on how a federal judge’s decision to lift a U.S. ban will play out.

U.S. District Judge Martin Feldman today granted a preliminary injunction, halting a six-month moratorium that President Barack Obama put in place May 27 to cease issuing new deep-water drilling permits. The president also called for work to be stopped on 33 exploration wells.

The moratorium followed an April 20 explosion on a rig Transocean Ltd. leased to BP Plc. That accident killed 11 workers and created the worst oil spill in U.S. history. The U.S. said it would appeal today’s decision.

“No one’s going to go back to work,” said Brian Uhlmer, an analyst at Pritchard Capital Partners in Houston, citing new federal standards that allow the government to recall drilling permits and require new filings. “You can have a non-moratorium moratorium.”

Feldman in a separate order today “immediately prohibited” the U.S. from enforcing the drilling moratorium, finding the offshore companies would otherwise incur “irreparable harm.”

Energy companies won’t resume operations until they have “more certainty” on drilling and what the federal government plans to do, Louisiana Governor Bobby Jindal said today during a press conference.

“You can’t just turn this switch on and off,” Jindal said. “Once these rigs leave the Gulf, they may be gone for years.”

‘Small Victory’

The American Petroleum Institute said in a statement that it welcomes Feldman’s decision. “With this ruling, our industry and its people can get back to work to provide Americans with the energy they need, and do it safely and without harming the environment,” the industry trade group said.

“It’s a small victory for the industry, but clearly the administration has dug in its heels and is going to try to keep this moratorium, come hell or high water,” said Jud Bailey, an analyst at Jefferies & Co. in Houston. “Investors, as it relates to the drillers, are for the most part staying away. There’s too much uncertainty, too much headline risk.”

Even if operators don’t have to get re-permitted for previously approved drilling projects, Bailey said he doesn’t think many operators would immediately try to resume operations. Companies don’t want to incur the cost or potential wrath of the government, he said.

“You run the risk of this getting overturned by the appellate court,” Bailey said.

Markey Supports Appeal

U.S. Representative Edward Markey, a Democrat from Massachusetts, said in a statement today that he supports the Obama administration’s plan to appeal. The “judge’s decision flies in the face of mounting evidence that there are serious safety risks that must be examined with these 33 deep-water rigs before they start drilling again,” Markey said.

Spokesmen for companies with deep-water operations such as Chevron Corp. and Pride International Inc. either declined to comment on the judge’s decision or didn’t respond to requests for comment.

To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net; David Wethe in Houston at dwethe@bloomberg.net.