US government loses bid to keep oil drilling ban

The Obama administration lost a legal skirmish on Thursday when a judge refused to put on hold his decision lifting a ban on deepwater oil drilling imposed after the worst spill in US history.

After striking down the moratorium on Tuesday, a federal judge in New Orleans rejected a request to allow the six-month ban to stand while the government appeals his decision.

Judge Martin Feldman issued a brief order denying the stay request, pointing to his previous ruling that criticised the ban as arbitrary, far-reaching and unjustified given the impact on thousands of oil industry workers and communities.

The government has appealed to the US Court of Appeals for the Fifth Circuit and can ask it to stay Feldman's decision. It is also revising the ban to make it more flexible and possibly open some areas to drilling, but has not said when it will issue a new moratorium.

Feldman's latest ruling was more unwelcome news for the administration, which has been on the defensive over what critics call a slow and ineffective response to the 66-day-old spill in the Gulf of Mexico.

The government imposed the moratorium after a well owned by BP Plc ruptured on April 20, unleashing millions of gallons of crude into the sea, one of the biggest environmental catastrophes to hit the United States.

But the ban, set by president Barack Obama while a commission investigates the causes of the disaster, has been condemned by some on the Gulf Coast, where the economy is closely tied to the energy industry. 

"I think he's lost his mind. If they shut down the oil fields, I might as well shut down," said Joan Strohmeyer, who owns a hotel in Venice, Louisiana.

The spill has shut down rich fishing grounds, threatened the Gulf Coast''s tourism industry, tarred beaches and killed hundreds of turtles and birds and dozens of dolphins.

Interior secretary Ken Salazar told lawmakers in Washington the government was aware of the moratorium's impact on the Gulf Coast economy, but he said the ban was necessary "until we get to a level where we can provide a sense of safety to the American people that drilling can in fact continue."

Oil companies say the government has not proven the need for a blanket ban on deep sea drilling and warn it will lead to major layoffs. Judge Feldman agreed and in his ruling on Tuesday sharply rebuked the US government.

The spill has undermined investor confidence in BP, a staple of British pension funds, as estimated clean-up costs soar. The British energy giant has seen its shares lose almost half their value since the spill.

BP's US-listed shares closed down 3.13% at $28.74 in New York trading on Thursday, hitting a new year-low. The company's stock lost 2.47% in London.

Analysts said investors were reacting to news that the US government was reviewing the environmental impact of BP plans to drill in Alaska.

"Think about it. How many holes can you have in a bucket? There are just too many problems," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. 

Shareholders are also worried about how much BP will ultimately have to pay for cleaning up the mess in the Gulf of Mexico. Under US political pressure, it agreed last week to set up a $20 billion fund to pay damages to oil spill victims.

BP also faces more than 240 spill-related lawsuits, most filed on behalf of businesses, including commercial fishermen, shippers and resort operators, according to the Westlaw database. Westlaw is a unit of Thomson Reuters.

But at its current levels BP's share price is attracting some interest -- fund managers who focus on undervalued and unloved stocks have started buying BP shares.

BP is trying to rehabilitate its soiled image.

BP managing director Bob Dudley told NBC Nightly News on Thursday that it was trying to move quickly on its claims payouts to Gulf businesses and workers who have lost income or revenue because of the spill.

"As of yesterday we had written checks for $123 million ... We''re now going to start paying one to two months out in time to make sure that the businesses can be sustained. We want to move as fast as we can," he said.

BP said its oil-capture systems at the leak collected or burned off 16,830 barrels of oil on Wednesday, a 38% drop from Tuesday's record rate of 27,100, after an underwater accident forced a 10-hour shutdown. 

With the hurricane season having officially started on June 1, BP is keeping an eye on stormy weather, which could hamper its clean-up and containment efforts.

The US National Hurricane Center said a tropical wave over the western Caribbean Sea could develop into a tropical depression over the next couple of days as it moves toward the Gulf of Mexico.

Most weather models forecast it would move toward the southern Texas and Mexico coasts. Earlier, some models had projected the wave would move toward the BP clean-up operation in the central US Gulf Coast.