Obama seeks new drill ban as oil still spews

The White House is set to step up its legal battle to keep deepwater drilling on hold in the Gulf of Mexico in the aftermath of the worst oil spill in U.S. history.

A U.S. judge on Tuesday overturned a six-month ban on drilling in water deeper than 500 feet after an appeal by drillers who stand to lose business.

Interior Secretary Ken Salazar will offer testimony later on Wednesday on why the government will appeal that ruling and seek to renew the ban.

The ban was imposed after a well operated by British oil company BP exploded on April 20 and began spewing crude into the sea.

"We see clear evidence every day, as oil spills from BP's well, of the need for a pause on deepwater drilling," Salazar said in a statement.

Salazar will testify to a Senate subcommittee at 11:00 a.m. EDT on Wednesday, along with Michael Bromwich, the new head of the Bureau of Ocean Energy, which under its previous name the Minerals and Management Service was blamed for failing to police the energy industry adequately.

But President Barack Obama, also dealing with his top general in Afghanistan over inflammatory comments in a magazine article, postponed Wednesday's energy policy meeting with senators which would have covered the process for passing energy and climate laws this year.

The two-month old disaster -- which threatens fishing and tourist industries in the Gulf as well as fragile ecosystems -- has shattered investor confidence in BP Plc, the British-based energy giant blamed squarely for the spill.

The price of BP's stock, a stalwart of investment portfolios in Britain and the United States, has been slashed in half since the start of the crisis. On June 17, the company halted dividend payments, pledged $20 billion to a special fund to pay for the clean-up, and said it would step up asset sales to $10 billion-worth over the next 12 months.

BP shares fell to 13-year lows in London on Tuesday. On Wednesday at 1230 GMT (8:30 a.m. EDT) the company's shares were up 1.5 percent at 339.3 pence.

Analysts fear the impact of any long-running drilling ban, not only for the drilling companies, but for BP itself.

"From BP's point of view it will hope that the White House is unsuccessful," said Evolution Securities analysts in a note on Wednesday. "At present it is facing potential liability claims from the 38,000 - 50,000 jobs related to the oil industry which are currently on standby."

The entire sector is also under scrutiny "given the new politicization of the oil industry," said Michael Cuggino, chief executive of Pacific Heights Asset Management in San Francisco, which holds BP shares.

Top of Obama's Agenda

Seeking to restore confidence and rehabilitate BP's image, Managing Director Bob Dudley will take over the day-to-day response to the spill from Chief Executive Tony Hayward, who was criticized for a series of gaffes.

"Having grown up in Mississippi, Bob has a deep appreciation and affinity for the Gulf Coast, and believes deeply in BP's commitment to restore the region," Hayward said in a statement on Wednesday.

The crisis has thrust its way to the top of Obama's crowded domestic agenda and he has evoked it to rally support for his efforts to craft a clean energy and climate change policy.

A new Reuters/Ipsos poll found most Americans still support offshore drilling despite the spill.

The high-stakes legal battle over deepwater drilling began after the BP well ruptured, spewing millions of gallons (liters) of crude into the Gulf of Mexico and killing 11 workers.

Obama imposed the ban while officials checked that other wells were operating safely. But in granting a request by more than a dozen oil services companies for the moratorium to be overturned, the judge challenged its "immense scope."

Figures from the International Energy Agency on Wednesday confirmed its view that by 2015, up to 800,000 barrels of crude or about 0.8 percent of projected global output could be affected by widespread delays, although it said the figure could also be as low as 100,000 barrels.

Other skirmishes are taking place over the spill, pitting local against federal officials.

Forty miles off the Louisiana coast, on the north end of the Chandeleur Islands, a sand dredge sat idled late on Tuesday after the U.S. Fish and Wildlife Service ordered operators to stop building new sand barrier islands.

The agency wants local officials to put the dredge farther out but faces complaints that this will waste time -- a common criticism about the federal response to the effort.

"Adaptive management and common sense are critical to the success of this project if we are going to prevail in protecting our precious marsh," Billy Nungesser, president of Plaquemines Parish, said in a letter to Obama complaining about the delay.

Hurricane Season

BP continues to siphon more oil from the blown-out deep-sea well. It said it collected or burned off 23,290 barrels (978,180 gallons/3.7 million litres) of crude on Sunday, still well below the 35,000 to 60,000 barrels a day that government scientists estimate are gushing from the well.

BP should have a larger containment cap in place in the coming days that will capture more crude, but the hurricane season is approaching, which could disrupt activity.

The company is weighing with the U.S. government new ways of collecting oil in the event of hurricane disruption.

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.

[Source: By Braden Reddall and Ernest Scheyder, Reuters, San Francisco and Chandeleur Islands, 23Jun10]

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