On October 12th, the Obama Administration rescinded its controversial moratorium on deepwater drilling. Driven by public opinion and litigation reverses, the Secretary of the Interior replaced that blanket prohibition with a new regulatory regime, which establishes more stringent safety requirements to govern future drilling of offshore oil and gas wells in response to the lessons learned from the Deepwater Horizon disaster.
On June 22nd, the Administration's original deepwater moratorium was invalidated by a federal court in New Orleans, and the Fifth Circuit quickly denied the government's appeal. (The author represented the successful plaintiffs). On July 12th, the Secretary cancelled the first moratorium and issued a second moratorium that was a mirror image of the first, but contained an extensive, after-the-fact justification for the original action. The government also moved to dismiss the pending court case as moot, arguing that the plaintiffs must abandon the lawsuit in which they had gained relief and file a new action to challenge the carbon copy moratorium.
These tactics were perceived as abusive, and public opinion moved sharply against the Administration. Indeed, the Co-Chairman of the President's National Commission on the BP Deepwater Horizon Oil Spill objected to the new moratorium and commissioned a consultant's report that urged the President to rescind the categorical prohibition. Despite its maneuvering in court, the Administration lost the battle of ideas. Before the House of Representatives adjourned in August, it passed a bill to terminate the moratorium.
In announcing the second moratorium, the Secretary had stated that it would be lifted only after he obtained better information about the Deepwater Horizon explosion, an improved industry-wide oil spill response plan had been created and resources became available to clean-up a second large incident. By mid-October, the runaway well had been capped, and the major oil companies had made commitments for major enhancements in the nation's response capacity. These developments allowed the Administration to climb in from the limb on which it found itself. The Secretary rescinded the second moratorium and issued an emergency Drilling Safety Rule, which established new criteria to determine, on a rig-by-rig basis, whether an individual driller could resume operations and provided a process by which companies could seek permission to begin work.
The Administration hopes these steps will put an end to its first great regulatory embarrassment. To date, the initiative has had mixed results. On October 19th, the district court invalidated Interior's order that had blocked issuance of new shallow water drilling permits for four months, on the ground that the agency had not followed mandatory rulemaking procedures. The drilling industry has expressed concern that Interior will apply the Drilling Safety Rule to impose a de facto moratorium on both deepwater and shallow water drilling, despite the abolition of the de jure moratorium. The Congressional delegations of the Gulf States have actively supported the industry's position. In particular, Senator Landrieu of Louisiana has placed a hold on the confirmation of the Administration's new budget director to emphasize her concern that Interior implement the new rule in an objective manner.
While many policy issues concerning offshore drilling remain unresolved, the principal beneficiaries of this regulatory clash are clear - the large banks that have mishandled paperwork on hundreds of thousands of home foreclosures. Stung by its experience with the drilling moratorium, the Administration quickly rejected any suggestion that a moratorium on foreclosures should be instituted until the document problems are resolved.
John F. Cooney is a partner in the Washington, D.C., office of Venable.