U.S. drilling moratorium to take bigger output bite

WASHINGTON Wed Jul 7, 2010 2:53pm EDT

WASHINGTON (Reuters) - The Obama administration's contested moratorium on deepwater drilling will take a larger portion out of U.S. oil production next year than previously thought, the government's energy forecasting agency said on Wednesday.

Oil production next year is expected to be cut by 82,000 barrels per day, or almost 30 million barrels total, due to delayed or canceled drilling caused by the moratorium, the Energy Information Administration said. That is 17 percent more from the 70,000 bpd in lost output the agency predicted just last month.

Monthly production losses could reach nearly 100,000 bpd by December 2011, the EIA said.

In response to the BP oil spill, the administration imposed a six-month moratorium on exploratory and development drilling in waters more than 500 feet deep. A federal judge lifted the ban last month, but administration lawyers will go to an appeals court on Thursday to argue it be reinstated.

The administration is also working on a new moratorium that could allow drilling in certain subsea fields. But it is uncertain when this will be announced.

Because of the legal uncertainties, analysts said oil exploration will be hampered for months to come.

As a result, the moratorium will end a recent pattern of yearly increases in U.S. oil production, as according to EIA data total output from both onshore and offshore next year will fall by 26,000 bpd to 5.37 million bpd.

The American Petroleum Institute, which lobbies on behalf of oil and gas companies is fighting a blanket moratorium.

It has recommended to Interior Secretary Ken Salazar that as long as oil companies meet the department's new safety regulations for shallow water drilling then companies should also be allowed to drill in deep waters.

The safety rules for exploratory and development wells, which were issued last month, require companies to certify they have working blowout preventers to avoid oil spills, they will conduct at least two tests of cement barriers in underwater wells and that they will follow new casing installation procedures.

"The government has imposed significant new requirements. If companies demonstrate compliance with these new requirements, then they should be permitted to begin operations across the board and maintain the thousands of job that are at stake," said Erik Milito, who oversees drilling issues for API.

(Additional reporting by Ayesha Rascoe; Editing by Sofina Mirza-Reid)

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