June 21, 2010 / 4:53 PM / 7 years ago

Judge hears first challenge to Obama drilling ban

4 Min Read

* Opening statements in oil industry suit in New Orleans

* Offshore firms say drilling moratorium unjustified

* Louisiana governor sides with offshore operators

By Mary Rickard

NEW ORLEANS, June 21 (Reuters) - A U.S. judge on Monday was hearing opening statements in an oil industry lawsuit challenging the Obama administration's decision to place a six-month moratorium on deepwater drilling in the Gulf of Mexico in the wake of the worst oil spill in U.S. history.

The lawsuit -- originally filed by Louisiana-based Hornbeck Offshore Services LLC (HOS.N) and joined by more than a dozen companies involved in offshore drilling operations -- is the first legal action seeking to reverse the drilling ban imposed by the U.S. Department of Interior.

In its legal complaint, Hornbeck says the moratorium is "arbitrary and capricious" and will result in job losses that could decimate the labor force needed to service offshore oil platforms.

The moratorium, imposed on May 28, has spurred the shutdown of 33 deepwater drilling rigs. The Obama administration says the moratorium is needed to ensure safety after BP Plc's (BP.L) (BP.N) Gulf of Mexico oil spill.

Judge Martin Feldman was hearing opening statements in the case in U.S. District Court, Eastern District of Louisiana, in New Orleans.

Deputy Interior Secretary David Hayes told the court in a written brief last week that the ban was lawful and was needed "to ensure that no further drilling accidents occur pending review and implementation of safety protocols and procedure."

The ban followed the explosion at a BP oil well drilling site in the Gulf of Mexico on April 20 that killed 11 workers and unleashed a gushing leak of oil.

'the Public Interest'

"The short-term economic harm asserted by plaintiffs fails to meet their burden of demonstrating irreparable harm," Hayes said. "In contrast, the public interest is overwhelmingly served by the limited six-month suspensions."

Louisiana Gov. Bobby Jindal has sided with the offshore operators in the case. Environmental groups have joined the Interior Department in defending the ban in court.

In a filing, Jindal warns that the moratorium could cripple the offshore industry, which contributes about $3 billion a year to his state's economy.

The moratorium will turn "an environmental disaster into an economic catastrophe," the state of Louisiana said in its filing. "Every day that the moratorium is in effect costs the state untold millions of dollars."

The moratorium could also worsen the state's current budgetary crunch -- about 32 percent of revenues from energy production in its waters go to the state.

The oil and gas industry is Louisiana's biggest economic engine and accounts for about 16 percent of the state's gross domestic product, vastly overshadowing fishing (1 percent) and tourism (4 percent), according to the Tulane University Energy Institute.

The case is Hornbeck Offshore Services LLC v. Kenneth Salazar et al in U.S. District Court for the Eastern District of Louisiana, No. 10-cv-1663.

Additional reporting by Jeremy Pelofsky in Washington; writing by Chris Baltimore; editing by Mary Milliken and Will Dunham

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