Texas Tries Saving Offshore Drilling From Feds (BP, APA, XOM, CVX, COP, RDS-A)

The governor of Texas and the state’s Land Commissioner have filed suit in federal court in Houston that would block the second attempt by the federal government to impose a six-month ban on deepwater offshore drilling. The first ban, imposed in May following the explosion in the Gulf of Mexico of a well operated by BP plc (NYSE: BP), was lifted in late June by a federal judge in Louisiana who said that the moratorium was punitive and would cause irreparable harm to businesses. The ban affects 33 existing rigs and any new drilling projects.

The  lawsuit alleges that the federal government was required by law to consult with the states before imposing a ban, something that the Department of the Interior failed to do. The state’s attorney general noted, “Under federal law, affected states are guaranteed the right to participate in offshore drilling-related policy decisions, but the Obama administration did not bother to communicate, coordinate or cooperate with Texas.”

The state of Texas will suffer an estimated loss of $622 million in gross domestic product if the six-month ban is allowed to stand, and could lose as much as $22 million in tax revenue.

Since the ban was first imposed the Interior Department has approved two of nine applications to drill shallow-water wells. The approved wells are both being drilled to extract natural gas in less than 500 feet of water. Apache Corp. (NYSE: APA) and privately owned Rooster Petroleum have received the permits to drill.

An Interior Department spokesperson told the Houston Chronicle that while she couldn’t comment on the suit, the BP spill demonstrated that better regulations and more capability to deal with deepwater blow-outs were needed before drilling should restart.  She also noted that too few assets were available handle a new spill because every piece of equipment was committed to the Macondo leak.

A group of oil companies including Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips Corp. (NYSE: COP), and Royal Dutch Shell plc (NYSE:RDS-A) have committed up to $250 million each to establish and deploy a rapid-response system that would contain and capture the oil in the event of another deepwater well blow-out in the Gulf. The group hopes to persuade the federal government to lift its moratorium on deepwater drilling sooner rather than later.

The state of Texas decided to apply even more pressure on the Obama administration by filing this new lawsuit. Texas does not want to wait for the federal government to approve new regulations on deepwater drilling.  Guess which state the headquarters of hundreds of oil companies happens to be.  Texas.  The state wants the jobs and the tax revenue back now. Pretty hard to argue with that.

Paul Ausick