UPDATE:Interior Department Issues New Deepwater-Drilling Moratorium

(Updates with reaction; more details on ban.) By Siobhan Hughes and Stephen Power WASHINGTON (Dow Jones)--The Obama administration on Monday issued a new moratorium on most deepwater-drilling activities, trying again with a policy that has already been invalidated by federal courts and dealing a blow to companies that had hoped at least some activity could resume in the Gulf of Mexico. The U.S. Interior Department said in a statement that while the new moratorium is similar to the initial deepwater-drilling ban, the administration said that its latest decision reflects new evidence regarding safety concerns, shortcomings in industry equipment to control blowouts, and spill-response capabilities that are strained by the BP PLC (BP, BP.LN) oil spill. "Much work remains to be done to develop effective containment and response options," Interior Secretary Ken Salazar said in a memorandum. The new ban, which is intended to last until Nov. 30, also establishes a process through which Interior will gather new information from the public that could "provide the basis for identifying conditions for resuming certain deepwater drilling activities." It also takes a new approach; instead of banning drilling in waters of 500 feet or more, drilling is now suspended at any wells using subsea blowout preventers or surface blowout preventers on a floating facility. "If anything, we would suggest that the new moratorium could be more restrictive, because some floating rigs occasionally work in shallow depths," said Kevin Book, a managing director at ClearView Energy Partners LLC, and his partners, in a report. He cited Diamond Offshore Drilling Inc's (DO) Ocean Saratoga drilling rig, which he said was operating in 430 feet of water when the first moratorium was put in place in response to the explosion of the Deepwater Horizon. Lawmakers from Florida and California praised the new moratorium. "Until we know what happened with the Deepwater Horizon, and we'll know very soon, it makes sense not to put Gulf Coast residents and the economies there at further risk," said Sen. Bill Nelson (D, Fla.). But Sen. Mary Landrieu (D., La.) said the administration's order still leaves oil and gas companies without "the certainty they need to move forward with future plans" and predicted the moratorium will "force thousands of Louisianans into the unemployment line." Testifying before a presidential commission in New Orleans that is investigating the cause of the Gulf spill, she urged the panel to recommend the "immediate termination of a prolonged and arbitrary ban" on offshore drilling. The initial moratorium, which was announced on May 27, was intended to be in place for six months to give a presidential commission time to investigate the causes of a blowout of a BP well in the Gulf of Mexico. But a federal judge threw out the moratorium last month, saying it was arbitrary, and the Fifth Circuit Court of Appeals in New Orleans declined to suspend the lower court's order. The Fifth Circuit is expected to hear the administration's appeal of the lower court ruling by the end of August. The new moratorium sets up the possibility of a new legal battle between the industry and the Obama administration. Hornbeck Offshore Services Inc. (HOS), which had spearheaded the initial legal challenge, did not return a phone call. Companies involved in shallow-water drilling say that the new moratorium also doesn't remove uncertainty about whether the Obama administration will speed up approval of permits to drill new wells in the shallow waters. "We need the Department of Interior to put their actions where they have their words, where if there's permissible drilling activity, permit it," said Jim Noe, the general counsel of Hercules Offshore Inc. (HERO). The Interior chief, Salazar, said in the memo that he had considered other options, including adopting industry recommendations to allow the resumption of operations that drillers characterized as low-risk. But he said that such activities, such as drilling development wells to known reservoirs, "still pose an unacceptable level of risk at this time." The oil industry complained that the new ban would cost jobs. "It is unnecessary and shortsighted to shut down a major part of the nation's energy lifeline while working to enhance offshore safety," said Jack Gerard, the president of the American Petroleum Institute, which represents oil and gas companies, in a statement. "The new moratorium threatens enormous harm to the nation and to the Gulf region. It places the jobs of tens of thousands of workers in serious and immediate jeopardy and promises a substantial reduction in domestic energy production. No certain and expeditious path forward has been established for a resumption of drilling." -By Siobhan Hughes, Dow Jones Newswires; (202) 862-6654; siobhan.hughes@dowjones.com (END) Dow Jones Newswires July 12, 2010 18:02 ET (22:02 GMT)