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Judge Rules Against Obama Drilling Ban

A federal judge rules against the Obama administration and its moratorium on offshore drilling -- and the administration immediately says it will appeal.

(Judge reversal of drilling ban story updated for White House comment on appeal, details from Judge Feldman written opinion)

NEW YORK (

TheStreet

) -- A New Orleans federal judge has lifted the six-month moratorium on deepwater drilling, rejecting the Obama administration's case that the

BP

(BP) - Get Report

oil spill was a game-changer that forced it to put the moratorium in place due to risks of offshore oil exploration.

U.S. District Judge Martin Feldman sided with the oil company, Hornbeck Offshore Services, that brought the case against the Obama administration and Interior Department Secretary Ken Salazar. Judge Feldman was appointed to the federal bench by President Ronald Reagan in 1983.

President Obama temporarily halted all drilling in waters deeper than 500 feet on May 27 until such time as the government could learn the causes of the BP oil spill.

There are several potential ramifications for BP as a result of the court decision. For one, claims by Interior Secretary Salazar that BP would be on the hook for paying claims to oil and gas workers left without work as a result of the moratorium may now not be among the unquantifiable liabilities facing BP. On the day Interior Secretary Salazar made that claim, BP suffered a 15% decline, and

Anadarko Petroleum

(APC) - Get Report

was down more than 18%.

At a larger level, all of the offshore drilling stocks have been hammered given the uncertainty about deep-water drilling -- many expected the federal ban could last much longer than six months.

The offshore drilling stocks, including

Transocean

(RIG) - Get Report

, spiked from earlier lows on the judge's decision, but the spike was short-lived for many of the stocks.

The White House spokesman Robert Gibbs said the government would appeal the decision.

BP and Anadarko were still trading down on Tuesday afternoon.

Arguments presented to Judge Feldman included: the moratorium illegally sidesteps a required industry comment period, and that regulators failed to note that deepwater rigs had passed regulatory re-inspection after the Deepwater Horizon explosion.

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Judge Feldman said in his decision, "An invalid agency decision to suspend drilling of wells in depths of over 500 feet simply cannot justify the immeasurable effect on the plaintiffs, the local economy, the Gulf region, and the critical present-day aspect of the availability of domestic energy in this country."

White House spokesman Robert Gibbs countered that, "We will immediately appeal to the Fifth Circuit. The president strongly believes as the Department of Interior and Department of Justice argued yesterday, that continuing to drill at these depths without knowing what happened does not make any sense, and puts the safety of those involved, potentially puts the safety of those on the rigs and the environment in the Gulf at a danger that the president does not believe we can afford right now."

However, Judge Feldman said that he believes any attempt to appeal the decision would prove the "arbitrary and capricious" nature of the federal government's illegal ban on drilling.

The Louisiana attorney general also told the court that federal regulators failed to consult with state officials about the impact of the drilling ban.

Louisiana Governor Bobby Jindal had asked the same court on June 20, in a brief supporting the suit brought against the U.S. government, to lift the ban in 30 days after the judge had the chance to impose stricter drilling safety guidelines in a compromise request that would let 33 deep-water rigs return to work. Jindal's proposal requires regulators to be stationed on each drilling platform.

Jindal's proposed compromise would let 33 deepwater rigs idled by the moratorium return to work within a month after their well-design plans were reapproved. His proposal also requires the rigs' blowout prevention and other safety equipment to be re-certified by a regulator stationed on each platform.

The decision from the District Court judge was blunt in its attacks on the federal rationale and process used to come to a ban on offshore drilling, and in the judge's assertion that any appeal by the federal government would be fruitless.

Judge Feldman noted in his decision that the Supreme Court has explained an agency rule as being arbitrary and capricious "if the agency has relied on factors whichCongress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise."

"That rationale resonates in this dispute," Judge Feldman wrote in his decision.

Judge Feldman also argued that the federal moratorium, based on a report prepared by the Interior Department on offshore drilling risks, was an excessive reaction to the BP oil spill, and that the court was "unable to divine or fathom a relationship between the findings and the immense scope of the moratorium."

Judge Feldman went further, writing in his decision of the federal report and the claims made that deep-water drilling posed enormous risks, writing that the report "patently lacks any analysis of the asserted fear of threat of irreparable injury or safety hazards posed by the thirty-three permitted rigs also reached by the moratorium. It is incident specific and driven: Deepwater Horizon and BP only."

-- Reported by Eric Rosenbaum in New York.

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