Obama to Drillers: No New Arctic Drilling

The Obama administration is expected to announce on Thursday a formal ban on drilling in the Arctic and Gulf of Mexico for a period of at least six month, in a particular blow to Royal Dutch Shell.
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(Obama offshore drilling ban story updated for Obama press conference)



) -- President Obama announced on Thursday a suspension of all applications for offshore oil drilling in the Arctic and the Gulf of Mexico through the remainder of the year.

President Obama's decision formalizes into a six-month ban what has been an informal moratorium on any new drilling announced by the Obama administration earlier in the


(BP) - Get Report

oil spill crisis.

President Obama used his early afternoon press conference on Thursday to hit home key administration points: the federal government has made the BP oil spill a priority from day one, recognized "the potential enormity" of the oil spill from day one, and will make sure the BP pays for every cent of the oil spill containment and cleanup, and in the end, the government does not have better technology than BP which would allow it to push BP aside in the oil spill cleanup effort.

President Obama did concede on some mistakes made, saying the government did not have an advanced response team ready for a worst-case scenario oil spill, but also said that there has been a historic complacency about worst-case scenarios.

The President was asked whether he regretted his decision to authorize an expansion of offshore drilling for the first time in decades, and Obama used the attack from the press as a chance to express his overarching energy policy -- that deep sea oil drilling with higher risk and higher costs to oil companies shows that the oil industry is in its "last days" and the U.S. needs to transition to a clean energy model, but that transition will require domestic oil production, and less reliance on foreign oil.

Obama also had a catch phrase for an infamous drilling catch phrase, telling the press, "I never said "Drill, Baby, Drill!'"

"The framework is right. Where I was wrong was belief that oil companies have their act together when it comes to worst-case scenarios," President Obama said. The President continued that his mistake was not based on "my blind acceptance" of oil company statements, but the fact that there has been deep sea drilling in the Gulf of Mexico for a long time without a record of accidents like this one.

Still, Obama conceded all it takes is one accident for all the assumptions to be proved incorrect. Before lifting the ban on drilling, the government need to be absolutely convinced that it has done a "thorough scrub of safety procedures" and has the confidence that even if an oil spill like the BP oil spill is a one in a million shot, the government has the technology and know-how to stop the oil leak within a matter of days.

The most immediate implication to the oil industry of the decision is to

Royal Dutch Shell


, which has been planning to begin a drilling project in the Arctic this summer, and had been working overtime to assure the federal government that it wouldn't be the next BP, once the oil spill crisis unfolded.

>>Oil Spill in Pictures: Gulf of Mexico Impact

New drilling permits will not be issued by the federal government until the cause of the BP oil spill is determined, and stricter safety and environmental rules are imposed on drillers.

Thursday was a critical day in BP's fight against the oil spill, as an announcement was expected from the embattled oil giant as to whether its "top kill" effort to contain the leaking oil has worked.

U.S. Coast Guard Rear Admiral, Thad Allen, told the

Los Angeles Times

on Thursday morning that the top kill had worked, and BP would next be moving to cement the leaking underwater well permanently shut.

Previously, the Coast Guard official had been more guarded in his optimism, saying late on Wednesday that the lack of bad news in the top kill effort was encouraging news, and that the top kill plan was proceeding according to plan.

There was no definitive word from BP or the government on Thursday afternoon.

The oil giant is running out of options to contain an oil spill that has already leaked up to 7 million gallons of oil in the Gulf of Mexico.

The Coast Guard Rear Admiral also delivered some distressing news amid his hopeful comments on the top kill, saying the new estimate for how much oil has been leaking into the Gulf of Mexico is between 12,000 to 25,000 barrels per day, well above the previous, heavily criticized estimate of only 5,000 barrels.

Shares of BP and


(RIG) - Get Report

were rallying on Thursday, with BP maintaining its gains at the end of trading, up 7% on Thursday. Transocean was up by 8% early in trading, but ended the day only up 2%.

The Interior Department is at work on a new set of rules to govern offshore drilling and is also planning to break up its much-criticized Minerals Management Service into two separate units, one overseeing drilling permits and the other in charge of drilling regulation.

There were also unconfirmed reports on Thursday morning that the head of the Minerals Management Service, Elizabeth Birnbaum, had been fired, as opposed to handing in her resignation.

President Obama was asked if the MMS head had been fired, and gave a logical reason for why he couldn't answer the question, but one that seemed less than convincing. "You are assuming it was a firing, and if it was a resignation she would have submitted a letter to Secretary Salazar, and I had a whole lot of others things going on this morning, and Salazar has been in testimony on the hill."

Nevertheless, the President said the buck stopped with him. "I take responsibility for MMS shortcomings, in case you are wondering in your reporting who is responsible. I take responsibility. My job is to make sure this is shut down."

>>BP Top Kill: Live Video Feed

-- Reported by Eric Rosenbaum in New York.


>>Oil Spill in Pictures: Gulf of Mexico Impact

>>BP's Top Kill Should Work, or Else...

>>Oil Spill Losers: BP Hits 52-Week Low

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