U.S. govt loses bid to keep oil drilling ban

WASHINGTON/VENICE, Louisiana (Reuters) - The Obama administration lost another legal skirmish on Thursday when a judge refused to put on hold his decision lifting a ban on deepwater oil drilling imposed after the worst spill in U.S. history.

After striking down the moratorium on Tuesday, a federal judge in New Orleans rejected an administration request to allow the six-month ban to stand while the government appeals his decision.

Judge Martin Feldman issued a brief order denying the stay request, pointing to his previous ruling that criticized the ban as arbitrary, too far-reaching and not justified given the impact on thousands of oil industry workers and communities.

The government has appealed to the U.S. Court of Appeals for the Fifth Circuit and can ask it to stay Feldman's decision. It says it is also revising the ban to make it more flexible and possibly open some areas to drilling but has not said when it will issue a new moratorium.

Feldman's latest ruling was more unwelcome news for the administration, which has been on the defensive over what critics call a slow and ineffective response to the 66-day-old spill in the Gulf of Mexico.

The U.S. government imposed the moratorium after a well owned by BP Plc ruptured on April 20, unleashing millions of gallons of crude into the sea, one of the biggest environmental catastrophes ever to hit the United States.

SALAZAR DEFENDS BAN

But the ban, set by President Barack Obama while a commission investigates the causes of the April 20 disaster, has been condemned by some on the Gulf Coast, where the economy is closely tied to the energy industry.

"I think he's lost his mind. If they shut down the oil fields, I might as well shut down," said Joan Strohmeyer, who owns a hotel in Venice, Louisiana.

The two-month-old spill has shut down rich fishing grounds, threatened the Gulf Coast's tourism industry, tarred beaches and killed hundreds of turtles, birds and dozens of dolphins.

Interior Secretary Ken Salazar told lawmakers in Washington on Thursday the government was aware of the moratorium's impact on the Gulf Coast economy, but he said it was necessary "until we get to a level where we can provide a sense of safety to the American people that drilling can in fact continue."

Oil companies say the government has not proven the need for a blanket ban on deep sea drilling and warn it will lead to major layoffs. Judge Feldman agreed and in his ruling on Tuesday sharply rebuked the U.S. government.

BP SHARES HIT NEW LOW

The two-month-old spill has undermined investor confidence in BP, a staple of British pension funds, as estimated clean-up costs soar. The British energy giant has seen its shares lose almost half their value since the spill.

BP's U.S.-listed shares fell 3.54 percent to $28.61 in afternoon trading in New York, hitting a new year low. The company's stock closed down 2.47 percent in London.

Shareholders are worried about how much BP will ultimately have to pay for cleaning up the mess in the Gulf of Mexico. Under U.S. political pressure, it agreed last week to set up a $20 billion fund to pay damages to oil spill victims.

BP also faces more than 240 spill-related lawsuits, most filed on behalf of businesses, including commercial fishermen, shippers and resort operators, according to the Westlaw database. Westlaw is a unit of Thomson Reuters.

Most cases have been filed in the five U.S. states that ring the Gulf of Mexico -- Alabama, Florida, Louisiana, Mississippi and Texas.

BP said on Thursday its oil-capture systems at the leak collected or burnt off 16,830 barrels of oil on Wednesday, a 38 percent drop from its record rate of 27,100 on Tuesday after an underwater accident forced a 10-hour shutdown of one of the systems.

With the hurricane season having officially started on June 1, BP is keeping an eye on stormy weather, which could hamper its clean-up and containment efforts.

The U.S. National Hurricane Centre said a tropical wave over the western Caribbean Sea could develop into a tropical depression over the next couple of days as it moves towards the Gulf of Mexico.

Most weather models forecast it would move towards the southern Texas and the Mexico coasts. Earlier, some models had projected the wave would move towards the BP cleanup operation in the central U.S. Gulf Coast.

(Additional reporting by Tom Doggett and Ayesha Rascoe in Washington and Kristen Hays in Houston, writing by Ross Colvin; Editing by Alan Elsner)