New oil drilling rules awaited from Washington

The U.S. Interior Department, one of the departments spearheading the response to the BP oil spill, could issue a revised offshore oil drilling moratorium for U.S. waters in the coming week.

A federal court last week lifted a six-month drilling ban imposed by the Obama administration after the worst offshore oil spill in U.S. history. The administration has appealed the court's ruling, but drilling companies filed papers on Friday opposing the administration's appeal.

The companies said the administration failed to show how it balanced competing interests when it imposed the drilling ban on all exploration and development below 500 feet.

The revised moratorium is expected to be more flexible and could be adjusted to allow drilling in certain subsea fields.

In another political development, bipartisan lawmakers on Friday sought tax breaks for mostly small business to help cushion the economic blow from the disaster, which has devastated Gulf fishing and tourist industries.

U.S. senators from Florida, Mississippi and other spill-hit states asked the leaders of the Senate's tax-writing finance committee to back tax relief aimed at boosting economies in states with thousands of workers displaced by the spill.

The Financial Times said on its website that BP investors expect to see a change in the company's leadership, possibly once the leak is capped, with both Chief Executive Tony Hayward and Chairman Carl-Henric Svanberg in jeopardy.

Without steps to steady the ship, BP could become a takeover target of companies like ExxonMobil, Royal Dutch Shell or PetroChina, the FT said, citing a source working on BP's strategy.

BP's cleanup operations, interrupted this week by choppy seas and gusty winds from Alex, were getting back to normal as the storm weakened and passed through the spill area off the coast of Louisiana, company spokesman Mark Proegler said.

Those operations included containment booming and flights to spray dispersant chemicals on the water's surface, he said.

Alex had pushed more crude onto beaches and marshes along the U.S. Gulf coast, hampering efforts to clean up the oil leaking from the BP's blown-out undersea well. BP said its oil-capture systems collected or burned off more than 25,000 barrels of oil on Thursday.

Robert Dudley, chief of BP's Gulf Coast restoration efforts, said high seas and winds had propelled the landward advance of the far-flung oil slick.

It has brought in oil, unfortunately, from the panhandle of Florida to Louisiana ... at a higher rate than it has been over the last few days, he said in a PBS online interview.

Retired Coast Guard Admiral Thad Allen, the government's point person for the spill response, said his team was ready to begin flights to assess storm damage to boom and check for oil -- particularly in Louisiana's marshland.

He said absorbent snare boom will initially be used to soak up oil where waves from the hurricane pushed crude inland.

In a move to help wildlife, environmental groups, BP and the U.S. Coast Guard reached tentative agreement on Friday on measures to prevent sea turtles from being incinerated alive in controlled burns of the spilled ill, one of the containment methods being deployed.

Under the accord, the parties agreed to a plan allowing biologists or other trained wildlife observers to accompany oil-incineration vessels at sea to remove as many turtles as possible from designated areas before burning starts.

BP's cleanup operations, involving nearly 43,000 personnel and more than 7,000 vessels, were halted on Tuesday as weather conditions worsened with the approach of Alex. Allen said seas were still rough but skimming operations should resume soon.

The National Hurricane Center is monitoring a new weak low pressure system over the northeast Gulf of Mexico that is drifting west toward the BP spill area. Even though the center only gave the system a low chance of developing into a tropical depression, its location could further hamper cleanup efforts and scatter more oil after Alex churned up Gulf waters.

Meteorologists have warned that this hurricane season, which began on June 1, is likely to be one of the most intense in years, with as many as five major tropical storms expected.

DRILL BAN CONCERNS

The Obama administration's drill ban targeted exploratory and development wells in more than 500 feet of water to give a special commission time to investigate the spill and propose safety regulations.

But oil companies and many U.S. lawmakers said the moratorium would force U.S. oil rig operators to take their business to other countries, making the United States more reliant on oil imports and at a higher risk for oil spills from the big tankers bringing in the crude.

The Gulf of Mexico holds the most promising untapped crude oil reserves in the United States, and a string of major discoveries over the past decade by companies including BP have rejuvenated investment in deeper and more difficult waters.

The head of oil major Total warned of tougher safety rules that could push up crude prices and said it was necessary to drill in deep-water fields to meet global demand.

Our policy is clearly toward zero risk, The Wall Street Journal quoted Total CEO Christophe de Margerie as saying on Friday. All this means ... potential additional costs, he said, warning oil prices could reach $90 a barrel by year end.

(Additional reporting by Tom Doggett, Jeremy Pelofsky and Kim Dixon in Washington, Anna Driver in Houston and James Regan in Paris; writing by Deborah Charles; Editing by Ed Stoddard and Philip Barbara)