Company Challenging Offshore Drilling Moratorium Moved Overseas to Avoid U.S. Taxes

From Facing South, the online magazine of the Institute for Southern Studies.

 

The Obama administration this week issued a new moratorium on offshore drilling in the Gulf of Mexico after a federal appeals court rejected an earlier version.

But the new policy could face a challenge from a lawsuit filed last week by Ensco plc — a firm that recently moved its headquarters from Dallas to London in order to avoid U.S. taxes.

On Monday, the Interior Department issued a new suspension of deepwater drilling until November to provide time to implement safety reforms. The policy also requires operators to submit evidence they can respond effectively to any spills.

“More than eighty days into the BP oil spill, a pause on deepwater drilling is essential and appropriate to protect communities, coasts, and wildlife from the risks that deepwater drilling currently pose,” said Interior Secretary Ken Salazar. “I am basing my decision on evidence that grows every day of the industry’s inability in the deepwater to contain a catastrophic blowout, respond to an oil spill, and to operate safely.”

But Ensco’s lawsuit could present a challenge to the new policy. It claims that Salazar should have issued the new safety requirements through formal rule-making procedures, and it charges Interior with unreasonably delaying permit applications for deepwater as well as shallow water drilling.

While Ensco’s suit references the earlier moratorium rejected by the courts, the rule-making and permit sections could still proceed, the New Orleans Times-Picayune reports. In addition, Ensco could amend or refile its suit to reference the new moratorium.

A month after BP’s Deepwater Horizon rig exploded in the Gulf, killing 11 workers and unleashing an unprecedented gusher of oil, Ensco held a reception in London celebrating the opening of its new global headquarters there.

Last fall, the company — then still in Texas — announced it was moving its headquarters to the United Kingdom in part to cut its tax bill. Ensco’s move is part of a larger trend of U.S. energy service companies relocating overseas, the Wall Street Journal reports:

For smaller companies like Ensco, the exodus of larger rivals made paying U.S. tax rates a potentially greater burden in competing for business. The planned move would allow it to “potentially achieve a global effective tax rate comparable to that of some of Ensco’s global competitors.”

Among the other former U.S. oil industry firms that recently relocated overseas are Halliburton, Weatherford International, Noble Corp. and Transocean, the company that owned the disaster-stricken Deepwater Horizon rig.

While the oil services industry claims the U.S. taxes it at a rate as high as 34 to 38%, Ensco’s chief financial officer told analysts last October that its effective tax rate for the year was only about 18%, according to the WSJ.