A three-judge panel of the 5th U.S. Circuit Court of Appeals ruled soon after an afternoon hearing in a lawsuit filed by companies that oppose the drilling ban. The moratorium was struck down June 22 by U.S. District Judge Martin Feldman.
The Interior Department argued the moratorium was necessary while it studied deepwater drilling risks in the wake of the BP oil spill. Government lawyers asked the appeals court to let the temporary drilling ban stand until the 5th Circuit ruled on their appeal of the lower-court ruling.
A spokeswoman for the Interior Department did not immediately return a call seeking comment.
Justice Department lawyer Michael Gray argued Feldman abused his discretion when he overturned the moratorium, which halted the approval of any new permits for deepwater projects and suspended drilling on 33 exploratory wells.
Lawyers for several oilfield service companies that sued to block the moratorium, including Hornbeck Offshore Services, said the Obama administration has failed to show that the government would suffer "irreparable harm" if the drilling ban if lifted.
Two of the 5th Circuit judges seemed to disagree about who should be shown more deference: Feldman or Interior Secretary Ken Salazar, who imposed the moratorium.
"We give deference, as you should, to what that court has done," Judge Jerry E. Smith said of Feldman's ruling.
Judge James L. Dennis said Interior Secretary Ken Salazar "is entitled to a lot of deference" when the court evaluates whether the moratorium should be allowed to stand. Dennis partially dissented in the ruling, saying that he would have let the moratorium remain in place.
"Why are we in a position to second-guess the secretary on whether or not there's a threat of irreparable harm?" the judge asked at the hearing.
Dennis said he was satisfied that Salazar's decision wasn't arbitrary or irrational, but he wanted to hear more from the Interior Department about why a six-month moratorium was needed.
The 5th Circuit's Thursday ruling won't be the final word. Judge W. Eugene Davis said the three-judge panel is likely to hold a hearing on the merits of the appeal in late August or early September.
After Feldman overturned the moratorium on June 22, Salazar announced he would issued a new, refined moratorium that reflects offshore conditions. Justice Department lawyer Michael Gray told the judges that he didn't know when Salazar would issue the new moratorium.
"The secretary is looking at a new decision based on new information," Gray said. "It is not tied to this court's decision."
Louisiana Gov. Bobby Jindal, a vocal critic of the moratorium, observed the hearing from the courtroom gallery. Outside the courthouse, Jindal said a second moratorium would further chill plans for drilling in the Gulf and lead to thousands of loss jobs.
"The federal government not being able to do its job is not a reason for thousands of Louisianians to lose their jobs," Jindal said.
John Cooney, a lawyer for the companies, said the drilling ban is a "one-size-fits-all device that keeps everybody out of the market."
"The industry leader is treated the same way as the industry laggard," Cooney said.
Catherine Wannamaker, a lawyer for several environmental groups that support the moratorium, said another spill would compound the devastation already suffered by the Gulf Coast fishing and tourism industries.
"The harm is just too great to let this go on without a full safety review," she said.
The moratorium has.
In Louisiana, oil is a $70 billion business, CBS News Correspondent Mark Strassmann reported. If the moratorium becomes permanent, it could cost the state more than the spill itself.