* Would be second of Obama's energy team to depart
* Known for signature bolo tie and cowboy hat
* "Fracking" regulations among issues facing next chief
By Ayesha Rascoe
WASHINGTON, Jan 16 (Reuters) - U.S. Interior Secretary Ken Salazar, who helped lead the government's response to the largest offshore oil spill in U.S. history, said on Wednesday he will leave his post by the end of March to return to his Colorado ranch.
The former U.S. senator came to office pledging to clean up the "mess" at the Interior Department, but it was the massive 2010 BP oil spill in the Gulf of Mexico that ultimately spurred the dramatic overhaul of the nation's offshore drilling regulator.
Salazar's departure comes as President Barack Obama's cabinet undergoes the typical make-over for the second term, and will be part of an opportunity to remake the entire energy team.
Environmental Protection Agency head Lisa Jackson has announced she will not be staying on, and Energy Secretary Steven Chu is widely tipped to leave within weeks.
A surge in shale oil and gas development has transformed the country's energy outlook, and Obama's next energy officials will try to help manage the new bounty.
Salazar's replacement will lead the department's implementation of controversial rules governing the use of hydraulic fracturing, or "fracking," on public lands, oversee the push to drill in the Arctic and guide the permitting of renewable energy on federal land.
Obama said in a statement that Salazar played an integral role in his administration's "successful efforts to expand responsible development of our nation's domestic energy resources," and that he worked to promote renewable energy and increase oil and gas output on public lands.
Salazar is the second Hispanic cabinet member to leave the administration, following last week's resignation by Labor Secretary Hilda Solis, which could renew criticism about a lack of diversity on Obama's developing second-term team.
A successor to Salazar at the Interior Department, which manages hundreds of millions of acres of land including national parks, will likely come from a state in the West, where most federally-owned lands are located.
Potential candidates for the Interior post include outgoing Washington Governor Christine Gregoire, former New Mexico Senator Jeff Bingaman, who was chairman of the Senate energy committee, and Bill Ritter, former governor of Colorado. All three have also been talked about as in the running for the EPA or the Department of Energy.
Another possible pick is John Berry, director of the federal government's Office of Personnel Management. Berry, who is openly gay, was assistant secretary for policy, management and budget at Interior during the Clinton administration.
Salazar, 57, said in a statement that Interior undertook the "most aggressive oil and gas safety and reform agenda in U.S. history" and that the country is now on a promising path to energy independence.
Raised on his family's ranch in Colorado, Salazar was often spotted sporting his signature bolo tie and cowboy hat while leading Interior. During his tenure the department established seven new national parks and 10 new wildlife refuges.
BP OIL SPILL
The former Colorado attorney general was thrust into the national spotlight in April 2010 when a blowout on the Deepwater Horizon rig caused an explosion that killed 11 workers in the Gulf of Mexico.
In the aftermath, BP's Macondo well spewed more than 4 million barrels of oil into the Gulf as BP struggled to cap the well for nearly three months.
Facing an unprecedented environmental disaster, Salazar famously pledged to keep a "boot on the neck" of BP during the response efforts.
The catastrophe exposed shortcomings in the government's offshore drilling oversight, with officials conceding that regulations had not kept up with technological advances that allowed drillers to enter deeper and deeper waters.
Responding to the spill, the Obama administration implemented a controversial months-long moratorium on deepwater drilling and instituted a raft of new drilling rules aimed at preventing another disaster.
The temporary ban, which was followed by longer waits for permits in the Gulf, angered oil and gas drillers, who said the administration was unnecessarily slowing production.
"We remember the tough days that followed the Deepwater Horizon incident during which Secretary Salazar presided over a moratorium on permits that created significant uncertainty for energy production and energy security," said Jim Noe, head of the Shallow Water Energy Security Coalition.
Noe said the coalition hopes that Salazar's replacement will take a "more balanced" approach to energy development.
After the spill, Salazar also oversaw the transformation of the department's offshore drilling regulatory agency, the Minerals Management Service, which had been accused of being too cozy with industry.
Long before the Gulf spill, the service was plagued by scandal. Under Salazar the agency was broken into three separate entities, separately focusing on leasing, enforcement and revenue collection.
From early on, Salazar's relationship with the oil and gas industry and with many Republicans in Congress was contentious. Critics accused Salazar of putting up roadblocks to development.
The sharp-tongued Salazar rarely shied from sparring with his opponents. In 2012 he accused Republicans in the House of Representatives of living in a world of "fairy tales and falsehoods" when it comes to energy policy.
A key task for the next head of agency will be to oversee the department's new rules for the controversial drilling technique, hydraulic fracturing, on public lands.
Draft rules released in 2012 would require companies to get approval before using fracking, and to reveal the chemicals they used in the process after they finish drilling.
Industry groups complained the rules overlapped state regulations, while environmentalists said the rules were not strong enough.
Facing this backlash, the department has delayed finalizing the rules. It is unclear whether they would be completed before Salazar departs.