The Coming Offshore Ripoff

...By forming joint ventures and culling out significant potential competitors before the bidding begins, the major corporations can submit bids at figures lower than might result from competition but high enough to keep out the independent sector of the industry...

...They come in and say, 'No, we want to bid 34 [million].' This one comes in and says, 'No, we want to bid 60 [million].' And then we would look at the geology jointly...

...The Interior Department appraised the eighty-nine tracts on which bids were accepted for $146 million, while the total of high bids from the industry on those tracts amounted to $1.49 billion...

...And sometimes they bring us up and we try to reach a concurrence...

...Like the marshes and wetlands of Louisiana, dotted by 25,000 wells, the Atlantic shores may become an oil coast...

...For the millions of bathers who look forward each year to a vacation by the ocean, the coming search for oil just beyond the horizon may one day cause reddish brown, viscous slicks, known as oil spills, to sweep to shore, ruining the beaches...

...The quest for oil offshore raises the strong possibility not only of disputes between regions of the nation but also of clashes between the rights of the states and the Federal Government...

...In the absence of the standard cost-benefit analysis that is usually applied to government projects, it was impossible to decide how or to what extent to proceed...

...Then a balance must be struck between the various domestic sources of energy...

...With the appeal of the Gulf of Mexico fading for oil companies as the easily accessible reservoirs become depleted, the Atlantic is a prime "frontier zone" for future offshore oil production...

...These antagonisms are just emerging between the legislators of the eastern seaboard, who fear the devastation that oil may bring, and those inland who wait eagerly for the fuel from beneath the sea...

...Walter J. Mead, professor of economics at the University of California and an expert on offshore leasing, says the early leases in the outer continental shelf generated a rate of return of 7.5 per cent before taxes to the companies...

...The community of Houma and Terrebonne Parish have joined in suing the Army Corps of Engineers to halt the dredging of a large channel through the marshes for floating oil rigs out to the Gulf...

...However, the bids on two of these tracts were $76 million, and in the most extreme case it reached $91.7 million, 637.3 times the government appraisal...

...The President's Council on Environmental Quality spent a year studying offshore drilling in the Atlantic and Gulf of Alaska, but failed to confront this issue...

...On thirty-five tracts the Department had placed the same—obviously arbitrary—value of $144,000...

...If the evaluation exceeds the bids by industry, the tracts are to be withdrawn...

...If they are below us, bring them up...

...Across the state are bumper stickers, OIL FEEDS MY FAMILY...

...The political coloration of the intense debate just starting on offshore oil reflects the high degree of uncertainty that surrounds the Administration program, which was born in the midst of last winter's energy crisis and remains a jprincipal component of the government's policy to achieve a capability for independence in energy supplies by 1980, the so-called Project Independence...

...For the American consumer, crushed by rising fuel prices, the oil rush to drill the Atlantic for the first time will offer the spectacle of millions of acres of resources being leased without any assurance of protection for the public interest...

...Was the Government prepared for this mammoth turning over of public property to the oil companies...

...Overhanging these threats to the environment and the consumer pocketbook is an incipient clash of political and economic interests stemming from the plans to open up the Atlantic...

...But of the 206 tracts offered, industry submitted bids on only 114, little more than half...

...The prospect of networks of refineries, pipelines, and petrochemical plants along the now rural stretches of the shoreline is appalling to the coastal legislators despite the possible economic advantages of nearby oil production...

...The willingness to submit high bids may be slackening as the result of tight money conditions and the high cost of operating offshore, especially in view of the fact that the richest supplies of oil and gas can be found only in deeper and deeper waters...

...How could such a swift increase be justified...

...For the major companies, offshore oil looks like the font of a new bonanza, now that the industry's interests abroad are threatened...

...Under pressure from Congress generated by the energy crisis and the plight of the independent producers, the Interior Department came forward recently with a proposal to bar joint bidding among major companies, but there is serious doubt that this plan will ever be implemented in the face of powerful industry opposition...

...Early last month a glimmering of common sense reached the highest level at Interior...

...Subsequently, government officials took the cue and repeatedly reaffirmed the objective as Administration policy...

...Oil and the industries associated with oil have become the economic base of Louisiana...

...Other seaboard states are considering similar moves in an indirect assault on the Administration's plan for their coastal and offshore natural resources...

...A deposition early this year by Otto N. Miller, chairman of California Standard, the nation's fifth largest oil company, offers some insight into how these meetings are conducted...

...I want you all to know that when we move in the direction you propose, I am going to be knocking on your doors and I would like to show you eastern Kentucky so we can talk about a national severance tax on coal with the money reverting back to the counties where the damage has been done from shipping coal to Delaware and Connecticut and to Maine...

...Stephen E. Nordlinger is a Washington correspondent for The Baltimore Sun who specializes in coverage of energy problems...

...The broad sandy stretches at Truro and Wellfleet, Massachusetts, the south shore of Long Island, the marshes, wetlands, and beaches of Delaware, Maryland, and southward—all may be jeopardized by the sudden drive to tap the ocean floor...

...The leasing of 817,000 acres off the Mississippi, Alabama, and Florida coasts last December in one of the last major disposals of Gulf of Mexico tracts offers an example of the Interior Department's ineptitude in evaluating public resources...

...And the experts would talk to the likelihood of finding $20 million or $40 million or $250 million or a billion...

...But the Interior Department's record in this regard is scandalous...

...Because too much was available, the public was deprived of a fair return from the companies' payments for the leases...

...The uncertainty that surrounds the program was manifested when the Interior Department recently reduced its estimate of oil and gas potential on the Atlantic seabed from 48 billion barrels of oil and 220 trillion cubic feet of gas to 10 to 20 billion barrels of oil and 55 to 110 trillion cubic feet' of gas—closer to industry's estimates and the findings of Canadian explorers...

...According to the Department, there are about seventy-five mobile drilling rigs on the outer continental shelf, operating or idle, and only twenty-five being built, fifteen of them for service overseas...

...While it was customary in the past to receive an average of four to six bids on each tract, there were only 402 bids on the 206 tracts offered in March—on the average less than two bids a tract...

...Our fishing industry may be important long after the oil industry has developed itself to extinction," says Barbara Heller of the Environmental Policy Center...

...I 'm aiming to find out where the oil is and where it is n o t . " Still, the enterprise adds up to a huge transfer of public property to private enterprise with little gain for the consumer...

...If we decided that we wanted to bid 32 [million], we tried to bring them down...

...At a hearing on offshore drilling by the Senate Commerce Committee, Senator Marlow Cook of Kentucky turned toward his colleagues, Senator William Hathaway of Maine and Senator Joseph Biden of Delaware, and said, "We have a lot of problems to solve in eastern Kentucky, too...

...But the Interior Department admits that it would be "more reasonable" to concentrate the drilling on 1.8 to 2.4 million acres, far less than the proclaimed 10 million...

...Their complaints strike at the heart of a key issue that confronts the nation as the Government moves toward a massive offshore leasing program: To what extent should the unrenewable resources—marsh, wetlands, beaches—be sacrificed to exploit a resource that will only last for a fixed time...

...A little-noticed written response by the Interior Department recently to questions from members of the Senate Appropriations Committee points up the absurdity of the 10 million-acre goal...

...It was not...

...In the early years of the leasing program, the public's interest in receiving a fair rate of return on the bids was protected by the high level of competition for the leases...

...What is needed is a reliable projection of needs for new fuel supplies, based on a strong nationwide drive to conserve energy...

...They are starting to accuse the environmentally conscious easterners of using relatively clean and cheap southern energy while refusing to burn coal or drill for their own oil and gas off the Atlantic coast...

...What protection does the public have against such a potential giveaway when the major leasing occurs...

...The Ford Administration cheers as the oil companies get ready to pollute the Atlantic seaboard The Coming Offshore Ripoff STEPHEN E. NORDLINGER Like lemmings rushing to the sea, Administration officials are being drawn irresistibly to t h e waters of the Atlantic, where they expect to find rich deposits of "black gold" in the deep sediments offshore...

...Governor Edwin W. Edwards of Louisiana, the state that leads the nation in producing natural gas, has pointedly asserted that he could sharply cut his state's production if the Northeast refused to develop its own energy resources...

...The lack of adequate policies to deal with the problems posed by the contemplated scale of offshore leasing is matched by the absence of plans to manage the serious impact on the environment and economies of the coastal states...

...A recent study, A Louisiana Wetland Prospectus, published by the Louisiana Advisory Commission on Coastal and Marine Resources, notes that oyster yields per acre have decreased by 90 per cent in the last thirty years and that the wetlands needed for fish and waterfowl are being lost at a net rate of 16.5 square miles a year...

...Opponents of refineries or petrochemical plants might find themselves defeated by Washington despite the Administration's talk of a "new federalism...

...In the face of this opposition, officials in the oil and natural gas producing states of Texas and Louisiana are becoming angry...

...If one well were drilled on each of the 5,000-acre tracts offshore, a total of 3 million to 3.75 million acres could be explored annually...

...Bids were rejected on only two tracts...

...The problem becomes especially crucial when it is recognized that the oil and gas in the outer continental shelf of t h e United States will be almost exhausted by the end of the century...

...But from all appearances, the Government is unprepared at this point to protect either the public interest in these offshore resources or the environment...

...These are judgments that must be made...

...Reliance is being placed on the ability and willingness of the Government to make a correct evaluation of the tracts to be leased before they are turned over to industry...

...The White House announcement last January of a tenfold increase in leasing of Federal oil and gas properties offshore, reinforced by an Interior Department memo in October, came as a surprise even to top officials in the government's energy and environmental fields who had not been consulted...

...I don't think it's fair for them to sit on their oil on the Atlantic seaboard while they are using o u r s , " says the governor...

...If they had no oil, it would put them in a different position, but we are producing, we have refineries, we are paying the consequences to our environment and they must share the b u r d e n . " A bumper sticker appearing in the South reads: LET THE BASTARDS FREEZE IN THE NORTH...

...With an eye on the devastation wrought in Appalachia by strip mining, these seaboard states at least want to be compensated for the havoc oil may bring...

...A serious effort must be made to balance the economic benefits of offshore oil against the economic and environmental losses that drilling and its attendant development onshore will bring...

...Despite the fanfare, it is now conceded that there is not enough equipment, including drilling rigs, to allow development at this unprecedented rate—which amounts to as many acres in 1975 as the Interior Department leased over the twenty years of the offshore program, mainly in the Gulf of Mexico...

...The recalculation failed, however, to dim the enthusiasm of the Administration for leasing tracts in the Atlantic...

...The many unknowns became quickly apparent...

...But if compensatory money is to flow toward the coastal states in the wake of the new offshore development, other states in the interior that are new or well-established contributors to the nation's energy supply are indicating that they want an increased share of government revenue from production of their resources...

...Even if demand were to stabilize, it can be expected that the law of economics will be defied as prices keep rising along with increased supplies...

...On close analysis, it could not...

...Secretary Rogers C.B...

...Delaware has already banned new intrusions of these major industrial facilities, and special permission is needed from the state government for a pipeline from the ocean to the interior...

...There are so many imponderables and so little planning that the program runs a high risk of causing a severe impact on the environment and a giveaway of valuable resources to private industry for an uncertain amount of production...

...Only the most attractive acres may draw the top dollar in the future...

...When major leasing begins next year, it seems likely that the big companies will remain in a dominant position—as always...

...The pre-sale evaluation by the Interior Department was $37,822...

...The new pace delighted industry but dismayed environmental interests, many marine scientists, and officials in neighboring coastal states...

...The costs of drilling in the sea bottom are enormous, but so are the rewards...

...If the beaches or natural habitat of valuable fish and seafood are to be damaged or permanently destroyed for the relatively short-term gain from oil, some offsetting benefit is sought from the Federal treasury, the oil companies—or both...

...There are indications that the Government may not be rescued so easily again by oil companies eager to acquire leases...

...Not all of it...

...In the 1960s, however, the increased acreage put on the market for some of the so-called lease sales destroyed competition...

...Should the seventy-five rigs now available be doubled over the next two years, the number of wells that could be drilled would reach 600 to 750...

...An internal memorandum circulated within the Interior Department last winter indicates that the figure of ten million acres—about twice the size of Massachusetts—was in fact arbitrary, pulled out of a hat to provide the White House with a dramatic goal to announce...

...It was unclear what benefits, aside from some increase in industrial employment, would accrue to the states that would bear the brunt of the oil production in return for the invasion by the oil companies...

...Investigators for the California legislature looking into the offshore oil leases in that state have been informed that five major oil companies as a group insisted in one transaction that the state raise the required "front money" for a bid from $1 million to $10 million, a move that effectively precluded independents from going after the contract...

...A quarter century of drilling in the waters, marshes, and bayous of Louisiana, where about 90 per cent of the offshore and coastal wells have been placed in the United States, has brought destruction to valuable natural resources and has damaged the coastal beaches with oil spills...

...On one tract, the high bid was $32.2 million...

...Morton, who last January had been talking of leasing "10 million acres a year for a couple of y e a r s , " beat a retreat...

...What had been going along—with some significant problems—at a rate in the neighborhood of a million acres a year was to be accelerated to ten million acres starting in 1975, part of it on the so-called frontier acres, of which the Atlantic seems to hold some of the most valuable and accessible resources...

...However, officials, perhaps telegraphing a message to their counterparts along the Atlantic, are beginning to question and challenge further development...

...It also points up an increasing problem in the management of the offshore program, a problem that the Interior Department is only beginning to acknowledge—the growth of joint bidding ventures by the major companies which can combine forces to freeze out the independent concerns...

...Such a massive leasing—to be followed, doubtlessly, by similar undertakings in subsequent years—will glut the market and risk a severe weakening of competition for the leases...

...Despite corporate denials, there is evidence that "chilling" of high bids occurs at joint industry meetings...

...To what extent should the coastal resources be disrupted for these new offshore supplies...

...Much publicity was given last March to the fact that the Government received a record $2.1 billion for the right to drill on about 420,000 acres off the Louisiana coast...

...A political controversy over offshore production was bound to flourish in this kind of atmosphere...

...At the leasing last December, four corporations—Exxon, Mobil, Gulf, and Standard Oil of California—accounted for 61 per cent of the leases as reflected in the high bids...

...And this is not too precise, obviously...

...The decline reflects more than a lack of interest or ability to bid...

...By dominating access to crude oil, these major companies and the joint ventures they dominate insure their own control over the market...

...Under questioning by California investigators, Miller referred to a joint venture in offshore California during the late 1960s between his company, Atlantic Richfield, and Humble Oil (now Exxon): "You just put the number on the table—that is, on this parcel we want to bid $32 million...

...There is a great danger that this pattern will be repeated as the Government moves to dispose of millions of acres next year...

...Overall, the government's pre-leasing appraisals for these tracts were actually less than one-tenth of the cumulative high bids from the oil companies...

...From an environmental standpoint it may turn out, for example, that oil shale extraction or strip mining in Wyoming and Montana are more damaging than a limited development of the outer continental shelf in the Atlantic, provided plans to minimize damage are strictly enforced by the Federal Government and the coastal states...

...The Council's findings were called "inadequate and incomp l e t e " by the National Academy of Sciences...

...I 'm not aiming today at 10 million a c r e s , " he said...

...A bill has been circulated at the White House that would preempt the jurisdictional authority of the states after five years if local and state governments balk at efforts to establish energy facilities...