Page 67: of Maritime Reporter Magazine (June 1985)

OFFSHORE DRILLING

U.S. COULD LEARN A LESSON

FROM GREAT BRITAIN'S

OFFSHORE OIL LEASING

By R. Nelson Crews

Chairman, National Ocean Industries Association and President and Chief Operating Officer

Raymond International, Inc.

R. Nelson Crews

The current "oil glut" and the oversupply of natural gas have lulled Americans into a false sense of energy security. If something is not done to speed up the pace of domestic energy exploration and production, we will find ourselves more dangerously dependent on for- eign energy suppliers in the not-too- distant future.

We have the capability to become energy independent by developing this nation's Outer Continental

Shelf (OCS). The OCS is estimated to contain as much as 44 billion bar- rels of oil and 231 trillion cubic feet of natural gas.

But offshore energy is not a spigot that can be turned on at will. It takes an average of seven years from the time exploration starts until production of oil and gas can begin.

This means that we should be looking today for the energy that our nation will need in 1992. Yet

America's development of its OCS has been slow and relatively unsuc- cessful in comparison with other countries.

Take Great Britain, for example.

Until the mid-1960s, Great Britain imported virtually all of its oil and gas. However, after implementing a major licensing program to open the

North Sea to exploration and pro- duction, Britain has moved from total dependence on foreign imports to independence. In less than 20 years, it has become a net exporter and the world's fifth largest oil pro- ducer.

The United States, on the other hand, currently imports about one- third of the oil it consumes. We can expect foreign imports to increase significantly unless new domestic supplies are found soon.

The U.S. took an important step toward energy independence in 1982 by implementing a concept that

Great Britain has used very success- fully for many years—areawide leasing. The Department of the In- terior adopted this approach when they created the present five-year plan to expedite exploration and de- velopment of the OCS. For 28 years prior to that, offshore lands had been offered for lease under a "nom- ination" system, in which the feder- al government offered a limited number of specific tracts for leasing based on their geological prospects.

Since its inception, the five-year areawide leasing program has been a subject of intense controversy, at- tracting both strong support and severe criticism. Hoping to resolve some of the conflict, Interior Secre- tary Donald Hodel recently issued the first draft proposal of a new five-year program that reduced the pace of leasing activities and changed the original concept of areawide leasing.

It is unfortunate that the Depart- ment of the Interior feels compelled to take this action, because Great

Britain's track record proves that the areawide approach works. While the U.S. "nomination" leasing pro- gram was in effect between 1954 and 1982, only 4 percent of the nearly 1-billion-acre OCS was offered for lease, and only 22 million acres were actually leased.

In the first two rounds of Great

Britain's offshore program in 1964 and 1965, however, 113 million acres were offered and nearly 27 million acres were licensed (the British gov- ernment grants licenses to explore and develop rather than leasing tracts). In just those two years,

Great Britain licensed more acreage than the U.S. leased in 28 years.

And in 16 years, the British govern- ment licensed nearly 58 million acres, more than twice what would have been offered for lease under the original U.S. five-year plan.

The result of licensing this acreage has been a steady increase in British offshore exploration and production. By 1982, Great Britain was producing an average of more than 2 million barrels of oil daily, nearly twice the daily average off- shore production of the United

States, which was in decline. The

U.S., in fact, was the only nation in the world whose offshore oil produc- tion decreased during the 1970s.

The advent of areawide leasing was a shot in the arm for America's ailing offshore industry—at least judging by rig activity in the Gulf of

Mexico, a recognized indicator of oil industry health. After bottoming out in mid-1983, the rig utilization rate rose sharply as a direct result of the attractive prospects offered in areawide lease sales.

Instead of making leasing more difficult and restrictive, the federal government should take a clue from the British and remove some of the obstacles hindering OCS develop- ment. We will then have a better chance to reduce our dependence on foreign oil and help insure the na- tion's energy future.

R. Nelson Crews, president and chief operating officer of

Raymond International, Inc. of

Houston, Texas, was elected chairman of the National Ocean

Industries Association (NOIA) in

April 1985. NOIA serves as the legislative and administrative spokesman for the nation's off- shore and ocean-related indus- tries. Its more than 450 compa- nies include offshore drilling con- tractors, supply boat operators, diving crews, geophysical compa- nies and many other kinds of business involved in ocean and marine-related development.

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