A New Oil Hunt at Home

With shortages of gasoline, heating fuel and other petroleum products gripping the nation, it is easy to overlook an important fact: the U.S. is still by far the world's largest oil producer. In 1972 U.S. wells pumped out 9.4 million bbl.

of crude per day v. the 7.8 million produced in the Soviet Union and the 6,000,000 that came from Saudi Arabia.

But this preeminence brings no comfort to U.S. oilmen. Not only did output fall far short of domestic consumption; it did not even match the 9.7 million bbl. per day that the nation produced at the peak in 1971. The speed at which U.S. oil wells are operating is fast draining the nation's proven reserves. The outlook is for steeper production declines unless new sources of oil can be found.

Now, after more than a decade of concentrating their efforts overseas, the oilmen are sinking an increasing number of U.S. exploratory wells both on land and at sea. Oil companies have sharply increased their budgets for domestic exploration. There is so much new drilling planned that a shortage of tubular casing, drilling platforms and other equipment has developed.

In an effort to encourage the industry to boost output, the Government last year made two important changes in the way that it controls oil prices. First, it lifted controls on the crude that comes from stripper wells--those that produce 10 bbl. or less per day. Stripper prices have since risen from $3 a bbl. to $8.50 or more; at these prices, the owner of a stripper can make a profit from a well that might otherwise be worthless. These wells now account for 13% of U.S. production.

More important, the Government exempted so-called new oil from price control. New oil encompasses both crude from new discoveries and oil that an existing well produces in excess of its output during a 1973 base period. In response, oilmen have sped the pumping of existing wells to their Maximum Efficient Rates* and made greater use of expensive secondary recovery methods, such as injecting water at high pressure into a well. The American Petroleum Institute estimates that as much as 5,000,000 bbl. might be recovered in this fashion. As Wayne Swearingen, chairman of Tulsa's oil-drilling LVO Corp. puts it: "Old oil wells don't die; they just become uneconomical. We are going to see an increase in the percentage of oil that is recoverable."

But these measures can help only in the short run. Proven U.S. reserves now stand at only 36.3 billion bbl., barely a six-year supply at today's rate of consumption, and new discoveries must be made if the U.S. is to achieve anything resembling self-sufficiency in crude oil.

Until recently, oilmen complained that economic incentives for exploration were insufficient to encourage them to take the risk of looking for new sources.

But the lifting of price controls on new oil has changed the equation. Now it seems that anywhere there is a chance of bringing in a gusher, new wells are being planned or sunk.

Not Convinced. Much of the activity is taking place in oilfields in Oklahoma, Texas and Louisiana that had been considered used up. Explains W.R.

Cobb, exploration chief for Shell Oil Co.:

"The price has risen enough to make marginal areas feasible. We are reassessing all of our old fields." The renewed interest is causing the price of oil leases to soar. In Oklahoma, land that went for $25 an acre a few months ago is now bringing $37.50. In Wyoming, eleven parcels in oil-rich Converse County were leased last month at the startling price of $182 per acre.

There is even more excitement about the prospects of finding oil under the ocean. The U.S. Geological Survey estimates that between 160 billion and 190 billion bbl. of crude oil are locked beneath the continental shelf. This vast underwater resource has scarcely been touched: less than 2,000,000 bbl. daily of offshore crude is being produced. One reason: environmentalists believe that stepped-up offshore drilling might produce ecological disasters that could dwarf the Santa Barbara Channel oil spill of 1969.

Oilmen maintain that new technology vastly reduces the chances of an oil spill, but environmentalists are not convinced. Last month a federal court threw out a suit brought by the Sierra Club and other environmental groups to block an auction by the Interior Department of 147 parcels of virgin oil land off the coasts of Florida, Alabama and Mississippi. After the court acted, Interior was able to lease 80 of the tracts for a total $1.5 billion. But disputes between state and federal governments over control of the continental shelf are still blocking exploitation of the 46 billion bbl. of crude that experts think lie off the Eastern Seaboard.

Even if the objections are overcome, there is still a question as to how much more oil there is to be found. Until test holes are drilled, estimates of how much oil is there are only a guess; the Geological Survey figures that the U.S. has up to 450 billion bbl. of potential reserves. Says George P. Mitchell, chairman of Houston-based Mitchell Energy & Development Corp.: "The geology of the nation warrants tripling the present rate of exploration and development to $15 billion per year within seven years." But even the optimists add a caveat: if the exploration turns up appreciable quantities of oil, it will still take from five to seven years to bring it to market.

* ;The fastest rate at which a well can be pumped without lowering underground pressure.

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