Betting Big

$2.1 billion for drilling rights

As seven inches of snow fell gently in downtown Anchorage last week, 1,000 spectators and representatives of two dozen oil companies crowded into the convention area in the International Banquet House. They were there to hear bids announced for federal lease sales in the Beaufort Sea, which perhaps contains some of the richest untapped deposits of oil and gas in the U.S. The fields are believed to hold as much as 2.3 billion bbl. of oil and 1.8 trillion cu. ft. of natural gas.

As the bids were opened one by one, Esther Wunnicke, 60, of the Minerals Management Service of the U.S. Department of the Interior, read them aloud. The day's big winner turned out to be the Government, which is the recipient of the lease-sale money. Congressional budget officials in February had estimated that the sale might bring in $500 million or so, but when the counting stopped, 23 companies had offered $2.1 billion for the right to drill on 125 tracts covering 660,000 acres of the outer continental shelf. It was the most money ever bid at an Alaska offshore lease sale, but fell short of the record $2.6 billion drawn in September 1980 for 116 tracts in the Gulf of Mexico.

The highest bid was a $227 million offer for a 5,700-acre tract submitted by a group of companies led by the Sohio Alaska Petroleum Co., an exploration subsidiary of Standard Oil Co. of Ohio, and including Mobil Corp. and British Petroleum Alaska Exploration. Their bid for that choice tract far outstripped the $129 million offered by Exxon and Marathon Oil, which was bought in March by U.S. Steel. Another group led by Texaco, which is seeking to increase its holdings in the Prudhoe Bay region, weighed in with the second-highest successful bid for a tract near the Sohio purchase: $219 million.

The top prices were paid for land 18 to 20 miles off Alaska's northern coast, where geophysical tests strongly point to the presence of oil and gas. What is more, these areas are only 40 miles or so from pumping station No. 1 on the Trans-Alaska Pipeline, which was built to carry oil for the nearby Prudhoe Bay oilfields. That area was particularly attractive because it meant that only relatively short feeder lines would have to be built to get oil to the pipeline, which would carry it into U.S. markets.

The Beaufort Sea bidding is part of an Interior Department plan begun during the energy-conscious days of the Carter Administration, but sharply accelerated and expanded by Secretary James Watt. Watt's plan aims at opening a billion acres of the outer continental shelf to exploration during the next five years in the hope of finding oil that will make the U.S. less dependent on imported crude.

Environmentalists, though, strongly oppose plans to drill on the outer continental shelf, claiming they are ill conceived and hastily developed and will threaten an ecologically fragile area. In addition, the powerful Sierra Club argues that the Government could get far more for its leases if it held back from opening so much land so quickly. That would give prices time to rise and allow oil companies time to collect money to make even higher bids.

It was the lure of profits, more than any federal plan to make the outer continental shelf more accessible to drillers, that was primarily responsible for last week's heavy bidding. Even relatively small oil companies had "saved their pennies" to make bids, as one oil-firm official put it.

The Beaufort Sea area was attractive to drillers because it is one of the most promising areas remaining in North America. Promise, however, is no guarantee of success. Oil companies in the past few years have spent about $2.2 billion to buy drilling rights in the Georges Bank and Baltimore Canyon off the Atlantic seaboard. They have since spent an additional $921 million exploring for energy, but have found nowhere near enough oil or natural gas reserves for commercial production.

Last week's heavy bidding was even more noteworthy in view of the current worldwide glut of oil that has driven down prices for gasoline and other petroleum products. The oil companies, nevertheless, were looking ahead to the time when the surplus ends and prices once again rise. A report published last week by the Paris-based International Energy Agency also looked to higher prices in the future. The organization's experts predict that oil prices will continue to decrease in real terms this year and next, but will begin to rise after 1985, when supplies dwindle and world economic growth picks up. Any oil from the Beaufort Sea would not begin flowing until 1990, and the energy market may be very thirsty for it by then.

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