Oil and Water

By Janice Castro

To many Californians, the proposal makes no sense. If the world is awash in oil and petroleum prices are plunging, then why do energy companies want or need to drill for additional supplies of crude off the U.S. coasts? Nonetheless, despite the crash in the oil market, the Federal Government intends to go full speed ahead with its controversial plan to sell a new set of offshore leases. Along the California coastline, where many of the oil tracts are located, environmentalists, fishermen and many politicians are alarmed and angry.

At a public hearing held two weeks ago on the San Francisco waterfront, protesters waved signs bearing slogans like OIL AND WATER DON'T MIX and CAN THE PLAN. In the background, sailboats flew banners that simply said NO. Speaking at the demonstration against the proposed drilling was Los Angeles Mayor Tom Bradley, who complained that Governor George Deukmejian was "putting up a FOR SALE sign along the whole state of California." Democrat Bradley is hoping to make the oil leases a political issue in his campaign this election year to unseat the Republican Governor. Deukmejian, who has supported offshore drilling in the past, has been critical of the new plan. He reserved formal judgment on it, however, while statewide hearings were being held.

The brouhaha escalated in February when Secretary of the Interior Donald Hodel initiated the process for holding a sale, tentatively scheduled for April 1988, of oil and gas leases on up to 229 tracts off Northern California. This could be the first of five sales of California leases. Many Californians fear that more offshore leasing would mean beaches blackened by spills, increased air pollution from diesel-powered pumps, and other health and environmental hazards. Fishermen claim that increased drilling activity would disrupt their $1.25 billion industry and that pollution would harm feeding and spawning grounds. Businessmen dependent on the state's $31 billion tourism industry fear that the mere sight of oil rigs along stretches of California's wild coast would drive away vacationers.

While some of these concerns may be valid, Interior Department officials argue that as older oil fields elsewhere in the U.S. approach the end of their productive years, new supplies must be developed. The Government estimates that the U.S. will have to find 32 billion bbl. of new oil reserves by 1995 to maintain domestic production at the current level of 9 million bbl. a day, and to keep from becoming more dependent upon imports, which now account for 27% of U.S. consumption. Half of those new supplies are expected to come from offshore wells. Says Hodel: "The federal offshore-leasing program must continue to move forward if this nation is to have a stable domestic supply of energy in the years ahead." Offshore exploration looks attractive because as many as 10 billion bbl. of oil is believed to be tucked under California's continental shelf, where geological forces favored the formation of large pools like the Santa Maria Basin field discovered in 1980 along the coast north of Los Angeles. Estimated by industry experts to hold up to 1 billion bbl. of oil, that field will more than quadruple California's oil production on federal offshore lands, from 82,000 bbl. a day to 350,000, when it comes into full production in six years. Government officials believe that an additional 2 billion bbl. or more of oil lies under the tracts that Secretary Hodel wants to lease.

Though there is more than enough oil available now, the leases under discussion would not come into production until the late 1990s. And while current bottom-of-the-barrel prices would make offshore recovery too expensive, oil companies must plan ahead for different market conditions. Says Lloyd Otteman, president of Shell California Production: "We're looking at eight to 15 years between lease sale and production. We can't find it and get it out any faster. The world picture has changed dramatically in the past ten years, and goodness knows what's ahead."

Oil companies have a more immediate incentive to pursue those offshore tracts. Since lease rates rise and fall with oil prices, the Interior Department sale is expected to offer some tempting bargains. Five years ago, for instance, when oil prices were riding high, the average price paid for tracts in the Santa Maria Basin was $6,387.82 per acre. But if petroleum prices stay at their current depressed levels, the new oil leases could go for much less.

With reporting by Gisela Bolte/Washington and Richard Woodbury/San Francisco