Many Oil Firms Had Given Up on Offshore Projects


Oil companies scrambled Tuesday to assess the damage that they might suffer from President Bush’s sweeping decision to delay offshore drilling, but many had already given up hope of tapping any time soon what are believed to be massive underwater reserves.

Although oil companies publicly expressed disappointment at the President’s decision to make many offshore areas off-limits for most of the decade, industry officials privately admitted that many oil companies had already placed offshore plans on the back burner.

“Chevron probably would not show up tomorrow if there was a lease sale,” one industry insider said.

The reason: Regulatory delays, falling crude prices and endless court challenges have threatened to turn offshore production into an unprofitable proposition. Many companies are exploring for oil abroad, where environmental restrictions are less rigorous.


Bush said Tuesday that he will delay most future sales of leases in waters off the Pacific Northwest, California and Florida until after the turn of the century, to allow more environmental study. An exception is 87 tracts off Southern California, which may go on sale after 1996.

In a federal lease sale, companies bid for the right to explore for oil on the outer continental shelf, three miles beyond the shoreline.

The President’s decision would apparently not affect oil exploration and production projects on parcels already leased off the coast of California, where platforms are producing about 80,000 barrels a day. The decision also leaves open the question of offshore exploration in Alaska.

Industry officials still believe that untapped reservoirs off U.S. coasts hold billions of gallons of oil and trillions of cubic feet of natural gas. Until recently, most major companies were hoping to bid on leases off Northern and Southern California to get at some of that oil.

The industry’s main trade group, the American Petroleum Institute, argued that Bush’s decision will accelerate the drop in domestic oil production, lead to greater reliance on imports and oil tanker shipments, and result in the flight of U.S. capital and technology to foreign countries.

That notwithstanding, oil companies have already made plans that don’t include underwater projects. They are aware that public sentiment is against opening more offshore areas in the wake of last year’s oil spills--most notably that from the tanker Exxon Valdez in Alaska’s Prince William Sound.

The companies “long ago put aside plans to put together bids,” said Carl Schmid, spokesman for the National Ocean Industries Assn., a trade group of offshore operators.

Unocal Corp., which has sizable holdings off California’s coast, has spent virtually nothing the past couple of years to prepare for future sales of offshore leases, spokesman Arthur H. Bentley said.


Another reason for the industry’s reluctance to pursue offshore drilling: A lease sale is only the first step in an arduous process that may or may not result in oil production--and profits.

Chevron Corp. has lead a consortium of 18 oil firms that have struggled unsuccessfully for 10 years to launch production from the $2-billion Point Arguello project. It has become a symbol of industry frustration over trying to produce oil during environmentally sensitive times. Despite the time and money, the project has yet to produce a drop of oil.

Last year, Chevron wrote off $445 million of its $800-million investment in the massive project off the coast of Santa Barbara County--an acknowledgement that, even if the project goes forward, it is unlikely to repay its costs.

Elsewhere, the California Coastal Commission has objected on air-quality grounds to federal government permits granted to Chevron and Conoco for the drilling of exploratory wells on two leases off the coast of Ventura and Santa Barbara counties. They are believed to be the most recent requests for exploratory drilling off California’s coast. The companies are appealing.


For some oil firms, the only real effect of Bush’s decision will be the outcome of projects involving leases off the coasts of New England and Florida that have already been paid for.

The President ordered cancellation of existing leases in the Georges Bank area off New England and directed Interior Secretary Manuel Lujan Jr. to begin studying a possible buyback and cancellation of existing leases off Florida. The government has already sold 73 leases off Florida.

Bentley said Unocal was still not sure how Bush’s announcement will affect it. It has invested more than $20 million in leases off the Florida coast.

Mobil Corp. estimated that it has spent $33.2 million on leases in the same area. “Clearly we are impacted by the President’s decision,” Mobil spokesman John Lord said.