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U.S. Offshore Oil Industry: New perspectives on an old conflict
Frank T. Manheim

The United States has been a leader in the creation of the modern offshore oil industry. A stalemate, however, between environmentalists and industry has inhibited current U.S. offshore oil and gas leasing. Each faction in the current impasse is able to block the other’s goals, but not to achieve its own. One consequence is an inability in the United States to build a consensual, coordinated national energy policy. The clash has its roots in a historic culture change that occurred in the United States in the 1960s. Looking at this history and then pulling in the perspective from Norway — a country with a very different environmental and offshore drilling history — could shed light on how to move forward.

The Øseberg Sør platform in the northern North Sea is one of many oil platforms off Norway’s coasts. Norway’s offshore drilling history has differed vastly from that of the United States, where leases and development are stalemated. Courtesy of the Norwegian Petroleum Directorate.

Strong start

The modern offshore oil industry in the United States is generally considered to have begun with passage of the Outer Continental Shelf (OCS) Lands Act in 1953. Capping “tideland” battles between the federal government and the states for ownership of offshore lands in the 1940s, the OCS Lands Act assigned responsibility for leasing and regulation of offshore energy and mineral resources outside state waters to the Department of the Interior (DOI). The act called for exploration and development to be conducted by private industry through competitive bidding and leasing. Management responsibilities were delegated by DOI to the U.S. Geological Survey (USGS) and the Bureau of Land Management (BLM).

In the 1950s and early 1960s, rapid advances in exploration, drilling and production technology led to a major offshore energy industry, at first centered in the Gulf Coast. The United States pioneered many technologies, ranging from blowout preventers, drilling and pipe-laying ships, to computer-controlled well data and bright-spot seismic surveying (see story, this issue). By 1967, drilling had taken place off the coast of 74 nations, with 20 nations producing petroleum. Major foreign oil companies such as Shell and BP, which discovered oil in Alaska’s North Shore (Prudhoe Bay) in 1969, became active in U.S. waters as well.

Prior to 1969, both political parties accepted development of oil and gas resources, onshore and offshore, as a normal and beneficial activity. With a few exceptions, political or regional disagreements focused mainly on bidding systems and allocation of leasing revenues. As late as 1968, the state of Maine issued exploration leases 80 miles offshore into Georges Bank. These claims were not settled until a decision of the U.S. Supreme Court finally dismissed coastal state challenges and limited Atlantic state jurisdiction to 3 miles.

In managing offshore leasing, USGS prepared preliminary offshore resource estimates, posted operational regulations, monitored exploration and drilling activities, and maintained limited proprietary data on those activities. BLM posted lists of tracts for lease sale in the Federal Register and conducted the sales. Winners were determined by the highest bonus bids — “front-end” bids for the right to obtain and exploit petroleum found in a tract. Award of exploration and production rights carried stipulations regarding diligence, or minimum required levels of exploration and drilling activity. In addition to bonus bids, USGS also collected per-acre fees and royalty payments for oil or gas production. After awards of a small share of lease revenues to offset special costs or impacts on coastal states, the remainder of revenue was remitted to the U.S. Treasury.

Sounds of change

In 1962, a new environmental awareness was catalyzed by Rachel Carson’s explosive book, Silent Spring. Carson was a biologist by training and former editor of publications at the U.S. Fish and Wildlife Service. She spent five years writing Silent Spring, in the last years secretly suffering from the cancer that would kill her. No bigger than a modest drugstore pocket novel in its paperback edition, Silent Spring was unlike any previous book. Written for a popular audience, it began with a poetic parable about an American town living in harmony with its surroundings. The grim subsequent scenario describing the adverse effects of misuse of pesticides and chemicals was documented, page by page, with more than 500 references.

Seven years after Silent Spring triggered an environmental movement in the United States, the Santa Barbara oil spill hit. On Jan. 28, 1969, UNOCAL’s Platform A, in the highly faulted Santa Barbara channel, blew out. Between 1 and 3 million gallons of crude oil were estimated to have been spilled. It happened four days after the inauguration of the new Secretary of the Interior Walter Hickel.

Pictures of oily beaches and ducks on the nation’s TV screens and on a cover photo of Life magazine created a collision between the environmental movement and the offshore oil industry and governmental regulatory system. It emerged that a USGS supervisor had given discretionary authority to the platform operators to waive normal casing requirements — against the wishes and guidelines of California state regulators. USGS Director William T. Pecora faced the crisis with sufficient decisiveness that he was nominated and approved as undersecretary of the Interior in 1971 (he died in 1972).

Although the duck populations recovered, other consequences of the Santa Barbara oil spill were longer lasting. They included landmark environmental legislation rapidly passed by Congress and signed by President Nixon from 1969 to 1972. These changes included the passage of the National Environmental Policy Act in 1969, creation of the U.S. Environmental Protection Agency in 1970, establishment of the Clean Air Act and the Coastal Zone Management Act also in 1970, and passage of the Clean Water Act in 1972. These and related bills created the core of the regulatory system currently applicable to all extractive industries.

The aftermath

Shortly after passage of the new environmental legislation, the nation faced oil shortages due to the Arab oil embargo in 1973. These shortages stimulated expansion of offshore oil and gas leasing by President Nixon, beginning with the Mississippi, Alabama and Florida Gulf Coast area in 1974.

The relatively cautious expansionary leasing policies of presidents Nixon and Ford were followed by retrenchment in the early Carter administration. President Carter was a strong environmentalist, who favored energy conservation and alternative energy sources. Carter underscored his commitment to these causes in a nationally televised speech of April 18, 1977, in which he cited resolution of the energy crisis as having the importance of “the moral equivalent of war.” Secretary of the Interior Cecil Andrus shared Carter’s environmental commitments and was initially cool to expanded offshore leasing.

But oil shortages arrived with renewed vengeance during the Iran crisis of 1978 to 1980. This crisis had the partial result of modifying Secretary Andrus’s policies. Andrus played a skillful personal role in forging compromise leasing agreements off Southern California in the face of initial local and congressional opposition. Andrus was engaged in similar negotiations with the state of Massachusetts for leasing in the Georges Bank area when Ronald Reagan defeated Carter in the election of 1980.

In 1982, President Reagan’s Secretary of the Interior, James G. Watt, transferred responsibilities for offshore leasing from USGS and BLM to a new agency, the Minerals Management Service (MMS). Watt had already aroused controversy before his official appointment. He combined a direct and quite self-effacing persona with a messianic zeal to expand energy and minerals leasing on land and offshore. Impatient with opposition, Watt reportedly predicted that he would double the Sierra Club’s membership. (It did double.)

Watt’s short but stormy tenure (1981-1983) increased generic opposition to offshore leasing, which became translated into individual congressional bills that created annual leasing moratoria in specific areas. These were attached to DOI funding bills. During and after Watt’s tenure, petroleum revenues decreased markedly. Looking at levels of bonus bids adjusted to 2003 dollars, revenues averaged $750 million per year from 1986 to 2003 versus $4 billion in 1970. (After the Arab oil embargo in 1974, bids reached an all-time high of $18 billion.)

By 1990, annual leasing moratoria had grown to encompass so much of the U.S. Exclusive Economic Zone that President George H.W. Bush declared a blanket moratorium on most offshore areas except for the major historic lease areas in the central Gulf of Mexico and offshore Alaska. President Clinton extended the moratoria from 2000 to 2012 in 1998. Opposition to leasing has also extended to proposed leasing in the coastal Arctic National Wildlife Reserve (ANWR).

Early in George W. Bush’s administration in 2001, MMS announced plans to update inventory estimates for offshore energy resources. Immediate opposition from environmental organizations was so vocal that the initiative was withdrawn. President Bush announced that he would maintain the moratorium. During subsequent years, energy has been an area of vigorous debate, lobbying and failed legislation. The Bush- administration-favored omnibus energy bill passed both House and Senate in 2003, but could not be reconciled. Even so, the massive bill already had been stripped of reference to offshore energy and ANWR.

As this energy policy stalemate continues in the United States, with antagonism to offshore drilling deeper and wider than it was in the 1970s, Norway has adopted advanced energy policies, while conducting offshore drilling for oil and gas in sensitive environments, including active fisheries areas, with minimum impact. There are lessons to be learned from the country’s approach to environmental regulation and management.

A Norwegian approach

Norway is now the third largest world petroleum exporter after Russia, with a total production of 1.6 billion barrels of oil equivalent per year. It manages a large network of subseafloor pipelines and has become a leader in offshore engineering, production of large rigs, subseafloor completions, and liquid natural gas production and transport systems.

The present-day success had its start in 1969, after discovery of the giant Ekofisk field in the North Sea. Norway decided it needed a fully competitive domestic oil industry to complement international oil company expertise. The Norwegian offshore petroleum management system used a “forced marriage” approach to build a national oil company, subsequently called Statoil, which would work with private partners to develop rich North Sea and Norwegian Sea prospects within Norwegian coastal waters.

Norway’s government initially gave Statoil special startup advantages. Mindful of earlier problems in state-controlled Scandinavian enterprises, Statoil was designed to be successively weaned from government subsidy and now competes without financial advantages.

Since the early 1980s, Norway also made a national decision not to conserve oil or gas reservoirs for the future, but to develop its offshore energy resources rapidly. As part of that rationale, most of the profits from exports were allocated to a fund, authorized in 1990, which was designed to stabilize fluctuations in petroleum income and help in the transition to the time when offshore resources would be fully depleted. That fund has now grown to $130 billion.

From the outset, Norway integrated strong environmental emphasis into planning and management of exploration, leasing and production. It introduced environmental impact statements in the mid 1970s, but did not formally codify them until 1996. Unlike the U.S. system, which, besides having minutely detailed leasing regulations, involves more than a dozen federal laws — as well as various federal agencies, state laws and agencies, and courts — the Norwegian system has moved toward cooperative, performance-based models.

Norway has very few parliamentary acts. The main relevant Norwegian laws include the Petroleum Law of 1996, the Pollution Control Act and the Public Safety Act. Regulations are administered jointly by the Pollution Control Agency (part of the Ministry of Environment) and the Petroleum Directorate (Ministry of Petroleum and Energy), along with the newly separated Petroleum Safety Authority (Ministry of Labor and Government Administration). The Hoyesterett, the country’s supreme court, is said to have declined jurisdiction over offshore disputes on grounds that it lacked expertise. And, unlike in the United States, Norway’s civil service management system is little affected by changes in political administrations.

Environmental progress continues in Norway with more formal inclusion of environmental organizations and public access to policy development. In 1996, Norway became the first nation to initiate burial of carbon dioxide in offshore strata (currently 1 million tons per year, largely in the Sleipner field). And Statoil has announced plans to achieve zero harmful discharges from its offshore platforms by 2005.

Notwithstanding its strong commitment to the environment and sustainability, Norway has set in motion development of giant gas fields at the Snøhvit field in the Barents Sea. Production plans, set to commence in 2006, will include two-way pipelines to land, where carbon dioxide will be removed and returned to the offshore subsurface.

In short, Norway has evolved toward integrated systems that foster continuously increasing standards and efficiency and an environmentally aware public. Such a model, with its dominant governmental control, may not be exportable. However, its economic and technical success, along with ability to operate with the approval of an environmentally aware public, provides new perspectives that may help the United State break out of its historic clash between industry and environmentalists.

Manheim is an affiliate professor in the School of Public Policy at George Mason University in Fairfax, Va. He retired from the U.S. Geological Survey in 2002, after 35 years of service as a marine geochemist.

Notes and References from the author

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