INTRODUCTION

During the winter of 1973-74 President Nixon directed the Department of the Interior, through its Bureau of Land Management (BLM), to triple its program of leasing potential oil and gas lands on the Outer Continental Shelf (OCS) from three million acres per year in 1973 and 1974 to 10 million acres per year in 1975 and 1976 as one step in meeting the present energy crisis. After the leasing of 10 million acres in 1975, the accelerated program is to be re-evaluated to determine the feasibility of leasing another 10 million acres in 1976.

The act of leasing Southern California OCS lands does not, by itself, immediately produce oil and gas to alleviate a crisis of acute product shortage such as we faced last winter. Historically, crude oil production has followed lease sales by two to six years.

Neither does leasing of Southern California OCS industry-nominated tracts by itself, in the absence of a comprehensive national energy policy, meaningfully contribute to the long-range goal of Project Independence-national energy selfsufficiency.

What, then, does an accelerated May, 1975, oil and gas lease sale of Southern California OCS lands actually accomplish?

It does four things.

First, and most significantly, it transfers full legal title to valuable oil and gas resources from public ownership to a private corporation for its exclusive exploitation, extraction, removal, sale and private profit for a minimum of five years or (if development proceeds on schedule) until the oil and gas resource has been completely pumped, sold for profit and exhausted.1

Second (assuming the continued use of the traditional "front money" cash bonus-plus-royalty bidding system), such a precipitate lease sale provides a large-perhaps $1 billion to $2 billion-one-time increment of revenue to the Federal Treasury to help balance the Federal budget.

Third (again assuming use of the cash bonus-plus-royalty bidding system), such a leasing program tends further to concentrate the ownership and profit of a valuable publicly owned natural resource into the hands of the very few largest integrated oil companies in the world. Offshore drilling itself is risky and expensive. Imposition of the additional requirement for "up front" moneythe high cash bonus bids--effectively prevents smaller independent oil production companies from entering into the economical development and marketing of this oil and gas.

Finally, such a precipitate and ill considered leasing schedule begins anew the cycle of piecemeal, random development of yet another valuable natural resource area based on the profit priorities of the largest member corporations of a single private industry, and not upon the needs of all the people. Thus development begins:

Without sufficient prior knowledge to formulate a balanced long-term development plan;

Without full awareness of long-term economic and environmental impacts; Without a comprehensive Environmental Impact Statement, the lack of which may violate the National Environmental Protection Act and certainly violates the spirit of the California Coastal Zone Conservation Act.

This report concludes that the proposed ill considered and unexamined accelerated sale of oil and gas leases on 1.56 million acres of Federally owned sub

1 Krueger, Robert B., Study of Outer Continental Shelf Lands of the United States, U.S. Department of Commerce, National Technical Information Service, Springfield, Va., Oct., 1968 (Revised Nov., 1969). (Reproduced by the Clearinghouse for Federal Scientific & Technical Information.), p. 203 and Appendix 4-D. A study report prepared under contract with the Public Land Law Review Commission by Nossaman, Waters, Scott, Krueger & Riordan (Attorneys-Los Angeles, Calif.), Robert B. Krueger, Project Director. This report will be referred to hereinafter as Krueger, op. cit.

Mr. Robert B. Krueger is a partner in the Los Angeles, Calif. law firm of Nossaman, Waters, Scott, Krueger & Riordan ;

Member, (California) Governor's Advisory Commission on Ocean Resources, 1966-68; Member, Advisory Council of the Institute of Marine Resources, University of Callfornia, 1966Chairman, California Advisory Commission on Marine and Coastal Resources, 1970–; Member, Law of the Sea Panel, American Society of International Law, 1968-; Member, Sea Grant Review Panel, National Oceanographic and Atmospheric Agency, 1971-:

Member, Executive Committee on Natural Resources Section, Los Angeles County Bar Association, 1961-;

Chairman, Marine Resources Liaison Committee, American Bar Association, 1967–70.

perde ISTIXe arable to meet a subelite i am tees i de West Coast.

Deding the water 410-4 President Nina Sered BLM to triple its OCS

12. Does the legal formality of the accomplishment of the lease sale-in the OTROCK MANET-uxerally implement an important sequential element of a Jong-range National Energy Policy?

Tres the praxe sale alleviate the short-term crisis of acute product shortage? Xo

It is an axiom of the oil industry that if you want to produce immediate crude oil, you drill and pump from existing fields already known to contain reserves or provable reserves rather than begin extensive exploration and wildcatting programe in relatively inaccessible areas where you believe oil might be, Tulk world include additional drilling and secondary recovery activities in ezlering Bods, both offshore and upland for dry land) felds. As will be indicated in a later section of this report, such additional recovery programs in existing fe,de are already in progres

Hi boricaly, meaningful crude oil production has followed offshore lease walcoy two to six years.

Putty equent to the 1954 and 1955 Louisiana offshore lease sale a trickle of production began in 1956: significant production in 1958; and a meaningful Jeyes of annual production was achieved in 1959-61 and maintained through 1900*

The local experience of Exxon on its Santa Ynez leasehold in the Santa Barbara Channel is illustrative. The initial exploration lease was granted in 1969 Exploratory drilling activity has proceeded for six years, interrupted by # drilling moratorium after the blowout in 1969. Approval for the construction and installation of the production drilling platform was granted this month.3 *Kruger, op, At Table # 16, p. 523.

+17, 1974, Part I. 1.

Significant production is scheduled to commence in 1977, approximately nine years after the lease sale.*

Testimony and exhibits presented to the Joint Committee on Public Domain by Mr. Kempton Hall, an independent consulting petroleum geologist, indicated industry development lead time for offshore production of two to six years.

It is, then, obvious that the OCS oil and gas lease sale does not provide us with immediately useable petroleum products.

Does the lease sale implement an important sequential element of a long-range National Energy Policy?

No.

In the view of this Committee, the Assembly Select Committee on Coastal Zone Resources * and most other intelligent, responsible observers such a comprehensive National Energy Policy does not now exist. Therefore, any leasing, exploration or development activity would now have to be considered as random activity unrelated to a viable National Energy Policy.

The proposed May, 1975, OCS oil and gas lease sale is not necessary to achieve either of the two policy objectives considered above.

What, then, is accomplished by the proposed accelerated May, 1975, Southern California OCS oil and gas lease sale?

There seem to be only two policy objectives for which the lease sale is a necessary precondition. One is the receipt of cash bonus revenues by the Federal Treasury.

The other is more significant. It is an unstated, but nonetheless economically potent policy objective. Let us, therefore, state it explicitly here.

The only significant operative difference achieved by the lease sale is the transfer of legal title from public ownership to private corporate ownership.

The single operative distinction between the moment before and the moment after the lease sale is that after the lease sale the successful private corporate bidder has received "the exclusive right to explore for and extract,” to produce, sell and profit from the oil and gas "for a period of five years and as long thereafter as oil or gas may be produced from the area in paying quantities, of drilling or well reworking operations as approved by the Secretary are conducted thereon..." These are the attributes of ownership granted for the duration of the economic life of the oil and gas resources.

The timing of lease sales in the past “appears to have been a function of industry demand and . . . pressure for increasing revenue to meet the fiscal requirements of the Federal Government." Mr. Roy Ash, Director of the Federal Office of Budget and Management has stated that raising revenue to help balance the Federal budget is a principal purpose of the currently proposed lease sales up to the 10 million acre annual target."

The history of the administration of the Outer Continental Shelf Lands Act clearly indicates that geographical areas to be explored and developed have been primarily determined by the selections of the private oily industry.10 There is no reason to doubt that this selection process has also operated to focus current attention on the Southern California Borderland OCS.

Why Southern California?

The answer to this question is a singificant part of the answer to the more inclusive question, What's the Rush?

The Southern California Borderland OCS is the richest untapped oil and gas resource area available for ownership.

"Ownership of the oil is an important point, because there are few oil areas outside North America where a company can end up owning the oil it discovers, oilmen note."1

Some desirable locations along the Atlantic Seaboard and in Alaska are being withheld from leasing pending the outcome of current law suits. The Gulf of

4

Transcript of Proceedings, Public Hearing Before the Joint Committee on Publie Domain, March 19-20, 1974, "Offshore Drilling, p. 176.

5 Transcript of Proceedings. Public Hearing Before the Joint Committee on Public Domain, October 2, 1973, pp. 58-9 and Appendix V.

Summary of Findings and Recommendations (Pertaining to the Hearing on) Offshore Oil Drilling, held April 9, 1974. Report dated July 18, 1974.

Krueger, op. cit., pp. 89 & 203 and Appendix 4-D: The Outer Continental Shelf Lands Act. 67 Stat. 462, 43 U.S.C. §§ 1331-1343 (Aug. 7, 1953).

Krueger, op. cit., p. 610.

Los Angeles Times, June 27. 1974. Part I, p. 1.

10 Krueger, op. cit., pp. 187 & 602-04.

Bureau of National Affairs. Washington, D.C., General Policy (No. 50), July 25, 1974 (EUR) p. A-29 (Emphasis added).

Mexico has "been largely leased up,” according to Deputy Under Secretary of the Interior, Jared G. Carter." This means that future development will have to take place in the "frontier areas," specifically Southern California, Carter indicated, where large-scale offshore drilling (on Federal lands) has not been done before.

The Southern California Borderland OCS is "ripe."

The major oil companies are ready to proceed. Recent record profits provide them with huge sums of cash to invest in the "front money" cash bonus bids.13 They are prepared to mesh Southern California OCS oil and gas into their plans for exploiting Alaskan oil.

There is no comparably attractive domestic area available for exploitation. The bureaucratic procedures for granting ownership of the oil and gas resources are favorable. The economic environment-peculiar to California-of tight oligopolistic control of production, pipelines, refining and marketing" is most receptive to oligopolistic development of the OCS resources.

In 1972 individual and corporate members of the petroleum industry contributed approximately $5 million to the Finance Committee to Re-Eelect the President (F-CRP); some secret and some publicly acknowledged contributions; some legal and some illegal contributions. The Hon. Les Aspin, Member of the U.S. House of Representatives from Wisconsin, has provided a significant public service in gathering this information from the public record, from the General Accounting Office and from the research of Common Cause and publishing it in the Congressional Record."

It would be naive in the extreme to assume that the petroleum industry invested $5 million in CRP with no anticipation of any return whatsoever.

The persuasive and all pervasive influence of the major international oil companies in the highest councils of government can be additionally illustrated through the following two events.

In 1969 Occidental Petroleum Corporation had proposed the construction of a sizeable (approximately 300,000 barrels per day) refinery in Maine. Occidental intended to process its inexpensive Libyan crude oil in this refinery. This would have required the removal of the then existing oil import quotas which kept a protective wall around the U.S. market between 1959 and early 1973. As part of a general consideration for the removal of the oil import quotas, a Cabinetlevel task force in 1969 was readying a proposal to dump the quotas.

"Exxon can be faulted for its support of oil import quotas, . . . Michael Haider, then Exxon's recently retired chairman, arranged a private meeting with President Nixon, who eventually decided to keep the quotas. In retrospect, that was a grievous error. The quotas helped prompt U.S. oil companies to build their new refineries overseas, where they had access to their plentiful and cheap foreign crude. U.S. refineries have about 3 million to 4 million bbl. less daily capacity than they would need to meet 'normal' domestic demand of close to 20 million bbl. That lack will contribute to keeping supplies tight for years.

The second event is a more recent occurrence involving the obstruction by major oil companies of the collection of data in Venezuela for a Federal Energy Administration (FEA) study to consider different possible government policies toward U.S. firms active in the international oil busines. Two investigators " conducting interviews in Venezuela for the study were told by the U.S. Ambassador to cease the interviews and to leave Venezuela as soon as possible on the request of the State Department. Mr. Dolph, the head of Creole Petroleum (an Exxon subsidiary) and Mr. Rawleigh Warner, Chairman of Mobil, objected to the study and complained to the U.S. Embassy. The two investigators returned to the United States without having seen any of the Venezuelan officials they had planned to meet.18

12 Los Angeles Times, July 13, 1974, Part II. p. 1.

13 See subsequent section of this report, What Are They Doing to Us-Economic Considerations, p. 13, for a discussion of the detrimental economic consequences of this traditional BLM bidding procedure.

14 For details see concurrent reports issued by the Joint Committee on Public Domain covering Pipelines and Exchange Agreements.

15 See Congressional Record-Extension of Remarks: January 22, 1974, pp. E87 and E88 January 23, 1974, pp. E141 and E142; January 24, 1974, pp. E175 and E176. 16 Time, February 18, 1974, p. 32.

17 One of the investigators who was asked to leave Venezuela was the Contractor's Project Director for the FEA study, Mr. Robert B. Krueger, identified in Note 1, above, of this Joint Committee report. The Contractor for the FEA study is the Los Angeles law firm of Nossaman, Waters, Scott, Krueger and Riordan, Los Angeles Times, Aug. 17, 1974, Part I, p. 18. See also Appendix I for a summary draft statement of the objectives of the study.

19 Los Angeles Times, August 17, 1974, Part I. p. 18.

The petroleum industry has indicated a demand-a willingness to buy. The revenues to be received would certainly help to balance the Federal Budget. Out of a potential total of 7.7 million acres in the Southern California Borderland OCS, the industry has selected or "nominated" 1.56 million acres to be offered for initial sale.

In summary, the directives to triple and then triple again the acreage put up for lease sale seem to be the ad hoc reaction of an indebted Administration to a "crisis" situation. The program of increased lease sale offerings is an easy solution. It follows an habitual way of doing business requiring no critical thinking by the acquiescent bureaucracy. The bureaucracy is geared up to handle it-the same bureaucracy which so persistently assumes that "what's good for Standard Oil is good for the nation."

"Our mission is to serve you, not to regulate you. We have to do business today and tomorrow."-(Rogers C. B. Morton, Secretary of the Interior, White House Briefing of Oil Industry Leaders, August 16, 1973) 19

There is only one reasonably inferrable answer to the question "What's the Rush?" An accommodating Federal administration is pushing to transfer immediately the ownership of valuable publicly owned oil and gas resources to the largest private corporations in the world before an informed and aroused public can demand alternate considerations and before Congress can determine an energy policy, establish priorities and consider beneficial economic changes in offshore oil development procedures.

WHAT ARE THE STAKES?

The stakes in the controversy over the leasing and development of the Southern California OCS are enormous in terms of both economic and ecological significance.

Economic

All of the citizens of the United States now own one of the potentially most significant remaining untapped oil and gas prospecting areas in the world. The Outer Continental Shelf from Point Conception to the Mexican Border including the Santa Barbara Channel and the so-called Southern California Borderland,. approximately 21,000 square miles-contains an estimated 89 billion barrels of undiscovered "oil in place" and an estimated 890 trillion cubic feet of undiscovered "gas in place." The two geographic components of this total are: 14 billion barrels of oil (and 140 trillion cubic feet of gas) in the Santa Barbara Channel and 75 billion barrels (and 750 trillion cubic feet of gas) in the remainder of the Southern California OCS area.

These estimates of "oil in place" presented to the Committee by an experienced, independent petroleum geologist are admittely sketchy.20 They are based on the merest beginnings of geological and geophysical exploration work on the OCS, and on comparisons with similar known oil bearing and producing geologic structures already developed on dry land. Nonetheless, these estimates are the result of reputable study and are the currently accepted working estimates of the industry, having been officially published by the American Association of Petroleum Geologists in 1971, under a grant from the National Petroleum Council of Washington, D.C.

According to the working hypothesis of the professional geologists, approximately 30% of this "oil in place" might be discovered and pumped out using economically and technologically feasible discovery and recovery methods. This would result in approximately 221⁄2 billion barrels produced from the Southern California Borderland and 4210 billion barrels from the Santa Barbara Channel; a total of 2610 billion barrels. At current rates of consumption for California alone (approximately 2 million barrels per day), this could provide 38 years worth of petroleum products for California.

Ecological

There are other values to which we must also pay heed-values inherent in the seas above the submerged lands, on the tidelands, the marshlands and at the shoreline. These are values not so easily given an immediate measure by the dollar sign.

19 Official Text, White House Briefing, Bureau of National Affairs, Washington, D.C., General Policy (No. 2) 8-23-73 (EUR) pp. B-6 & B-7.

20 Kempton B. Hall, Independent Consulting Petroleum Geologist, Transcript of Proceedings, Public Hearing Before the Joint Committee on Public Domain, October 2, 1973, p. 50 et seq and Appendices III, IV and V.