"Like the sea itself, the shore fascinates us who return to it, the place of our dim ancestral beginnings. . . . "When we go down to the low-tide line, we enter a world that is as old as the earth itself—the primeval meeting place of the elements of earth and water, a place of compromise and conflict and eternal change. For us as living creatures it has special meaning as an area in or near which some entity that could be distinguished as Life first drifted in shallow waters-reproducing, evolving, yielding that endlessly varied stream of living things that has surged through time and space to occupy the earth." " The shoreline itself, as well as the oil and gas resources underlying the submerged lands, is a heritage belonging to all of the people of the United States. Californians have a special responsibility as trustees for ourselves, our children and for all other people in the country to preserve and protect the lifegiving seashore. The valuable petroleum resource under the OCS probably will not remain completely undeveloped. But the important questions are: Who has the rights to ownership, use and the economic benefits of this resource? Who has the rights to control the orderly and ecologically sound development of this valuable natural resource? These questions, clearly, are too important to leave to the bureaucratic professionals and the major oil companies. The question is, simply: Who is to decide? Them or us?" Economic considerations WHAT ARE THEY DOING TO US? The most significant and detrimental long-term economic effect of the proposed "rush" program of OCS lease sales under the traditional leasing procedures would be the almost inevitable increase in the concentration of control over our valuable publicly owned natural resources in the hands of the very few largest integrated oil companies in the world. The Bureau of Land Management (BLM) of the Department of the Interior conducts the actual sale of the oil and gas leaseholds. The regular procedures call for competitive sealed bids to be submitted to BLM on a tract-by-tract basis. Each tract is then awarded to the qualified bidder who submitts the highest "front money" cash bonus bid. The capital requirements needed to develop the tract within the first five-year lease period are immense-approximately $1 million per drill hole; $10-$50 million per drilling platform; millions for service boats and equipment, etc. The requirement for an initial "entry fee" cash bonus bid on top of this large actual working investment, simply to acquire the leasehold, effectively acts to prevent all but the largest companies or joint venture combines from participating in the offshore exploration game. No one speaking to the Committee on this point disagreed with this conclusion. Some examples of total cash bonuses on prior lease sales are as follows: February 1968: California-$1.3 billion bid; $603 million received. September 1969: Alaska-Approximately $900 million cash bonus received. The California (Santa Barbara Channel) lease sale on Federal OCS land in February 1968 is pertinent and indicative of what we might expect from the proposed 1975 lease sale.23 Total bids were 1.3 billion. Total cash bonuses received were $602.7 million. A single company, Exxon (the largest oil company in the world, then as now; currently replacing General Motors in June, 1974, as the largest industrial corporation in the world), bid $250 million in its single name for 19 tracts. Of these it was awarded 18 tracts for $195 million. In addition, Exxon joined Standard Oil of California and ARCO in two separate joint venture bids totalling $192 million for 48 tracts, winning 29 tracts for $53 million actual cash paid by the groups. ARCO and SoCal bid without Exxon and won an additional 2 tracts. Thus, the largest, the 6th largest and the 14th largest (1973 figures) oil companies in the world won 49 of the 71 tracts sold, or 69% of the sale. 21 Carson, Rachel, The Rocky Coast, The McCall Publishing Co., New York, 1971, Preface. p. ix. 22 See Appendix IV. 23 All information taken from Krueger, op. cit., pp. 503-10 and Table 8-13. The next combination of bidders, composed of Union, Mobil, Gulf and Texaco, bid $380 million, winning 17 tracts for total bonuses paid of $237 million. Their successful bidding included the largest single bonus bid (to that time) ever received for a single 5,400 acre tract-$61,418,000. Exxon, in a single bid, won one tract for $27 million; the second highest bid for this tract was $3 million. Thus, any independent producer, or combination of same, would have had to put up $61.5 million in one instance and over $27 million in another just to overcome the high Union/Mobil/Gulf/Texaco bid or the single Exxon bid. These are very steep entry fees just to buy the right to sink a drill bit into the ocean floor. These seven largest companies thus won 66 of the 71 tracts or 93% of the tracts offered. There was a single bidder-Shell-and three other groups. One group of larger companies received no awards; one group of moderately large companies received 2 tracts; the Pauley Petroleum group of smaller companies received 2 tracts and Shell took one. "There are two points to be made from the foregoing analysis relative to the effectiveness of the competition. First, instead of 27 independent bidding units there are, in fact, (only) six. "They consist of one single-bidder firm, Shell Oil Company, plus five combines. These five combines are composed of various groupings of 24 firms. "Second, four of the five combines are made up of 15 of the big 20 oil companies is Marathon Oil Company [with 1973 sales of $1.578 million, total assets of $1.572 million, and net income of $143 million. The first combine, involving Exxon, SoCal and ARCO ... have total assets of $25.1 billion, $9.1 billion and $5.1 billion, respectively]....... "The Pauley combine is composed of firms that, probably with the exception of Ashland Oil and Refining Company, could not separately compete effectively for the most promising oil and gas leases. By combining their resources, the Pauley group was able to obtain two tracts at a total cost of $74 million. Thus, the practice of joint bidding among small firms resulted in the addition of one effective competitor." 99 24 The 1968 Santa Barbara Channel experience can be taken as very indicative of the probable 1975 Southern California expectation. The author of the above study states that effective competition and entry of smaller producing units seems less in California than in Texas and Louisiana. One additional reason for the lesser degree of competitive entry for smaller companies in California is the smaller number and relative weakness of independent producers and refiners on the West Coast as compared to the Gulf Coast. This situation has been created and maintained by the major Colifornia oil companies which own over 95% of the crude oil pipeline network in California; own 85% of the refining capacity; and control the low posted price schedule, all of which have prevented the independent producers from making a fair return on their investments. And indeed have prevented them from producing at all where actual costs have exceeded the allowable posted prices. Being kept in such an anemic condition, it is small wonder that they are unable to put big chips on the table to buy the right to explore for oil on public lands!! The practices of the major California oil companies in pricing, pipelines and refineries have been or will be examined in detail in other reports of this Committee and will not be repeated here. In the final analysis the true economic function of the "front money" bonus bidding system is to perpetuate and extend the oligopolistic control by the giant oil companies over the OCS oil resources. The functional consequences of this system is to eliminate effective competition by denying smaller production units access to the development of OCS oil resources. Whatever one might believe about the antitrust implications of the present economic organization of the international oil industry, certainly it can be agreed that the United States Government should not-either through explicit complicity or inadvertent behavior-contribute to the extension of such a tight oligopoly. PROCEDURAL CONSIDERATIONS "I know we've got a credibility problem," said Jared G. Carter, Deputy Undersecretary of Interior, discussing the OCS oil exploration program at a public meeting in the Santa Monica Civil Auditorium in early July. 24 Krueger, op. cit., pp. 508-09. Perhaps more than Carter realized, his comment seems to sum up the appre hension of Californians concerning the potential environmental dangers of the proposed OCS oil exploration program. The program is being presented step-bystep with each step a fait accompli with no provision for effective public comment or substantive participation in the planning process. Except for the PR-type presentations made by Mr. Carter during his July visit to California, some contacts with the State Lands Commission and some questionnaires sent through the mail, no substantive contacts have been made to the appropriate boards, commissions, councils or agencies of state and local government by BLM. The Joint Committee on Public Domain had hoped to have a representative of the Federal Government contribute to the March Committee Hearings on offshore exploration. No such representative appeared. One witness at the hearing, a consultant to the California Conservation Committee of Oil Producers, suggested that, "A solution will be found if the environmentalists will sit down with the oil industry and conscientiously work with them in arriving at a mutually satisfactory solution." No such opportunity has been offered. No effective BLM contact has been made with the California Coastal ZoneConservation Commission. Mr. H. W. Wright, Secretary of the Public Lands and the Offshore Operations Committee, Western Oil and Gas Association, stated to the Joint Committee on Public Domain, "Nor does there seem to be any necessity for further legislation to protect the environment. The California Environmental Quality Act and The California Coastal Zone Conservation Act of 1972 appear to provide more than complete protection." 20 Unfortunately, the oil industry and the government agencies with which it operates do not seem to be making a conscientious effort to work cooperatively with the California Coastal Zone Conservation Commission. Quite the contrary, they seem intent on forcing the sale of oil and gas leases on Southern California OCS land before the completion of the comprehensive coastal development plan required by the California Coastal Zone Conservation Act of 1972-the very act that Mr. Wright purports to believe adequate to coastal protection. The Bureau of Land Management (BLM), the U.S. Geological Survey (USGS) and the State Lands Commission (SLC) are proceeding according to their habitual mode of operating with the oil industry. It is a classic example of the regu-lating agencies being increasingly influenced by the industry they are supposed to be regulating. "Our (Department of the Interior) mission is to serve you, not to regulate you. We try to avoid it." (Rogers C. B. Morton, Secretary of the Interior, Remarks to oil industry executives) 27 In a report on The Administration of State Owned Tidelands issued on August 15, 1974, by the Joint Committee on Public Domain, the Committee has detailed the failure of the State Lands Commission to operate effectively in the public interest in a number of matters directly affecting the oil industry. BLM and SLC continue to operate under the mistaken notion that "What's good for Standard Oil is good for the nation and for California." They have mis-identified their proper role by assuming that the interests of the government agencies are identical to those of the giant oil companies. This is simply not true. The oil companies are developers, purchasers, and processors of crude oil. The proper role of the government agencies is that of independent resource owner and seller of crude oil-an across-the-table, adversary relationship with the oil companies. The City of Long Beach, as Trustee for the State in the operation of the Wilmington tidelands oil field, has correctly identified its role vis a vis the giant oil companies. Long Beach has joined the Independent ProducersAssociation. BLM and SLC have not yet awakened to their true responsibility. In a subsequent section of this report entitled Caveat Venditor (Let the seller beware) we have outlined the proper responsibility of our government agencies. This misapprehension of their true responsibilities has led BLM and SLC to a misunderstanding of the purpose and function of an Environmental Impact Statement (EIS) in the planning process. They are viewing the Environmental Impact Statement as just an accretion on existing procedures; just an additional formality-another step to go through after the substantive plans have been made. 25 Transcript of Proceedings. Public Hearing Before the Joint Committee on Public Domain, March 19-20, 1974, "Offshore Drilling," pp. 6-7. 20 Ibid., p. 42-3. 27 See Note 19, above. They do not seem aware of a new mood amongst the U.S. public that the EIS is an integral part of the total planning process-all of which must take place in good faith and in full public view. Public agencies of other nations are apparently able to conduct a more open public planning dialogue with the major oil companies. “A... strength of the North Sea systems with regard to public confidence is that they provide government with virtually all available information, even during the earliest phases of data collection. This responds to a consistent criticism, whether warranted or not, that, under the present U.S. system, government possesses inadequate information to make well-informed decisions. This seems to be a product both of the U.S. leasing system and the petroleum industry's general distrust of government. In fact, if the public is to have confidence in the management or interest in continental margin development, it would appear that there must be greater mutual trust between industry and government. This trust appears to exist in the North Sea countries and government-industry relations there are generally marked by cooperation and candor. Everyone benefits. By sharing more information and discussing future plans, for example, both government and industry planning is better informed and an understanding of what is acceptable and unacceptable worked out informally. This guards against surprises and hipshooting responses." 28 More openness and more candor on the part of the oil industry and the government agencies now dealing with it would go a long way toward eliminating Mr. Jared Carter's "credibility problem." Here are two additional examples of totally unacceptable government agency behavior in the protection of the public interest. First, there is no assurance that adequate independent advice is being solicited or received in the preparation of standards for antipollution equipment. Indeed, there is evidence to the contrary. A U.S. Geological Survey document marked "privileged information" indicates that the government has enlisted over 20 oil company executives to draft the standards for such antipollution equipment used in offshore drilling. This prompted one observer to comment that, "This is a little like putting Dracula in charge of the blood bank." Second, BLM has established a 34 mile buffer zone in Federal waters adjacent to State designated sanctuaries in which no drilling will take place. This is ostensibly to prevent oil drainage from State lands through wells drilled through Federal leaseholds. By law, if such drainage occurs from State sanctuaries (which presently exist along the Malibu-Santa Monica Bay, Long Beach, and Huntington Beach-Laguna Beach State owned tidelands), then drilling must be allowed in these sanctuaries to recapture the economic return to the State of California. This, of course, would completely destroy these sanctuaries. Undersecretary of Interior Jared G. Carter has stated that, "For drainage purposes, a 4 mile zone is larger than needed," but that the department wants to be extra cautious." No evidence was given to substantiate the claim that a 3⁄4 mile buffer zone is sufficient. Indeed, one might ask, if a 3⁄4 mile zone is more than sufficient, why, then was a 2 mile buffer zone established in the Santa Barbara Channel prior to the 1968 Federal leasing there? A conversation with Mr. E. N. Gladdish, Executive Director of the State Lands Division, indicated that the 4 mile buffer zone was more or less arbitrarily selected by the Interior Department and accepted by the State Lands Commission. The kicker, however, is that the width of the buffer zone really doesn't seem to matter because SLC and BLM are entering into a "unitizing" arrangement whereby certain oil pumped up through Federal leaseholds will be assumed to be coming from oil reservoirs overlapping both Federal and State land. The State will thus share in the revenues and presumably will not actually be forced to drill within the State sanctuaries. This all looks very fine until one realizes that this cozy arrangement is being worked out solely on an administrative basis between the two agencies without benefit of any public discussion; with no public consideration of the possible effects of ocean bottom subsidence as a result of drainage under State sanctuaries-a significantly important consideration off Pacific Palisades; and completely in violation of the spirit and purpose of the Offshore State Sanctuaries! 29 White, Irvin L., et al, North Sea Oil and Gas, University of Oklahoma Press, Norman, Oklahoma, 1973, pp. 153-4. 29Oil and Gas Journal, July 22, 1974, p. 17. Environmental considerations The Joint Committee on Public Domain hearings on offshore drilling provided testimony on a number of matters of environmental concern. The testimony indicated that progress had been made in certain aspects of the offshore drilling safety and antipollution procedures, and that numerous problems still remain. A. Progress 1. In evaluating methods and procedures for the prevention of future blowouts and oil spills, it is always helpful to have an analysis of what went wrong on a prior disastrous occasion. The Committee received an informed opinion concerning the cause of the blowout on Platform "A" in the Santa Barbara Channel in 1969. There were inadequate Federal regulations regarding the requirements for drill hole casing. There was apparently inadequate supervision of the drilling operations. There were thus two errors made in the drilling operations: (a) insufficient depth of casing around the drill hole (238 ft. for a 3,200 ft. hole) and (b) insufficient weight of drilling mud at the bottom hole reservoir to contain the pressure from a pressure zone within the reservoir. Thus the pressure escaped from the deep reservoir up 3,000 ft. of uncased drill hole whence it then leaked through fissures in the drill hole rock into a shallow reservoir, about 500 feet below the ocean floor, and then seeped to the surface from there.30 Knowing that this accident occurred as a result of correctable error provides a certain degree of assurance for future operations. 2. Operating under revised regulations with much more stringent requirements for casing, Exxon has achieved an excellent safety record on its exploratory drilling program since 1969 in the Santa Ynez field. Utilizing casing all the way down the drill hole. Exxon has drilled 44 wells with a total of approximately 400,000 feet of hole drilled. They drilled in water depths up to 1,500 feet and operated 3,000 rig days. In the entire five year period there was only a single four-barrel spill. The statement was made that since these operations have been conducted safely in the past, they can be done equally safely in the future. 31 3. New regulations and new safety features on drilling platforms, such as "fail-safe" automatic shut-off valves have improved the anti-spill characteristics of the drilling operations. Pumps will shut off and drill pipes, pipelines and storage tanks will shut down in case of accident, earthquake, storm damage, etc. On-platform response capabilities have been provided for the immediate containment and recovery of any possible spill. 4. Improvements have been made in the containment boom systems for containing and skimming oil spills. The bottom-tension boom has a skirt which remains approximately eight feet under water as the boom is pulled through the water by a tension cable attached to the bottom of the skirt. Thus no surface oil can escape out from under the boom and skirt. Clean Seas, Inc. is one of four companies organized to operate the containment and oil spill recovery systems throughout the length of the California coast. Clean Seas, Inc. has successfully tested the bottom-tension boom system on natural seepage in eight foot seas. Clean Seas, Inc. claims a maximum response time of four hours to any oil spill within its jurisdiction: Morro Bay to Pt. Dume. B. Problems For all the progress, there remains substantial unkowns and continuing problems in providing pollution-free drilling activities. 1. The piecemeal, incremental development pattern followed by BLM provides for Environmental Impact Statements only for the specific tracts being leased at any one time. It prevents the precise approach which should be utilized: A total, long-range systems design plan for the entire 7.7 million acres potentially available for lease now and in the future. Such a comprehensive plan and its accompanying EIS is an absolutely necessity before sensible decisions can be made on either an economic or an environmental basis. Such a comprehensive plan is required to make optimum decisions regarding: (a) Potential earthquake risk; 30 Transcript of Proceedings, Public Hearing Before the Joint Committee on Public Domain, March 19-20, "Offshore Drilling,' pp. 177-79. 31 Ibid., pp. 161-62. |