The purpose of this paper is to review certain investment aspects of the offshore petroleum development that started with such a flurry early this year, after what seemed am interminable delay, in opening one of the world's remaining great prospective areas to exploration. This development will be placed in the perspective of the legislative changes that have been effected or are contemplated in Washington; and the impact of these changes on future offshore development in the United States will be assessed. The progress of United States offshore development then progress of United States offshore development then will be related to progress in other parts of the world. Based upon a hypothetical calculation of the investment incentives presently available in the Atlantic offshore region, conclusions will be drawn on the reasons for the sluggishness of U.S. offshore development, and the possible cures for this condition.
Fig. 1 shows the location of the most prospective offshore Atlantic areas. Its importance is to stress the scale of these areas — none of them yet developed. At the beginning of this year, a proposal to lease certain Georges Bank tracts was indefinitely deferred because of a court action that the Dept. of the Interior chose not to contest. The Blake Plateau Trough also is due to be opened for leasing, Plateau Trough also is due to be opened for leasing, but on a time schedule that is even more remote.
The area of most immediate interest to this audience is the Baltimore Canyon Trough. Early results — three dry or nearly dry holes out of three at the time of writing — have not been encouraging. But the fact is that this area is known to contain structures much larger and potentially more attractive than those to the north (including the Canadian offshore areas) and than those typical of the Gulf of Mexico. Enthusiasm was encouraged further by the stratigraphic tests conducted by a consortium of 31 companies at a cost of $18 million for test drillings undertaken early in 1976. "Organic-rich potential source rock" between 9,400 and 13,900 ft was reported. Industry opinion, as evidenced by the payments of hard cash shown in Table 1, was that this payments of hard cash shown in Table 1, was that this area might represent one of the few great oil provinces remaining to be discovered outside the provinces remaining to be discovered outside the control of OPEC.
The significance of the figures given in Table 1 often has been regarded as the proof that it gives that only the major companies can participate in the present phase of offshore development. Considering present phase of offshore development. Considering that offshore production typically costs at least three times as much as onshore production, this hardly seems surprising. What is surprising is that the major companies, although barred since 1975 by the Dept. of the Interior from submitting joint bids, nevertheless entered high bids totaling $870 million for acreage in totally unproved territory. Equally surprising is that companies not listed among the 19 shown in the table, many of them relatively small, made successful bids totaling $266 million—23% of the total of $1.136 billion offered by the oil industry at the Aug. 1976 sale.
Surprise at the diversity of the bidding is also in order on account of the factors indicated in Fig. 2. This map of the Mid-Atlantic area shows that the leased tracts lie more than 53 miles from the New Jersey shore, many of them adjoining the 600-ft sounding. These are not the worst conditions in the world. The North Sea is more demanding. But leasing conditions there, as I have stressed in an earlier paper, are entirely different. If present paper, are entirely different. If present legislative and cost trends prevail, the Baltimore Canyon bidding of 1976 may prove to be the last great fling in offshore development in any of the world's areas where natural conditions are so much less favorable than in the Mid East.
The reasons for this pessimistic conclusion are to be found in the generally restrictive direction of new legislation affecting offshore development. The Coastal Zone Management Act, passed in 1972 and amended in 1976, was doubtless am inevitable addition to the regulatory framework, given the extent of uneasiness among state authorities concerning the direction of offshore development.