Studies which assess profitabilities from Federal offshore oil and gas leases consistently point to unsatisfactory performance. That is true for leases issued years ago as well as for the future even with presently optimistic oil and gas price projections. Bonus paid is the controllable factor that delivers the coup de grace to acceptable profits. Elimination of bonus may not make profitabilities robust, but could make them closer to the average for all industries. This review leads to a simple prescription. For profitabilities closer to a satisfactory level, bid less bonus.


Mistrust of U.S. oil and gas company data and studies has been a fact of life for some time. The highly charged political world of Washington, D.C., has been the arena where this mistrust has been most evident. When the cost of oi3 to refiners more than tripled between 1973 and 1974 and gasoline prices reacted, mistrust peaked.

Issues involving the Federal Outer Continental Shelf (OCS) were a frequent focus of this mistrust. Bonuses paid for OCS leases hit new highs in the early 70's. In the minds of the mistrustful, an industry willing to pay more money for OCS leases meant an industry making too much money from them. Industry protests that profits were actually low seemed only to increase suspicion that profits were inordinately high.

Impasse aptly described the status between industry and government regarding OCS profits in 1975. Industry's statements that profits were low were simply not believed. There was no effort to resolve the impasse technically in spite of publicly available data to do so. No study by industry of government had actually examined the revenues and costs of individual OCS leases to assess profitabilities. Annual gross revenues for each lease to do so were available in the public records. The date of spudding, depth, and classification of each well on each lease were in the public record. The water depth, size and installation date of each OCS production facility were also a matter of record. Bonus paid, a major cost, was, of course, known. Those data along with cost information are all that are necessary to prepare annual net cash flow tables for individual OCS leases. Thus, unavailability of data was no bar to completing a technical study of profitabilities of OCS leases issued.

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