Petroleum exploration on the United States’ Outer Continental Shelf has a colorful history, punctuated by the interplay between private enterprise and government oversight. Except for a thin strip near the coast controlled by the adjacent coastal state, the entire area is under federal government jurisdiction. As of 2020, the OCS provides about 15 percent of U.S. domestic oil production and 2 percent of natural gas.
The following is a brief history of that government oversight and how the author’s involvement may have saved the industry’s activity in the OCS from being nationalized.
As early as 1896, oil was produced from wells on a pier built into the Santa Barbara Channel in California. In 1945, interest in the mineral potential beyond the shorelines, as well as national security issues, prompted President Harry Truman to issue an executive order extending U.S. jurisdiction to the edge of the OCS. Offshore oil production beyond the sight of land began in the Gulf of Mexico’s Ship Shoal Block in 1947 by Kerr-McGee Corporation; this was from a platform anchored on the sea floor in about 18 feet of water.
Rapidly growing postwar demand for petroleum products spurred exploration, including that on the OCS. That activity resulted in the enactment of the Outer Continental Shelf Lands Act of 1953, which required that any person conducting mineral exploration or production on the OCS must first obtain a permit from the federal government and comply with provisions stated in that permit. The government agency assigned to administer the permits was the Conservation Division of the U.S. Geological Survey in the Department of Interior. Four Conservation Division field offices were established to oversee the different parts of the OCS around the United States: Washington D.C. for the Atlantic OCS; Metairie, La., for the Gulf of Mexico; Los Angeles, Calif., for the Pacific OCS; and Anchorage, Alaska, for the OCS around that state.
The Push to Nationalize
In the early years of administering the OCSLA, there were two primary concerns: ensure the drilling platforms were constructed properly and drilling practices met industry standards to prevent blowouts and oil spills. The method of exploration and the decision of where to construct a platform and drill were mostly left to the permittees’ discretion.
Then came the Arab oil embargoes of the early 1970s, and for the first time the American people were awakened to the fact that their service station fuel reservoirs were not bottomless pits. It did not help that traditional domestic production had reached its peak at about this same time. Waiting lines at service stations grew longer, imports of oil increased and the price of gasoline quickly went from about 30 cents to more than a dollar per gallon. Wintertime heating oil shortages became a problem, especially in the non-producing states in the north and northeast.
The search for solutions took many forms. The Nixon administration briefly considered invading countries like Saudi Arabia, Iraq and Kuwait to take control of their petroleum reserves. The petroleum industry requested that more lands be opened for exploration, but it was already operating at near capacity and it would take years to bring production on line. Consumer groups petitioned the government to charge more for leasing fees and royalties on federal lands; “We are getting ripped off,” they said. Those non-producing states complained they were not being fairly considered in the allocation of available resources. Coastal states felt they should have more input with regard to activity off their shorelines, and a bigger share of the revenue.
Some more radical elements, mostly from those non-producing states, advocated for nationalization of the petroleum industry. They argued that central control from Washington might break through barriers and bring domestic production online more quickly. Also, they argued that the federal government could negotiate more successfully with the Organization of Petroleum Exporting Countries. Some said that at least that part of the industry on the OCS should be nationalized since it was already under federal government jurisdiction.
National oil companies were not that unusual. Less than 10 percent of world petroleum reserves were controlled by independent companies. Saudi Arabia had formed its national company, Saudi Aramco, in 1933. Britain’s British Petroleum was formed in 1909, Royal Dutch Shell in 1907, France’s Total in 1924, Mexico’s Pemex in 1938 and Brazil’s Petrobras in 1953. Of course, dictatorships like Russia, in 1917, Libya in 1970, and Venezuela in 1976 established complete control of their reserves. So, it was understandable that some would think this might be the way to go. Why provide government subsidies and tax breaks amounting to billions of dollars to private companies when a public company could do the same job and gather the revenues for the benefit of the American people?
Competition Breeds Innovation
The American petroleum industry, however – from the days of Rockefeller to today’s ExxonMobil and Chevron, not to mention numerous independents – has been fiercely competitive. And that competitive nature has paid off in terms of technology. In fact, it was largely American technology and leadership that brought oil production online in places like Russia, the Middle East, Libya, Venezuela, Mexico and other countries. The ability to drill in environments as diverse as the Arctic and the deep waters of the Gulf of Mexico, and to depths as great as 30,000 feet in the Anadarko Basin, came from competition that drove innovation. Exploration techniques, such as common depth point seismic data and data processing procedures, resulted from the desire to understand subsurface structure better than a competitor.
The federal government did take actions in response to the embargoes. In 1973 President Nixon signed the Emergency Petroleum Allocation Act with price and distribution controls. President Ford created the Federal Energy Administration in 1974 and the Strategic Petroleum Reserve in 1975. President Carter created the Department of Energy in 1977 and the Synthetic Fuel Corporation in 1980.
A Mission from God
It was during this period that I became involved. A position became available in the Los Angeles office of the USGS Conservation Division and I started work there in 1973. In 1975, I transferred to the USGS headquarters office in Reston, Va. The stated purpose of my job in Reston was to coordinate with the four Conservation Division OCS field offices for the acquisition of the geological and geophysical data needed to evaluate the oil and gas potential of the OCS.
In preparation for OCS lease sales and in coordination with the field offices, I developed data specifications and incorporated them in the acquisition contracts. The job soon became wider than that.
The U.S. Environmental Protection Agency was created in 1970 through enactment of the National Environmental Policy Act signed into law by Nixon. Americans had become attuned to the need to protect the air, water and land that everyone uses, and NEPA required investigations of the environmental impact of any federal government activity including OCS lease sales. All of this scrutiny was felt at the office in Reston, and it became obvious that the OCS Lands Act needed revision and updates.
NEPA required more attention be paid to the siting of platforms and drilling locations. Were surface sediments stable, earthquakes or faulting nearby, near surface gas pockets, archeological features in the area, or biological reefs? Was the site in the migration path of whales, marine turtles or other endangered species? What about the presence of other minerals such as manganese nodules, gold or construction gravel and sand? Data would have to be acquired to answer these questions. There was no better source for it than as a requirement in permits issued for activity on the OCS. Unless, of course, if the OCS was nationalized – then the federal government would be responsible for everything, and any profits would go into the national treasury.
Because it was our job to regulate the exploration and production of minerals on the OCS, the Reston office soon became a clearinghouse for questions from Congress and the public about that activity. Soon after I arrived, a request for information came from a New Jersey congressman: one of his constituents, who lived near the ocean, claimed to have received knowledge from God that a vast pool of petroleum lay below the ocean floor just offshore his property and that we should immediately tap into it to solve all of our energy problems. The congressman was asking how to reply to his constituent.
Perhaps as a test to see how “the new man on the block” would handle it, I was asked to draft a reply. Maybe my previous work in the oil industry was a factor, since I was one of the few in that office with oil industry experience. After being assured this was not a joke, I spent a couple of hours drafting a reply, emphasizing the need to gather factual information before engaging in such a venture. The draft was edited up the chain of command before being signed by the USGS director and sent back to the congressman. My supervisors must have liked what I wrote, as more requests for drafts soon landed on my desk.
Discussions proceeded about how to update and revise the OCSLA. Provisions to involve coastal states in OCS planning were drafted. Procedures for requesting proprietary data from permittees, securely maintaining it, and when to release it to the public were established. I attended some of the congressional hearings in Washington D.C. where the USGS director (Vincent McKelvey and later Henry Menard) and other high-level officials were questioned about proposed revisions to the OCSLA. Drafting replies to congressional requests became a big part of the job.
When asked about nationalization, I advocated for competition by industry players. When questions arose about environmental issues, I proposed strict regulatory rules and strong oversight by government agencies. Nationalization was such a frequent topic of discussion among my fellow government employees that we began referring to the proposed entity as the Federal Oil and Gas Company, or FOGCO.
The revised OCSLA was signed into law by President Carter in 1978. I am happy to say that most of what I had advocated for in my drafts was included. FOGCO never came to be – and, perhaps, I can take some credit for its demise.
Corruption, Disaster and Reform
In 1982, during the Reagan administration, oversight of mineral extraction on federal lands was removed from the USGS and placed in a new agency within the Department of Interior called the Minerals Management Service. Ongoing controversy about proper collection of fees and royalties was a factor in this realignment. That arrangement continued into the 1990s when a scandal developed over collusion of MMS employees with industry contractors. There were rumors of wild parties and sexual improprieties. Sadly, underpayment of revenues was allowed to continue. During my time at the old Conservation Division, such behavior would have been unthinkable. Even having lunch with a contractor was something to be avoided. The work culture had definitely changed. In 2008, an inspector general charged several MMS employees with unprofessional conduct.
Then, in April 2010, a disastrous blowout and fire took place on BP’s Deepwater Horizon platform in the Gulf of Mexico. Subsequent investigation placed at least part of the fault on poor oversight by MMS inspectors. MMS was dissolved and replaced by three agencies in the Interior Department: the Bureau of Ocean Energy Management, to manage lease sales; the Bureau of Safety and Environmental Enforcement, to enforce rules; and an Office of Natural Resource Revenues, to collect fees and royalties.
Public versus Private Petroleum Production
The debate about the roles of private enterprise and government oversight continues. I am convinced that a healthy mixture of the two needs to be maintained, but it was the competitive nature and innovation displayed by the American petroleum industry that rescued U.S. consumers from the Arab oil embargoes. By the 1990s horizontal drilling and multistage hydraulic fracturing of shale reservoirs greatly reduced the country’s dependence on imports.
Today the United States is the largest producer of petroleum, but also the largest consumer. According to the U.S. Energy Information Administration, in the year 2020, the United States produced 18.40 million barrels per day and consumed 18.12 MMb/d. The United States remained a net importer of crude oil in 2020 at 5.88 MMb/d, while exporting 3.18 MMb/d. However, much of that imported crude oil is refined domestically into gasoline, diesel oil and other products that are exported to international markets. Also, some is stored in the Strategic Petroleum Reserve.
Good management is where you find it, and neither private enterprise nor government has a monopoly on that commodity. Easily the best-managed outfit I ever worked for was the Conservation Division group in Reston.
Given today’s desire to combat climate change, President Biden’s moratorium on new fossil fuel extraction from federal lands, and the phase-out of government subsidies to the industry, all of this might become moot. A new era is dawning. Our younger colleagues will have to adapt – and they surely will.