Drilling More, Finding Less

If the U.S. is to reduce its dependence on imported petroleum, more than conservation or even development of alternate sources of energy will be needed. The nation must also find new pools of oil at home and drain every possible drop from already known domestic reserves. That has not been happening, and some critics, including former Federal Power Commission Head Lee White and Ralph Nader, charge that the oil industry has had an incentive to drag its feet in order to reduce the supply and force prices still higher. The evidence scarcely supports that accusation: petroleum producers lately have been sinking more holes into American soil than at any time since the mid-1960s. Trouble is, the new wells are not turning up much oil.

Last year the number of wells drilled in the U.S. rose 15% above 1973 to 32,000, but the nation produced 7% fewer barrels per day (8.4 million) than the year before. In the first quarter of 1975, 8,568 wells were drilled, 22% more than during the same quarter in 1974; yet production has shown only a minuscule rise. Although increased drilling has added new oil to the nation's supply, it has not done so fast enough to offset the drain on total proven reserves caused by pumping from old fields (see chart).

Figures due out later this month are expected to show that the drilling rate slackened somewhat during the second quarter, though it remained ahead of 1974. One reason is that oil companies have less money to spend: Congress has eliminated most of their depletion allowance, and their profits have dropped. Exxon, for example, reported a 34.3% decline in net from the second quarter, compared with 1974. But another reason is the discouragingly low rate of discovery. Says Petroleum Industry Research Foundation Executive Director John Lichtblau: "The plain truth is, we just haven't seen any results from the recent rapid pace of drilling."

It may well be that there is just not much oil left to be found in the continental U.S., at least not in amounts large enough to justify a pell-mell drilling rate. No one knows for sure, of course, but experts are beginning to wonder. The U.S. Geological Survey recently cut in half its estimate of recoverable oil left in the U.S., to 82 billion bbl. Oil Expert Walter Levy questions whether it makes much sense for oil companies to continue "spending more and more, and finding less and less." Wildcatters will no doubt continue exploring vigorously, but they have accounted for barely half of what little new oil has been found since 1973, and their discoveries are unlikely to have a major impact on the nation's total supply during the next few years. The major producers, meanwhile, seem almost certain to drill less aggressively in areas where they believe only modest quantities can be found. Says Exxon Executive Vice President W.T. Slick Jr.: "We don't find it economical to drill in isolated locations or for small amounts of oil."

Record Bid. Clearly, the big strikes in the future--if there are any--will be made off the Gulf, Atlantic and Pacific coasts, and in Alaska, both onshore and offshore. Yet some of the most promising offshore sites, like the Destin Anticline off the Gulf Coast of Florida, have proved every bit as disappointing as wells drilled in the continental U.S. In 1973 the Destin fields looked so lucrative that oil companies bid a record $1.49 billion for leases. After drilling 14 dry holes, Exxon, Shell and three other producers pulled out their rigs, and oilmen now refer to that ill-fated venture as "the Destin Anticlimax." They remain confident that other offshore sites--mainly along the Eastern seaboard and the California coastline--will produce better results, perhaps yielding as much as 2 billion bbl. during the balance of the century. Whether their optimism is well founded will not be known until ways are found to overcome environmental and leasing problems and allow the industry to step up its drilling off both coasts. Many experts argue that the U.S. should at least try to determine its offshore potential--and quickly. Says Lichtblau: "The longer we wait, the longer it takes. If we keep postponing, we can write off 1985."

The oil industry has one powerful incentive to swallow its disappointment at the low discovery rate and keep looking hard for crude: all oil from new wells is exempt from federal price controls and sells currently for about $12.50 per bbl.--versus an average price for domestic crude of $5.62 in October 1973--and President Ford has vetoed congressional attempts to force a rollback. So the price should be more than enough to make a new well lucrative--provided it is the one in seven that actually hits oil.

This file is automatically generated by a robot program, so viewer discretion is required.