ABSTRACT

This study covers Industry's activities in the State and Federal portions of the Louisiana offshore from the first State lease sales immediately after the close of World War II through the Federal sales held in 1972. Estimates of future exploration and development on these leases are included, and a model of the operation during the remainder of the productive life is used to evaluate the outcome.

The area has become an important producing province (1973 production was about 450 million barrels of oil and condensate and 3.9 trillion cubic feet of gas) and the leases acquired through 1972 may result in the discovery of as much as 8.4 billion barrels of oil and condensate and 70.4 trillion cubic feet of gas. Lease purchase and exploration costs (including future costs on leases acquired prior to the end of 1972) total about 8.2 billion dollars and development costs will be at least 11.4 billion when these leases are fully developed. The profitability of the venture for Industry will depend on future product prices. At the end of 1973 48 percent of the oil and 37 percent of the gas had been produced.

When the original study was done in mid-1973, two future price cases were analyzed. Case I incorporated the mid-1973 revenue levels through the remainder of the productive life. In Case II, oil prices were increased 5 percent per year and gas 61/2 percent. These increases were based on published estimates of future world oil prices by Federal agencies and major banks. An additional case will be presented using future prices in keeping with recent events in the world oil market. This case will also incorporate any changes in the industry tax structure as a result of legislation now pending in Congress. The results of the previous analyses are summarized below.

Tabulated data; refer to PDF file.

Industry's overall results have been poor except for the early years. The latter period, 1968-1972, will yield a poor return under almost any reasonable assumption of future prices. The deterioration in profitability from the early to late period is partly due to a moderate decline in field quality as well as higher development and operating costs. (The newer fields are generally in deeper water and further from shore.) However, the major cause is the much higher prices paid for leases at the more recent sales. Even in Case II, about 2/3 of the operating profit from the 1968-1972 period will be paid to the Federal Treasury in the form of bonus, rentals, royalty and income tax. Depending on future prices, this can amount to as much as 50% of gross revenue. This does not include any provision for excess profits or excise taxes which would increase the Federal share or benefits to the consumer as a result of price constraints on domestic production to keep revenues below world oil prices.

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