ing new combinations of large integrated companies and smaller independent ones.
• It was the first time bidders used rigorous quantitative studies of the size of the tracts to guide their bids to deliver appropriate risk-adjusted required rates of return.
• It opened the eyes of federal regulators about the revenue potential inherent in the activities of the thinly staffed BLM.
Courtesy of Friede & Goldman, LTD
In January 1962, Shell drilled a record-setting offshore well in 297 feet of water in the Gulf of Mexico with the Bluewater Rig No. 1, the industry’ s first semisubmersible drilling rig.
generated $ 141 million from leasing tracts in Zone 1. It was still awaiting the ultimate Supreme Court ruling on its rights to tracts beyond that point. In February 1960, officials from Shell Oil encouraged the BLM to include in its latest auction more tracts up to 25 miles offshore and in water up to 300 feet deep. They did so knowing their company was developing a revolutionary semisubmersible drilling vessel capable of drilling in such previously unexplored depths. The BLM added such tracts. Shell was a major winner, contributing much of the $ 285 million in revenue that the auction generated. That figure was more than twice as much as the amount earned in any previous lease sale. The BLM rejected additional bids by Shell for tracts in Zone 4. It considered those bids to be artificially low; and besides, they were uncompetitive since no other company had felt competent to bid on those tracts.
In May 1960, the Supreme Court ruled that Louisiana could control leasing activities only up to the three-mile limit. With the extent of its control now firmly established, the BLM decided to begin offering many more leases in Zones 3 and 4 and in water more than 100 feet deep. Officials were aware that many companies were adopting new seismic exploration techniques and developing drilling rigs capable of operating farther out into the Gulf. Indeed, in January 1962, they watched Shell Oil begin operating a ground-breaking floating drilling platform the company named Bluewater I. It began drilling in a tract the company had won in 1960 and that was in the previously unheard-of depth of 297 feet of water. One of the engineers who developed it referred to its similarity to an iceberg and coined the term semisubmersible to label it.
Between 1960 and 1962, the BLM increased its knowledge about the nature of the waters in the Gulf. Officials developed new analytical methods to determine minimum bid possibilities for tracts much farther from land and in much deeper water than before. In March 1962, the BLM held a two-day lease sale that marked the beginning of a new era of exploration. The two-day sale generated $ 445 million, a sum that exceeded the combined annual revenue from all timber sales in Oregon and California and all onshore mineral leases. It represented a landmark in history for several reasons:
• It opened the deeper waters of the Gulf to a broad range of participants, includ-
And in one feature not fully appreciated at that time, the 1962 BLM sale ushered in a new era of cooperation among companies exploring for offshore oil. That activity in turn brought about the accelerated diffusion of drilling and production technology. In one particularly unusual example of that process, Shell Oil charged seven competitors and the US Geological Service $ 100,000 each to attend a threeweek school in which it shared its knowledge about deepwater drilling. Thus, at the same time one group of technology companies and adventurers began exploring outer space, another group of oil companies and construction firms took the still risky business of offshore drilling to new levels of efficiency.
Michael A. Martorelli is a director emeritus at Fairmount Partners in Radnor, Pennsylvania, and a frequent contributor to Financial History. He received his MA in History from American Military University.
Sources
Hager, Alan V.“ The Tidelands Oil Controversy: The Prize and the Responsibility.” Natural Resources and Environment Vol. 10, No. 1. Summer 1995.
Kreidler, Tai Deckner. The Offshore Petroleum Industry: The Formative Years, 1945 – 1962. Ph. D. Dissertation. Texas Tech University. 1997.
Morton, Quentin.“ Beyond Sight of Land.” GEOExPro. June 2016.
Priest, Tyler.“ Extraction Not Creation: The History of Offshore Petroleum in the Gulf of Mexico.” Enterprise and Society Vol 8, No. 2. June 2007.
US Commission on Ocean Policy. An Ocean Blueprint for the 21st Century, Final Report. Washington, DC. 2004.
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