OCS Study 

MMS 95-0055 

Coastal Marine Institute 

Characteristics and Possible Impacts 

of a Restructured OCS Oil and Gas 

Industry in the Gulf of Mexico 

If of Mexico 

U .S. Department of the Interior Cooperative Agreement 

Minerals Management Service M,,, )n Coastal Marine Institute 

AM Gulf of Mexico OCS Region Louisiana State University 
OCS Study 

MMS 95-0055 

Coastal Marine Institute 

Characteristics and Possible Impacts 

of a Restructured OCS Oil and Gas 

Industry in the Gulf of Mexico 

Authors 

Ruth Seydlitz 

John Sutherlin 

Samantha Smith 

Environmental Social Science Research Institute 

University of New Orleans 

New Orleans, Louisiana 

Appendix A: Summary of Findings from Exploratory Interviews 

Authors 

Edward M. Bergman 

Thomas R. Hammer 

Bergman and Hammer, Ltd. 

October 1995 

Prepared under MMS Contract 

14-35-0001-30660-19903 

by 

Coastal Marine Institute 

Louisiana State University 

Baton Rouge, Louisiana 70803 

Published by 

U.S . De partment of the Interior Cooperative Agreement 

Minerals Management Service Coastal Marine Institute 

Gulf of Mexico OCS Region Louisiana State University 
111 

DISCLAIIVIER 

This report was prepared under contract between Minerals Management Service (MMS) and 

the Environmental Social Science Research Institute, Department of Sociology, University of 

New Orleans. This report has been technically reviewed by MMS and approved for 

publication. Approval does not signify that the contents necessarily reflect the view and 

policies of the Service, nor does mention of trade names or commercial products constitute 

endorsement of recommendation for use. It is, however, exempt from review and compliance 

with MMS editorial standards . 

REPORT AVAILABILITY 

Extra copies of the report may be obtained from the Public Information Unit (Mail Stop 

5034) at the following address : 

U.S . Department of the Interior 

Minerals Management Service 

Gulf of Mexico OCS Region 

Public Information Unit (MS 5034) 

1201 Elmwood Park Boulevard 

New Orleans, Louisiana 70123-2394 

Telephone Number: (504) 736-2519 

1-800-200-GULF 

Suggested citation: 

CITATION 

Seydlitz, R., J . Sutherlin, and S. Smith. 1995 . Characteristics and possible impacts of a 

restructured OCS oil and gas industry in the Gulf of Mexico. Prepared by the 

Environmental Social Science Research Institute, Department of Sociology, University of 

New Orleans . OCS Study MMS 95-0055 . U.S . Dept. of the Interior, Minerals Mgmt. 

Service, Gulf of Mexico OCS Region, New Orleans, La. 188 pp . 
V 

ABSTRACT 

The focus of this study is to describe the business characteristics, environment and practices 

of companies involved in offshore oil and gas extraction and production in the Gulf of 

Mexico . In addition, the effect of the characteristics of these firms and the business 

environment on their operations is examined . Moreover, the changes in the business 

characteristics, environment and practices since 1986 is investigated to enable discussion of 

the shift in the operators in the Gulf of Mexico. Further, the potential impacts of such a shift 

are presented. 

Five types of companies operating offshore in the Gulf of Mexico are studied - major 

corporations, large integrated independent businesses, small integrated independent firms, 

large nonintegrated independent enterprises, and small nonintegrated independent concerns. 

Data were collected from companies representing each of the five kinds using a phone 

interview consisting of open-ended questions . The questions concern: 1) the firms' 

characteristics, including their size, the amounts of oil and gas extracted, and the location of 

their headquarters and other offices in 1986 and the present; 2) the business environment, 

such as the federal agencies and technologies involved, the applicable leasing policies and 

regulations, and access to joint ventures and service companies ; and 3) the outlook of the 

executives on the future of oil and gas extraction in the offshore Gulf. Some of the questions 

elicited answers that could be quantitatively coded and these responses were analyzed using 

frequency and percentage distributions . Other questions obtained replies that could not be 

quantitatively coded and these comments were transcribed and sorted by type of company and 

content of the answer. 

Some findings suggest particular trends are occurring in the industry . First, the results 

suggest growth in the number of companies involved. Second, the findings imply that 

production has increased . Third, the outcome intimates that exploration activities have 

increased . Fourth, participation in joint ventures has increased. Fifth, there may be a 

tendency toward involvement in downstream integration. Sixth, the results imply that a shift 

is occurring . However, the results suggest that the nonintegrated independent businesses are 

becoming more involved while the major and integrated independent companies are 

maintaining a steady rate of activity or reducing their involvement. 

The other important results concern business characteristics, environment and operations . 

First, there was widespread support for both areawide leasing and the reduction in the 

minimum bid . Second, a vast majority of the executives were against the implications of four 

possible regulations in the Gulf: OPA '90, the increases in lease bonding to cover plug-andabandon liabilities, the Clean Water Act, and the Clean Air Act. Third, there were three key 

areas of employment: production platform maintenance and operation, exploration, and 

administration . Fourth, there were more differences between the five types of companies by 

integration than by size or the usual categorization scheme of major vs independent 

businesses . In addition, the following potential impacts of the shift in the operators in the 
vi 

Gulf are discussed : working conditions and employment, operations, and government 

revenues . 
Vll 

TABLE OF CONTENTS 

Page 

List of Figures ix 

List of Tables xi 

Acknowledgments xv 

Chapter 1 . Executive Summary 

Chapter 2. The Oil and Gas Industry in the Gulf of Mexico 11 

Chapter 3 . Exploration and Production Companies in the Gulf of Mexico 45 

Chapter 4 . Comparisons Among the Five Types of Companies 89 

Chapter 5 . The Shift in the Gulf and Potential Impacts 143 

Glossary 153 

Literature Cited 157 

Appendix A. Summary of Findings from Exploratory Interviews 163 
1X 

LIST OF FIGURES 

Page 

Figure 2.1 Oil and Gas Prices in Constant Dollars 26 

Figure 2.2 Gas Prices in Constant Dollars 26 

Figure 3.1 Resources Extracted in 1994 46 

Figure 3 .2 Resources Extracted in 1986 46 

Figure 3 .3 Change in Petroleum Extraction 1986 to 1993 47 

Figure 3 .4 Change in Gas Extraction 1986 to 1993 47 

Figure 3 .5 Downstream Integration in 1994 48 

Figure 3 .6 Downstream Integration in 1986 48 

Figure 3 .7 Change in Exploring 1986 to 1994 49 

Figure 3 .8 Location of Headquarters in 1994 50 

Figure 3 .9 Location of GOM Headquarters by State in 1994 51 

Figure 3 .10 Common Cities for Headquarters in 1994 51 

Figure 3 .11 Location of Other Offices in 1994 52 

Figure 3 .12 Location of Other Offices by State in 1994 52 

Figure 3 .13 Common Cities for Other Offices in 1994 53 

Figure 3 .14 Use of New Technology 60 

Figure 3 .15 Participation in Joint Ventures in 1994 61 

Figure 3 .16 Participation in Joint Ventures in 1986 61 

Figure 3 .17 Changes in Joint Venture Participation 1986 to 1994 62 

Figure 3 .18 Use of Contractors in 1994 64 
X 

Figure 3 .19 Change in the Use of Contractors 1986 to 1994 65 

Figure 3 .20 Change in Percentage of GOM Cost 1986 to 1994 65 

Figure 3 .21 Expected Change in Exploration 1994 to 1998 67 

Figure 3 .22 Expected Change in Workforce 1994 to 1998 68 

Figure 3 .23 Expected Change in Independents' Share 1994 to 1998 69 

Figure 3 .24 Effects of Current Prices in Percentages 71 

Figure 3 .25 Effects of Future Prices in Percentages 72 

Figure 3 .26 Most Common Positive Responses to Areawide Leasing 74 

Figure 3 .27 Positive Responses to Reduced Minimum Bid 75 

Figure 3 .28 Effect of Deep Water Projects 78 

Figure 3 .29 Effect of 3D Seismic Data 78 

Figure 3 .30 Positive Effects of 3D Seismic Data 79 

Figure 3 .31 Effect of Subsalt Exploration 80 

Figure 3 .32 Positive Effects of Horizontal Drilling 81 

Figure 3 .33 Effect of OPA '90 82 

Figure 3 .34 Effect of Plug and Abandon Liabilities 84 

Figure 3 .35 Effect of the Clean Water Act 85 

Figure 3 .36 Effect of the Clean Air Act 86 
X1 

LIST OF TABLES 

Table 2.1 Exploration and Development Funds and Asset Rankings by 

Type of Company 15 

Table 2.2 Rankings of Revenues and World Reserves by Type of Company 15 

Table 2.3 OCS Activity 28 

Table 2.4 Acreage Offered/Leased and Production for Federal OCS 

Leasing Program, 1970-1991 33 

Table 2.5 Environmental Costs of Oil and Gas Exploration and Development by Year 36 

Table 3 .1 Distribution of Employees in 1994 54 

Table 3 .2 Changes in Workforce Distribution from 1986 to 1994 54 

Table 3 .3 Federal Agencies with the Greatest Effect on Gulf Extraction 56 

Table 3 .4 Rankings of Regulations 58 

Table 3 .5 Most Frequent Joint Venture Partner 63 

Table 3 .6 Joint Venture Partners 63 

Table 4.1 Major Corporations 90 

Table 4 .2 Major Corporations' Employees 91 

Table 4.3 Large Integrated Independent Companies 92 

Table 4.4 Large Integrated Firms' Employees 93 

Table 4 .5 Small Integrated Independent Companies 94 

Table 4.6 Small Integrated Firm's Employees 95 

Table 4.7 Large Nonintegrated Independent Companies 96 

Table 4.8 Large Nonintegrated Firms' Employees 97 
X11 

Table 4.9 Small Nonintegrated Independent Companies 99 

Table 4.10 Small Nonintegrated Firms' Employees 100 

Table 4 .11 Distribution of Employees in 1994 by Type of Company 101 

Table 4 .12 Headquarters in 1994 103 

Table 4 .13 Other Offices in 1994 104 

Table 4 .14 Change in Numbers of Other Offices 1986 to 1994 105 

Table 4.15 Changes in Workforce Distribution from 1986 to 1994 by 

Type of Company 106 

Table 4.16 Federal Agencies with the Greatest Effect on Gulf Extraction 109 

Table 4.17 Rankings of Regulations for All Companies and by Type of Company 113 

Table 4.18 Technology Use by Company Type 114 

Table 4.19 Joint Venture Involvement by Type of Company 117 

Table 4.20 Joint Venture Partners by Type of Company 118 

Table 4.21 Use of Contractors by Type of Company 119 

Table 4.22 Future of Gulf Activities by Type of Company 120 

Table 4 .23 Exploration in the Gulf in 1998 121 

Table 4 .24 Independents' Share in the Gulf in 1998 122 

Table 4 .25 Workforce in the Gulf in 1998 123 

Table 4.26 The Effect of Prices on Operations 127 

Table 4.27 Effects of Areawide Leasing 130 

Table 4.28 Reduction of the Minimum Bid 131 

Table 4.29 The Effect of Technology on Operations in the Gulf 132 

Table 4.30 The Effect of Regulations on Gulf Operations 135 
X111 

Table A-1 Alternative Scenarios for Calendar Year 1998 188 
XV 

ACKNOWLEDGMENTS 

The authors want the thank the respondents who participated in this study . We realize that 

collecting the data to answer the questions required time and we appreciate the diligence with 

which they addressed these questions . We would also like to thank the following individuals 

who assisted in other ways on this project. They are listed in alphabetical order . 

Edward M. Bergman, Ph.D . ; Secretary, Bergman and Hammer, Ltd. ; Professor, Department 

of City and Regional Planning, and Director, Institute for Economic Development, 

University of North Carolina. As part of this project, Professor Bergman, with Dr. Hammer, 

completed an initial indepth qualitative study of 11 companies highly involved in the offshore 

oil and gas industry which raised issues to be examined in this study . In addition, he 

reviewed both the interview instrument and this document and made helpful suggestions. 

Raymond J . Burby, Ph .D . ; DeBlois Chair of Urban and Public Affairs and Professor of 

Urban and Regional Planning, College of Urban and Public Affairs, University of New 

Orleans . Professor Burby examined both the interview instrument and this report and made 

useful comments . 

Thomas R. Hammer, Ph.D . ; President, Bergman and Hammer, Ltd. Dr. Hammer, in 

association with Professor Bergman, completed the initial indepth examination of 11 

companies that was used as background for this study and to develop questions for the 

interview instrument . He also critiqued the interview instrument and this manuscript . 

Lori Kelly, M.A . While a graduate student in the Department of Sociology at the University 

of New Orleans, Ms . Kelly assisted in this project by collecting data for some of the tables, 

coding the data that could be quantitatively coded, preparing this data for computer scanning, 

and transcribing the answers to the open-ended questions that could not be quantitatively 

coded . 

Shirley Laska, Ph. D. ; Principle Investigator ; Professor, Department of Sociology, University 

of New Orleans . Professor Laska obtained funding for this project and made the connections 

with Professors Burby, Bergman, and Hammer that led to their involvement in this project. 

She also reviewed the interview instrument and this document and made valuable 

contributions. 

Adrienne E. Vining, B.S. While an undergraduate student in the Department of Biological 

Sciences at the University of New Orleans, Ms . Vining assisted in the early phases of this 

project by contacting state and federal agencies and industry institute to obtain background 

material . 
1 

CHAPTER 1 

EXECUTIVE SUMMARY 

A restructuring of the offshore oil and gas industry in the Gulf of Mexico began in the mid1980s. Major companies have been reducing their activity and presence in the Gulf while 

independent firms have been more aggressive in their oil and gas extraction operations . 

Although the major corporations' share of production in the Gulf has not decreased 

significantly, declining from 74 percent to 70 percent between 1987 and 1991, their portion 

of exploratory wells dropped by almost 20 percentage points (40 percent to 21 percent) and 

their share of developmental wells decreased by 14 percentage points (63 percent to 49 

percent) (Dodson and LeBlanc 1993) . 

The resource base which these new independent businesses inherit is substantially different 

from the resource base when the major corporations began operations in the Gulf about a half 

of a century ago . New sources of oil and gas are in areas from which extraction is 

increasingly difficult and capital intensive such as subsalt regions and deep water . In 

addition, the infrastructure is aging, such as pipelines and rigs . Hence, the operating 

conditions in the Gulf create different challenges and place different pressure on these 

independent firms than were experienced by the major corporations . Therefore, it is 

important to examine the business characteristics of independent and major operators 

currently active in the Gulf and to determine how they are similar and different. It is also 

necessary to investigate the business environment of extraction in the Gulf of Mexico to 

ascertain how changes in policies, federal agencies involved, regulations, technology, and 

cooperative endeavors impacts independent and major firms and their operations . Moreover, 

it is important to study how the business characteristics of independent and major companies 

and the business environment affect business practices in this region . Further, the changes 

since 1986 in the business characteristics of these two groups of firms and the environment 

must be examined to document the restructuring of the industry in this area. Thus, the 

important questions to be addressed in this study are : 

1 . What are the characteristics of major corporations and independent operators that 

are involved in oil and gas exploration and production in the offshore Gulf of 

Mexico and how have these characteristics changed since 1986? 

2. What is the business environment in the Gulf and how has this changed since 

1986? 

3 . How do the characteristics of companies operating in the Gulf affect their 

practices? 

4. How does the business environment of offshore Gulf extraction influence the 

practices of firms active in the oil and gas industry in this region? 
2 

5 . Is there evidence concerning a shift in the companies involved in offshore 

exploration and production in the Gulf? 

6. What are the potential impacts of such a shift in the firms engaged in these 

endeavors? 

METHODOLOGY 

To create a sampling frame of businesses active in offshore oil and gas exploitation in the 

Gulf of Mexico, the names of all the companies that participated in MMS lease sales in this 

area since 1988 were obtained. This list consisted of 17 major corporations and 113 

independent companies . However, not all of these firms could be included in the sampling 

frame due to the following reasons: some businesses were subsidiaries of enterprises already 

included in the frame; a few were not actual companies as they were partnerships, etc . ; some 

were no longer active in the Gulf; and another group had no phone . Thus, the final sampling 

frame included 101 companies: 17 major corporations, 19 large and 5 small integrated 

independent businesses, and 14 large and 46 small nonintegrated firms . The enterprises to be 

interviewed were selected by random sampling within each of the five groups . The sample 

from which data were obtained consisted of 11 major corporations, 13 large and 4 small 

integrated independent companies, and 9 large and 11 small nonintegrated businesses . These 

numbers represent relatively large percentages of each of the five types of companies 

operating in the Gulf. 

The data were collected during a phone interview with an executive knowledgeable about 

exploration and production matters from each firm . Thirty-nine open-ended questions were 

asked during the interview . These questions concerned: 1) the characteristics and operations 

of the firms in 1986 and currently (the fall of 1994 for most questions, 1993 for data for 

which a total amount for a year was needed) ; 2) the companies' use of service firms and 

outside contractors in 1986 and 1994; 3) the executives' predictions about the future of oil 

and gas exploration and production in the Gulf; and 4) the influences of leasing policies, 

technological developments, federal agencies and environmental regulations on the 

businesses' practices in the Gulf. Some of the questions elicited answers that could be 

quantitatively coded and these data were analyzed using frequency and percentage 

distributions for the companies as a group and for each of the five types of firms separately . 

Other responses could not be quantitatively coded. These comments were transcribed and the 

answers sorted by both the type of company and the similarity of the content of the replies. 

FINDINGS 

Some of the major findings from the study suggest trends that are occurring in the offshore 

oil and gas exploration and production industry in the Gulf of Mexico . First, the results 

suggest that there were more companies involved in the Gulf in the fall of 1994 than in 1986 . 

Second, most of the companies obtained more oil and gas in 1993 than in 1986. Third, most 

of the firms were engaged in more exploration activities in the Gulf in the fall of 1994 than 
3 

in 1986 . Fourth, participation in joint ventures increased between 1986 and the fall of 1994. 

Fifth, changes in the businesses' activities suggested a tendency toward becoming involved in 

downstream integration operations . Sixth, changes in characteristics, views of the 

environment and practices implied that a shift is occurring in activity in the Gulf. However, 

the results did not intimate that the major corporations are less active and the independent 

firms more active, rather the outcome suggested that the nonintegrated independent 

businesses are becoming more involved in the offshore Gulf while the major and integrated 

independent companies are maintaining a steady rate of activity or reducing their involvement 

in the Gulf. 

The rest of the most important results concern business characteristics, environment and 

operations as of the fall of 1994. First, there was widespread support for both areawide 

leasing, which began in 1983, and the reduction in the minimum bid to $25, which started in 

1987 . Second, as would be expected, a vast majority of the executives were against four 

possible regulations in the Gulf: the financial responsibility provisions of OPA '90, the 

increases in lease bonding to cover plug-and-abandon liabilities, the possibility of being 

required to reinject produced water (a potential implication of the Clean Water Act in the fall 

of 1994), and the prospect of the extension of onshore air quality standards to the offshore 

Gulf (a potential implication of the Clean Air Act) . Third, there were three key areas of 

employment in oil and gas exploration and production in the offshore Gulf: 

production platform maintenance and operation, exploration, and administration . Fourth, 

there were more differences between the five types of companies by integration (integrated vs 

nonintegrated firms) than by size or the usual categorization scheme of major vs independent 

businesses . The remainder of this discussion will be organized around the questions presented 

earlier in this chapter. 

1 . What are the characteristics of major corporations and independent operators that 

are involved in oil and gas exploration and production in the offshore Gulf of 

Mexico and how have these characteristics changed since 1986? 

Most of the companies operating in the Gulf of Mexico extracted both petroleum and natural 

gas. The majority of these firms obtained more of both substances in 1993 than in 1986 and 

the bulk were doing more exploring in 1994 than in 1986 . The largest group of these 

businesses had their headquarters in the Gulf of Mexico region and half of the other offices 

occupied by these enterprises were also in the area surrounding the Gulf of Mexico . Over 

half of the operators increased the size of their staffs between 1986 and 1994 . 

Some of the major corporations did appear to be reducing their presence in the Gulf. A 

number of these firms extracted smaller quantities of oil and gas in 1993 than in 1986, some 

were less engaged in exploring for these commodities in 1994 than in 1986, and some 

reduced their workforces between 1986 and 1994 . The large integrated independent 

corporations were very similar to the major companies . Like the major firms, a number had 

smaller staffs in 1994 than in 1986 ; yet, unlike the major businesses, they obtained more oil 

and gas in 1993 than in 1986 and were more involved in exploring in 1994 than in 1986 . 
4 

Analogous to the major and large corporations, the small integrated independent firms 

demonstrated signs of decreased interest in oil and gas exploitation in the Gulf. One of these 

enterprises was no longer active in extracting in the Gulf and the firms that were still 

involved in such endeavors tended to be doing less exploring and had smaller numbers of 

employees in 1994 than in 1986. In sharp contrast to the three sets of integrated companies, 

the two types of nonintegrated firms displayed evidence of increased commitment to offshore 

oil and gas extraction. Both the small and large nonintegrated groups of businesses tended to 

be extracting more oil and gas in 1993 than in 1986, more involved in exploring in 1994 than 

in 1986, and had hired additional workers between 1986 and 1994. 

There were some similarities in the operators' characteristics across type of company. First, 

regardless of kind of business, the majority of the firms extracted both oil and gas . Second, 

the bulk of all five kinds of enterprises derived more natural gas in 1993 than in 1986 . 

Third, the distribution of employees by type of work was alike for all five kinds of firms . 

Yet, there were some differences across the five types of businesses . Although the vast 

majority of the nonintegrated firms extracted more oil and gas in 1993 than in 1986, only 

about half of the integrated firms got more oil in 1993 than in 1986 . The bulk of the 

nonintegrated and large integrated businesses were more involved in exploring in 1994 than 

in 1986; the same cannot be said about the small integrated and major corporations . The 

nonintegrated companies tended to increase their staffs between 1986 and 1994 while the 

integrated firms tended to reduce their workforces during this period . Most of the major 

companies were based in cities outside the Gulf region while most of the other types had 

headquarters in the Gulf zone . The majority of the other offices occupied by the major and 

large integrated concerns were outside the Gulf area while most of the other offices used by 

the nonintegrated endeavors were in the Gulf territory . In general, the integrated businesses 

tended to close their offices in the Gulf region while the nonintegrated firms opened more 

offices in this area than they closed . 

2. What is the business environment in the Gulf and how has this changed since 

1986? 

The business environment examined in this study consisted of the following aspects: federal 

agencies involved, environmental regulations, technological developments, involvement in 

partnering, the use of service companies, and the outlook on the oil and gas industry in the 

Gulf of Mexico. The five agencies found to have the greatest influence on operations in the 

Gulf of Mexico in descending order from the most influential were the Minerals Management 

Service, the Environmental Protection Agency, the Coast Guard, the Department of 

Transportation, and the Occupational Safety and Health Administration . 

The respondents were asked to rank order the following environmental regulations : the 

financial responsibility provisions of the Oil Pollution Act of 1990 (OPA '90), the increase in 

lease bonding to cover plug-and-abandon liabilities, the Clean Water Act and the Clean Air 

Act. Overall, the regulation with the greatest impact on operations in the Gulf was the Clean 
5 

Water Act followed in descending order by OPA '90, the Clean Air Act and the plug-andabandon liabilities. However, the order differed by type of company. The major and large 

integrated corporations ranked them in descending order as follows: the Clean Water Act, the 

Clean Air Act, OPA '90, and the plug-and-abandon liabilities . The small integrated 

independent firms switched the third and fourth regulations : the Clean Water Act, the Clean 

Air Act, the plug-and-abandon liabilities, and OPA '90. The nonintegrated companies' 

rankings differed from those of the integrated firms and from each other in that the large 

nonintegrated businesses listed the regulations as OPA '90, the Clean Water Act, the Clean 

Air Act, and the plug-and-abandon liabilities while the small nonintegrated enterprises 

mentioned them in this order: OPA '90, the plug-and-abandon liabilities, the Clean Water 

Act and the Clean Air Act. One consistency occurred in the rankings by all five types of 

companies - the Clean Water Act was always considered to have a greater impact than the 

Clean Air Act. 

There were some similarities and differences across the five types of firms in the use of new 

technologies . Almost all of the companies studied used 3D seismic data. In contrast, most of 

the small nonintegrated firms were involved in or planning to be involved in deepwater 

projects while only about half of the major, large and small integrated concerns were 

engaged in such projects and almost none of the large nonintegrated businesses were 

committed to deepwater endeavors. The bulk of the major companies were involved in 

subsalt exploration while the majority of each group of independent firms were not. 

Approximately half of the major corporations and each type of nonintegrated firm used 

horizontal drilling, but less than half of the integrated independent businesses utilized this 

technology . 

Almost all of the companies were involved in joint ventures and most of the firms were 

engaged in more of these projects in 1994 than in 1986. Most of the nonintegrated firms 

were more involved in joint ventures in 1994 while only about half of the major and large 

integrated companies were more involved in 1994 . The integrated firms mainly partner with 

large enterprises and the nonintegrated businesses tend to partner with a mix of both large 

and small companies . Overall, major corporations were most often mentioned as the primary 

joint venture partners . Major corporations were referred to as the most frequent partner by 

other major corporations and by large independent firms whereas small nonintegrated firms 

were claimed to be the most habitual partner by other nonintegrated businesses . 

The use of service companies was ubiquitous . The majority of the extraction and production 

firms reported increasing their employment of such companies between 1986 and 1994 and 

half claimed that they were spending a greater percentage of their budgets for operations in 

the Gulf of Mexico on hiring service companies. There were no differences by type of 

extraction business in the use of service companies, but there was a disparity in the 

percentage of the Gulf budget spent to employ them. The nonintegrated enterprises spent a 

greater percentage of their Gulf operations budget hiring service companies while the large 

integrated firms spent the least and the major and small integrated concerns spent moderate 

percentages of their Gulf budgets in this manner. In addition, the bulk of the respondents 
6 

from large integrated and small nonintegrated firms asserted that the percentage expended by 

contracting out increased from 1986 to 1994 while the majority of those from large 

nonintegrated and small integrated companies reported that the percentage was stable between 

1986 and 1994. Executives from major corporations reported in equal numbers that the 

percentage had stayed the same or the percentage had increased. 

In general, the officials were optimistic about the future of oil and gas activities in the Gulf 

of Mexico . The majority of the respondents stated that their company would be more 

involved in exploring in 1998 than in 1994 . About half of the executives declared that the 

workforce employed in offshore operations in the Gulf would be larger in 1998 than in 1994. 

Representatives from both types of small firms and from the large nonintegrated businesses 

were more optimistic about the size of the workforce in 1998 than were those from the major 

and large integrated enterprises ; over half of these representatives thought the workforce 

would be larger in 1998 . Also, over half of the people asserted that the independent 

companies' share of activity in the Gulf would be greater in 1998 than in 1994. 

3 . How do the characteristics of companies operating in the Gulf affect their 

practices? 

The data collected in this study do not lend themselves to extensive statistical analysis ; 

however, characteristics of the companies are related to the five groups of firms . Therefore, 

the focus of this section of the report is on how the practices differ by the type of enterprise . 

First, as would be expected, the major corporations extracted the most oil and gas from the 

Gulf. Second, the majority of the independent businesses, but not the major corporations, 

were more involved in exploring in 1994 than in 1986. Third, most of the major 

corporations, but not the independent firms, had their headquarters outside of the Gulf of 

Mexico region . Fourth, the three kinds of integrated businesses had more other offices that 

were not in the Gulf area than did the two types of nonintegrated companies and the 

integrated firms tended to close offices in the Gulf region between 1986 and 1994 while the 

nonintegrated ones tended to open offices in this area. Fifth, workforce size was related to 

both integration and size of company. Integrated firms had larger staffs than did 

nonintegrated businesses ; the major corporations had the biggest workforces followed in 

descending order by the large integrated, small integrated, large nonintegrated and small 

nonintegrated companies. Sixth, between 1986 and 1994, the integrated businesses tended to 

reduce their labor forces while the nonintegrated companies tended to enlarge their staffs . 

4. How does the business environment of offshore Gulf extraction influence the 

practices of firms active in the oil and gas industry in this region? 

The effect of the following aspects of the business environment on business practices were 

examined: current and expected future prices of oil and gas, leasing policies, technology, and 

regulations. First, almost all of the executives felt that prices of oil and gas affect activity in 

the Gulf. About half of the company representatives stated that the current prices decreased 

activity and another 17 percent claimed that the current prices caused economic problems in 
their firms. Almost half of the respondents were not optimistic about the future prices of oil 

and gas while about 30 percent thought that the prices would rise . 

Second, most of the company representatives were in favor of both areawide leasing and the 

reduction of the minimum bid to $25 . They felt that these two changes in leasing policies 

increased activity in the Gulf of Mexico. The executives from major and large integrated 

corporations were more likely than the others to state that these policies had no influence on 

activity in the Gulf. Only officers from nonintegrated firms asserted that these changes in 

leasing policies allowed their company to become active in Gulf exploration and production. 

Third, 3D seismic data and horizontal drilling were viewed very positively by the 

respondents while deepwater projects and subsalt exploration were too new and too expensive 

for many of the executives to be able to discuss how these two technologies would impact 

their companies' operations in the Gulf. Almost every firm involved in the Gulf employed 

3D seismic data and many businesses used horizontal drilling largely because it is more 

economical, especially in shallow water . Deepwater projects and subsalt exploration were 

discussed favorably by some executives, mainly those representing major corporations . 

Fourth, none of the new regulations examined - the financial responsibility provisions of 

OPA '90, the increase in lease bonding to cover plug-and-abandon liabilities, the Clean 

Water Act and the Clean Air Act - were considered favorably by the executives . The results 

for the first two regulations were similar as were the results for the latter two regulations . 

The financial responsibility provisions of OPA '90 elicited negative comments concerning its 

economic impacts . In fact, 21 percent of the executives declared that their company would be 

out-of-business if this regulation were enforced as written. These officers were from 

nonintegrated firms, only representatives of integrated companies stated that their enterprises 

would be able to insure themselves . The increase in lease bonding evoked similar responses 

with presentations of negative economic impacts being the most common comments . 

However, 32 percent of the respondents stated that the regulation would have no direct 

effect, although it would have indirect influences on their operations . The most frequent 

answer to the question concerning how the implications of the Clean Water Act would affect 

operations in the Gulf was that this regulation would increase costs and lead to premature 

abandonment of wells . Similarly, the most often mentioned result of the Clean Air Act 

extension to the Gulf of Mexico was adverse economic influences while some executives 

added that the regulation would reduce activity in the Gulf. 

5 . Is there evidence concerning a shift in the companies involved in offshore 

exploration and production in the Gulf? 

People speak of a shift in the companies in the Gulf of Mexico in which major corporations 

are becoming less active, particularly in exploration, while independent firms are becoming 

more active . In addition, operations that used to be conducted in-house by major corporations 

are now being contracted out and some companies are being created to do these tasks, 

sometimes on a specialty basis, such as the firms that do 3D seismic data and sell the 

information to oil and gas exploration and production firms . These new businesses to which 
8 

the tasks are contracted out are very useful to large companies, like the major oil and gas 

firms, that are downsizing to maintain their competitive edge. This trend toward contracting 

out some functions is occurring in other large industries as well, such as the automotive 

industry . The results found in this study were examined for evidence relevant to the issue of 

a shift in the oil and gas extraction industry in the Gulf. 

There was more evidence for a shift in activity levels of different types of companies in the 

Gulf than evidence against such a shift. Moreover, the results suggest that the popular idea 

that the major corporations are becoming less active and the independent companies are 

becoming more involved in Gulf extraction and production is not quite accurate . The results 

of this study indicate that the three types of integrated companies are reducing their presence 

in the Gulf, including the large and small integrated independent firms, while the 

nonintegrated independent businesses are engaging in more exploration and production 

activity in this area. The evidence for this type of shift includes the changes, discussed 

above, in the amount of oil extracted, involvement in exploration, location of headquarters 

and other offices, numbers of employees, participation in joint ventures, and outlook on the 

future of oil and gas activity in the Gulf. 

First, the nonintegrated firms overwhelmingly were obtaining more oil in 1993 than in 1986 

while only about half of the integrated businesses obtained more oil in 1993 than in 1986. 

Second, the vast majority of the nonintegrated companies did more exploring in 1994 than in 

1986, yet only about half of the major and small integrated corporations were more engaged 

in exploring in 1994. Third, most the major corporations' headquarters were not in the Gulf 

region while most of the nonintegrated companies' headquarters were in the area. Fourth, 

integrated firms closed offices in the Gulf zone while nonintegrated enterprises gained offices 

in this territory . Fifth, the integrated endeavors reduced their staffs while the nonintegrated 

concerns added employees between 1986 and 1994. Sixth, the bulk of the nonintegrated firms 

were more involved in joint ventures in 1994 than in 1986 while only about half of the 

integrated companies participated in more of these operations in 1994 than in 1986 . Seventh, 

the representatives of nonintegrated businesses were more optimistic about the workforce size 

in 1998 than were those from integrated companies. 

There was some evidence that does not support a shift in the players in oil and gas extraction 

in the Gulf. For instance, the major corporations tended to extract more natural gas in 1993 

than in 1986 . In addition, the major companies were highly involved in new technology in 

the Gulf, including the long-term and expensive projects such as deepwater and subsalt 

exploration. Six of the major firms were engaged in deepwater projects and nine were active 

in or planning to do subsalt exploration. Moreover, the major businesses were the most 

active of any of the five types of companies in joint ventures. However, the meaning of this 

participation is not clear; this could be a way to stay actively involved in the Gulf or it might 

be a means of reducing activity in the Gulf. 

6 . What are the potential impacts of such a shift in the firms engaged in these 

endeavors? 
9 

The potential impacts are due not only to the shift in the operators in the Gulf, but also to 

changes in the prices of oil and gas, the degradation of the pipelines and other aspects of the 

infrastructure, the increases in the costs of drilling, and various other factors. Three 

categories of potential impacts were discussed : 1) working conditions and employment, 2) 

operations and 3) government revenues . Although the following discussion compares the 

major corporations with the independent ones because this is the manner in which the shift is 

usually conceptualized, it should be noted that the shift suggested by the results of this study 

would have a greater effect on the impacts presented than the shift as it is usually viewed. 

Impacts on working conditions and employment consist of safety on the job, number of jobs, 

and benefits of jobs . First, there may be an increase in fatalities and injuries due in part to 

the shift in operators in the Gulf. Information presented in chapter 2 demonstrated that the 

independent companies had more fatalities and injuries in recent years than did the major 

corporations . Thus, if the independent businesses are becoming more active, it is possible 

that there will be an increase in serious accidents involving injuries and fatalities . Second, 

there may be an overall decrease in offshore employment. The results of this study showed 

that major corporations employed far more people than did any type of independent business, 

especially nonintegrated independent firms. Thus, a small percentage decrease in the number 

of workers employed by major corporations could be greater than a large percentage increase 

in the number of workers employed by independent companies, particularly nonintegrated 

ones . Third, there may be an overall decrease in the quality of employment in the Gulf. 

Benefits of employment given by the major corporations, such as retirement, income, and 

working conditions, may be better than those offered by independent enterprises . If so, then 

the quality of jobs may decline as the major corporations layoff workers. 

Impacts on operations consist of production and a reduction in resources for the development 

of new technology . First, there could be a reduction in production of oil and gas in the 

offshore Gulf of Mexico. The findings showed that major corporations extracted far more oil 

and gas than did independent businesses, especially nonintegrated ones . Hence, a small 

percentage decrease in production by the major corporations might be greater than a large 

percentage increase in production by independent companies. Second, the shift could result in 

a decrease in resources available for technological development in the Gulf of Mexico. 

Again, the major corporations devoted far more resources, employees and money, to 

research and development in the Gulf, than did the independent businesses . Therefore, a 

reduction in interest in exploitation of the offshore Gulf by the major firms could result in a 

decline in resources for the creation of new technology and thus fewer new technological 

developments. 

If there is an overall decline in exploration and production in the offshore Gulf, which is 

possible if the major corporations become less involved even while the nonintegrated 

businesses become more involved, then government revenues might also decline . The money 

collected by the Minerals Management Service for offshore oil and gas activity, which is 

primarily in the Gulf of Mexico, was the second largest source of revenue for the federal 

government. 
11 

CHAPTER 2 

THE OIL AND GAS INDUSTRY IN THE GULF OF MEXICO 

A restructuring of the offshore oil and gas industry in the Gulf of Mexico began in the mid1980s . Major companies have been reducing their activity and presence in the Gulf while 

independent firms have been more aggressive in their oil and gas extraction operations . 

Although the major corporations' share of production in the Gulf has not decreased 

significantly, declining from 74 percent to 70 percent between 1987 and 1991, their portion 

of exploratory wells dropped by almost 20 percentage points (40 percent to 21 percent) and 

their share of developmental wells decreased by 14 percentage points (63 percent to 49 

percent) (Dodson and LeBlanc 1993). 

The resource base which these new independent businesses inherit is substantially different 

from the resource base when the major corporations began operations in the Gulf about a half 

of a century ago. New sources of oil and gas are in areas from which extraction is 

increasingly difficult and capital intensive such as subsalt regions and deep water . In 

addition, the infrastructure is aging, such as pipelines and rigs . Hence, the operating 

conditions in the Gulf create different challenges and place different pressure on these 

independent firms than were experienced by the major corporations . Therefore, it is 

important to examine the business characteristics of independent and major operators in the 

Gulf and to determine how they are similar and different. It is also necessary to investigate 

the business environment of extraction in the Gulf of Mexico to ascertain how changes in 

policies, federal agencies involved, regulations, technology, cooperative endeavors impact 

independent and major firms and their operations . Moreover, it is important to study how the 

business characteristics of independent and major companies and how the business 

environment affect business practices in this region . Further, the changes since 1986 in the 

business characteristics of these two groups of firms and the environment must be examined 

to document the restructuring of the industry in this area. 

The purpose of this chapter is to describe the study conducted to examine the business 

characteristics and environment and their influences on practices and to investigate the 

changes in the characteristics, environment and practices since 1986, the year in which the 

price of oil collapsed and the bust in the oil and gas extraction industry began. The first 

section will present information concerning the groups of companies examined and the 

methods used to collect and analyze the data . This section concerning the data and methods 

will be followed by a brief history of oil and gas extraction in the Gulf of Mexico . In the last 

section, the major findings will be discussed . 
12 

DATA AND METHODS 

Oil and Gas Companies Operating in the Gulf of Mexico 

When oil and gas exploration and production companies in the Gulf of Mexico are discussed, 

they are usually classified as either major corporations or independent companies . To be 

classified as a major firm, an oil or gas company must be integrated to a substantial degree ; 

it must be engaged in all phases of the industry . These phases include exploration, 

production, transportation, manufacturing and refining, and retailing (Saturn Oil & Gas Co. v 

Federal Power Comm'n, 250 F.2d 61) . Many journalistic reports limit the number of 

operations they call major companies to consist of Exxon, Shell, BP, Gulf, Texaco, Mobil, 

and Chevron (Yergin 1991). Yet, a recent study published by Salomon Brothers included 17 

companies as major corporations based on the level of exploration and production 

expenditures, number of employees, and the amount of reserves and assets (Crandell et al . 

1993) . In contrast, independent companies are comparatively small and not integrated 

(Williams and Meyers 1991, p. 589) . Although this categorization scheme is typical, it is not 

precise enough to analyze the companies operating in the Gulf of Mexico because the 

independent firms are too diverse to be included in one group. 

Another factor sometimes used when discussing oil and gas companies in the Gulf is the 

firms' involvement in downstream integration activities such as oil and gas refining and 

processing, wholesale trade, and retail trade. Hence, the companies could be divided into 

three groups: 1) major corporations, which are all integrated ; 2) integrated independent 

businesses, which differ from the first group by being independent firms instead of major 

corporations ; and 3) nonintegrated independent enterprises, which vary from the first group 

by being independent companies and differ from the first and second kinds because they are 

not involved in many, if any, downstream integration activities . The distinction between 

major companies and independent ones as well as the disparity between enterprises that have 

downstream integration and those that do not are well documented (Crandell et al . 1993 ; 

Moore 1993 ; Staff 1993) . Therefore, it is easy to classify the companies into the three 

groups. However, a categorization scheme that only classifies firms as major, integrated 

independent and nonintegrated independent firms is incomplete . Within both categories of 

independent firms, there is still a large degree of diversity . Hence, it was necessary to look 

for another factor that could account for the variation in the two groups of independent 

businesses . 

An aspect of oil and gas companies usually not considered in discussions of these companies 

is the size of the business although size is a criterion in the major corporation vs independent 

company classification. There are no publications that consider size of the business in 

classifying the companies in the Gulf despite the obviousness of the importance of the size of 

the company . If size is taken into account, then there are five groups: 1) major corporations, 

which are large and integrated; 2) large integrated independent firms, which differ from 

major businesses in their marketing (e .g ., gas pump recognition) and overseas involvement; 

3) small integrated companies, which differ from the second type in that they are smaller; 4) 
13 

large nonintegrated enterprises, which differ from the second and third kinds by not being 

involved in many, if any, downstream integration activities and vary from the third group by 

their size ; and 5) small nonintegrated concerns, which differ from the second and third 

groups in their lack of integration and vary from the second and fourth groups by their small 

size . The Crandell et al . (1993) study examined levels of exploration and production 

expenditures, reserves and assets, and numbers of employees to identify 17 companies as 

major corporations . This information is available for a large number of oil and gas 

companies operating in the Gulf and thus can be used to determine the size of the firms to 

sort the integrated and nonintegrated independent businesses into the two additional groups 

based on size . 

Therefore, in this report, the size of the firm is included and the companies are categorized 

into five groups: major corporations, large integrated enterprises, large nonintegrated 

businesses, small integrated firms and small nonintegrated endeavors. The following 

information is published for most of the companies and thus was used to determine the size 

of the independent companies: 1) worldwide exploration and development funds as opposed 

to funds used only in the Gulf; 2) rankings on worldwide assets, worldwide revenues, and 

worldwide reserves ; and 3) the total number of employees (Crandell et al . 1993 ; Moore 

1993, Staff 1993) . The data were collected for each company eligible for inclusion in this 

study (eligibility was determined by participation in a lease sale in the Gulf of Mexico since 

1988 as will be presented below) . The firms' classification was based on its categorization on 

all five variables: 1) exploration and development funds, 2) rankings on assets, 3) rankings 

on revenues, 4) rankings on reserves, and 5) number of employees . Usually the large 

independent businesses were large on all five variables, although sometimes a firm would be 

considered large on four variables and small (or missing a ranking) on the fifth variable . 

Typically, the small independent companies were small on all five variables, occasionally an 

enterprise would be small on four variables and large (or missing a ranking) on one . The 

senior author classified the companies and was unfamiliar with the firms' names other than 

the ones seen at retail outlets; therefore, there was no predetermination of category by size 

for the independent businesses . 

In general, large independent enterprises have exploration and development budgets of at 

least $30 million, the rankings of their assets are less than forty-four, the rankings of their 

revenues are less than fifty-eight, the rankings of their world reserves are less than fifty, and 

they have more than five hundred employees (Crandell et al . 1993 ; Moore 1993, Staff 1993) . 

In contrast, small independent businesses have exploration and development budgets of less 

than $27 million, the rankings of their assets are more than forty-eight, the rankings on their 

revenues are greater than seventy, the rankings on their world reserves are greater than fiftysix, and they have fewer than five hundred employees, and often fewer than one hundred 

employees . 

To be considered an oil and gas exploration and production company active in the Gulf of 

Mexico, the firm had to participate in MMS lease sales in the Gulf since 1988 . One hundred 

and thirty companies have participated in MMS lease sales in the Gulf of Mexico since 1988, 
14 

the earliest year for which the data could be feasibly obtained. Of these, 17 were major firms 

and 113 could be classified as independent businesses . However, not all 130 companies are 

appropriate candidates for current studies of oil and gas companies operating in the Gulf of 

Mexico. Five of the independent businesses should not be included because they are 

subsidiaries of firms already included in the list of 130 companies. Another five should be 

excluded because they are partnerships or temporary ventures, rather than actual companies 

operating in the Gulf. Eight additional firms should be omitted because they lost their leases 

in the Gulf and hence are not active in the Gulf. Moreover, one enterprise is not actively 

working on their leases in the Gulf and another endeavor is no longer involved offshore 

extraction in the Gulf. Therefore, these 20 companies should not be included in the 

population of oil and gas extracting businesses operating in the Gulf. Unfortunately, there are 

nine additional companies for which published information in the directories of operators in 

the Gulf (Crandell et al . 1993 ; Moore 1993 ; Staff 1993) is insufficient and these nine 

endeavors have no phones . The issue of having a phone was important because an author 

called firms for which data in publications was insufficient to enable classification by size to 

collect the missing information and because the interviews were conducted over the phone. 

Thus, these nine firms could not be classified and were omitted from the sampling frame of 

businesses active in oil and gas operations in the Gulf. 

Therefore, there are 101 companies currently operating in the Gulf of Mexico that can be 

classified as major or independent businesses, as having downstream integration or not, and 

as large or small. Of these, 17 are major corporations, 19 are large integrated firms, 5 are 

small integrated businesses, 14 are large nonintegrated operators, and 46 are small 

nonintegrated enterprises . The characteristics of these five types of companies are shown in 

tables 2 .1 and 2 .2. Since more than one indicator was used to determine the size of the 

company, occasionally a business was an outlier on one measure ; however, no company was 

an outlier on more than one indicator. Comparisons of the numbers of companies in each of 

the five groups and the numbers of companies for which published data were available 

demonstrates that very little is known about companies operating in the Gulf of Mexico . The 

characteristics of the companies in the five categories demonstrate the differences across the 

five groupings . 
15 

Table 2.1 

Exploration and Development Funds and Asset Rankings by Type of Company 

Type of Company Range of E&D Range without E&D Range of Range Asset Ranking 

Funds (Millions Oudier(s) Average Asset without Average 

of Dollars) Rankings Oudier 

Major (17) 20-1500 (16) 126-1200 (14) 597.7 (16) 1-28 (15) no outliers 9.7(15) 

Large 

Integrated (19) 18-276(13) 30-276(12) 109.9 (13) 12-41 (16) no outliers 22 .8 (16) 

Large Nonintegrated (14) 36-150(10) 56-150(9) 82 .2 (10) 17-81 (7) 17-43 (6) 41 .7(7) 

Small 

Integrated (5) 15-17 (2) no outliers 16(2) 57-87(4) no outliers 72 .8(4) 

Small Nonintegrated (46) 0-33(22) no outliers 11 .8 (22) 49-288(14) no outliers 104.8 (14) 

Note : Numbers in parentheses are Ns . 

Table 2.2 

Rankings of Revenues and World Reserves by Type of Company 

Type of Company Range of Revenue Range without Revenue Rankings Range of Reserve Range without Reserve Rankings 

Rankings OuUiers Average Rankings Oudiers Average 

Major (17) 1-30(15) no outliers 10 .3 (15) 1-21 (14) no outliers 8 .1 (14) 

Large 

Integrated (19) 10-50(16) 10-38 (15) 25.7 (16) 10-87(16) 10-58 (15) 29 .4 (16) 

Large Nonintegrated (14) 20-69(7) 20-57(6) 47 .3 (7) 17-47(7) no outliers 33 (7) 

Small 

Integrated (5) 45-79(4) no outliers 62.8(4) 57-137 (4) no outliers 84 .8(4) 

Small Nonintegrated (46) 44-293(14) no outliers 112 .6 (14) 38-263 (13) no outliers 112 .8 (13) 

Note : Numbers in parentheses are Ns. 

The major companies have the most money, the largest assets, revenues, and reserves 

(Crandell et al . 1993 ; Moore 1993, Staff 1993) . They are all integrated and employ the most 

people . Most of the major firms have exploration and development funds in excess of $100 

million. The range of these funds is from $20 million to $1,500 million and the average is 

$598 million. One major firm has less than $100 million . The rankings of the assets of major 

companies range from 1 to 28 and the average rank is 9.7 . In addition, 11 of the companies 

with the largest assets are major businesses . The rankings of their revenues vary between 1 

and 30 and the average rank is 10 .3 . Moreover, 9 of the companies with the highest rankings 

on revenues are major companies. The rankings of the world reserves of the major 
16 

companies range from 1 to 21 for an average of 8.1 ; 12 of the companies with the greatest 

reserves are major firms . All major corporations have more than five hundred employees. 

In general, the large integrated companies have smaller exploration and development funds 

than do the major enterprises and smaller assets, revenues and world reserves (Crandell et al . 

1993 ; Moore 1993, Staff 1993) . Like the major firms, they are all integrated and they 

employ many people . The large integrated companies, with one exception, have exploration 

and development funds between $30 and $276 million. The average fund is $110 million. 

Only one business has less than $30 million, only four have less than $50 million while three 

have over $200 million in these funds. In addition, their assets are ranked from 12 to 41 and 

the average rank is 22.8. Most of these firms have revenues ranked between 10 and 38, the 

average rank is 26. With the exception of one company, the world reserves of these 

enterprises are ranked between 10 and 58 and the average rank is 29.4 . All of these 

operators have over five hundred employees . 

Overall, the large nonintegrated businesses, have less money in exploration and development 

funds and smaller revenues than do major companies and large integrated firms (Crandell et 

al. 1993; Moore 1993, Staff 1993) . Their assets and reserves are similar to those of large 

integrated enterprises, but smaller than those of the major corporations . In addition, these 

businesses have fewer employees than do the major companies and large integrated firms. 

Their exploration and development funds range from $56 to $150 million, with one 

exception, and the average of these funds is eighty-two . The rankings of their assets are 

between seventeen and forty-three for an average ranking of forty-two . Their revenues are 

ranked between twenty and fifty-seven, with one exception, and the average ranking is fortyseven. The world reserves of this type of firm are ranked between seventeen and forty-seven; 

the average rank being thirty-three . These companies have fewer than five hundred 

employees . 

There are very few small integrated companies, probably due to the size requirements 

inherent in maintaining the operations necessary for downstream integration (Crandell et al. 

1993 ; Moore 1993, Staff 1993). These endeavors have smaller exploration and development 

funds, fewer assets, smaller revenues, less reserves and fewer employees than the major, 

large integrated and large nonintegrated enterprises . These businesses have exploration and 

development funds between $15 and $17 million with an average of $16 million. Their assets 

have an average rank of seventy-three and range from fifty-seven to eighty-seven while their 

revenues are ranked between forty-five and seventy-nine, the average of which is sixty-three . 

The world reserves of these companies have rankings between 57 and 137 with an average of 

85 . One company has more than five hundred employees, but the rest have fewer than five 

hundred. 

The smallest operators in the Gulf of Mexico are the small nonintegrated endeavors, which 

are the most numerous group . Very little is known about this type of company . Based on the 

few businesses for which data have been recorded, the exploration and development funds 

range from $0 to $33 million and average $12 million (Crandell et al . 1993 ; Moore 1993, 
17 

Staff 1993) . The assets for seventy percent of these firms are not included in published 

rankings, but, for the thirty percent that are published the average rank is 105 and the range 

is from 49 to 288 . The published rankings of their revenues range from 44 to 293 and 

average 113 while their reserves range from 38 to 263, averaging 113 . These enterprises 

have fewer than five hundred employees . 

Data and Methods 

The data were obtained in the fall of 1994 from 48 petroleum and gas companies: 11 major 

corporations, 13 large integrated firms, 4 small integrated enterprises, 9 large nonintegrated 

businesses and 11 small nonintegrated endeavors . Although the actual number of companies 

in the sample was relatively small, the businesses examined represent large percentages of 

the firms operating in the Gulf of Mexico : 65 percent of the major companies, 68 percent of 

the large integrated businesses, 80 percent of the small integrated firms, 64 percent of the 

large nonintegrated enterprises and 24 percent of the small nonintegrated enterprises . Very 

few companies refused to participate in the study : 1 major business, 1 small integrated firm, 

2 large nonintegrated enterprises of which one was replaced, and 1 small nonintegrated 

endeavor which was replaced . A representative of one of the 48 companies did not answer 

the questions asked of the other executives because the company no longer had operations in 

the Gulf. This company was interviewed concerning the decision to leave the Gulf; therefore, 

it is included in the 48. Two other companies included in the 48 also were no longer active 

in the Gulf; however, their representatives did answer the questions. 

The data analyzed in this study came from both the 10 pretested companies and the 38 firms 

that responded to the revised interview. Before administering the interview to the target 

sample, the questions were pretested. As there were very few changes after the pretest, the 

results of both the pretest and the final administration are reported . The findings will be 

presented separately for the few questions that were revised after the pretest. 

Ten companies participated in the pretest: 2 major businesses as well as 5 large integrated, 1 

large nonintegrated and 2 small nonintegrated firms . One major corporation refused to 

respond during to the pretest. The 11 enterprises chosen for the pretest were selected 

nonrandomly . These 11 companies were examined during the first wave of the study in 

which representatives of the firms took part in a much longer, exploratory, nonstructured 

interview concerning the oil and gas industry in the Gulf of Mexico (see Appendix A) . The 

enterprises chosen for this interview consisted of many of the most important companies 

operating in the Gulf. Therefore, due to the importance of these firms and the fact that only 

minor revisions were made, the pretest results were included in this report . 

Thirty-eight companies responded to the revised interview: 9 major businesses and 8 large 

integrated, 4 small integrated, 8 large nonintegrated and 9 small nonintegrated concerns . One 

small integrated firm refused to participate and could not be replaced because there were 

only 5 small integrated enterprises operating in the Gulf. Two large nonintegrated businesses 

refused as well, one was replaced, but the replacement for the second one no longer operated 
18 

in the Gulf. One small nonintegrated endeavor refused and was replaced. The companies 

were chosen by random sampling within each of the four groups in which there were more 

than 10 businesses . Random sampling within categories was used instead of stratified random 

sampling due to the unequal distribution of companies in the five categories. The descriptive 

nature of the study required that enough companies in each of the five types be examined to 

enable description of each kind of concern and comparison across the five types . 

The data were obtained in phone interviews using a set of open-ended questions. Several 

steps were necessary to collect the data due to the detailed information requested and the 

busyness of the respondents most qualified to address the issues raised by the questions . 

First, the respondents, who were CEOs, vice-presidents, or managers knowledgeable about 

exploration and production decisions in the Gulf of Mexico, received a fax that contained a 

letter of introduction describing the study from the investigators, a letter of introduction from 

Minerals Management Service, and a copy of the questions. Thus, the respondents obtained 

the questions before they were contacted by phone . Second, each respondent was contacted to 

arrange an appointment for the interview. Third, the respondent was called for the actual 

interview . This method had several advantages for this study . The method facilitated 

contacting the respondents at a time when they were available to be interviewed . In addition, 

since the respondents had the questions in advance, the interviews were shorter, the data 

were complete, and rapport with the respondents was good. Further, it was possible to obtain 

detailed information concerning size of operations, use of new technology, opinions about the 

future of oil and gas exploration and development in the Gulf, and attitudes concerning 

environmental regulations from an industry normally considered secretive about such 

information. 

The interview consisted of 39 basic questions and 11 contingent questions . The first section 

contained eighteen questions concerning the companies' characteristics and operations in the 

Gulf of Mexico both currently (the fall of 1994 for most questions, 1993 for a few questions) 

and in 1986, the year in which the price of oil dropped by half of its previous amount. For 

some characteristics an entire year amount was desired, such as the amounts of oil and gas 

extracted and the size of research and development funds. In these cases, the current year 

was the most recently completed year - 1993 . Thus, in the results, the comparisons are 

usually between 1986 and 1994 and the words currently and now refer to the fall of 1994 ; 

however, a few comparisons are between 1986 and 1993 and these are specified as such. The 

second part had five questions inquiring about the businesses' use of service companies and 

independent contractors currently (fall of 1994) and in 1986 . The third portion consisted of 

four questions focusing on the firms' outlook on the future of oil and gas exploration, 

production, and employment in the Gulf of Mexico. The fourth section had six questions 

examining the impact of leasing policies and technology on the enterprises' operations in the 

Gulf. The final part contained six questions about the effect of federal agencies and 

regulations on the businesses' operations in the Gulf. 

All of the questions were open-ended, although some elicited answers that easily could be 

coded quantitatively such as 1) yes or no, 2) more, the same, or less, and 3) actual numbers 
19 

like the number of employees. The responses to 27 of the 39 basic questions and 6 of the 

contingent questions were coded quantitatively . The replies to 15 of the 39 questions and 5 of 

the contingent questions could not be coded quantitatively . Three questions in the section 

concerning the future of the oil and gas industry in the Gulf had answers that could be coded 

quantitatively and answers that could not because respondents were asked to explain their 

responses to these three questions. 

Two people independently coded the data that could be quantitatively categorized . The 

intercoder reliability for these data was 95 .8 percent . All differences in coding were 

resolved. Frequency and percentage distributions were calculated for the questions that could 

be coded quantitatively . These distributions were calculated for all the companies together 

and for each of the five types of companies separately . Responses to the questions that could 

not be coded quantitatively were written verbatim and transcribed . The content was analyzed 

and the responses were grouped by company type as well as similarity of answers. The 

classification of the answers was exhaustive, as many categories were employed as were 

necessary to capture all of the company representatives' reactions to these questions . Thus, 

no information was omitted . Likewise, owing to the importance of using the respondents' 

own words, there was no attempt to place the comments into mutually exclusive categories . 

Hence, the total number of responses to these questions can be greater than the total number 

of companies because a response could contain elements of more than one category and were 

coded into more than one category. 

THE HISTORY OF OIL AND GAS EXPLORATION IN THE GULF 

The first instance of over water drilling took place in northwest Louisiana in 1911 at Caddo 

Lake, the site of an enormous natural gas field discovery in 1905 . From there land based 

drilling equipment was slowly moved from the soggy marshes onto timber pilings and 

platforms in the shallow waters of the Gulf of Mexico (Freudenburg and Gramling 1994, 

p.18) . The first attempt at oil extraction in the Gulf was made in 1933, 3000 feet off of the 

Louisiana coast at Creole in Cameron Parish (Brantly 1971, p.1383) . A land rig built on a 

platform twelve feet above the water, modeled after a platform used a year earlier off of 

Rincon, California drilled a dry hole . Drilling was not successful in the Gulf of Mexico until 

four years later when the Pure Oil Company and the Superior Oil Company leased 7000 

acres onshore and 33,000 acres offshore just west of Creole from the newly formed 

Louisiana State Mineral Board . Using a similarly designed platform, Superior and Pure 

spudded a well on October 6, 1937 (Brandy 1971, p.1394) symbolizing the birth of the 

offshore oil and gas industry . 

The oil and gas industry was not yet prepared for drilling or service on the water. Equipment 

had to be transported to the barge via a thirteen mile water route. Since there was no radio, 

any problems, such as equipment failure, were relayed to the shore by the first boat going 

back inland . In addition, there were no quarters for the crew on the platform. Therefore, 

each crew made the rough thirteen mile journey daily by shrimp boat. In spite of these 

difficulties, as well as the expense of using landbased equipment on water, this platform was 
20 

enlarged over the next year and ten more wells were drilled directionally . This became 

known as the Creole field which in the following twenty-five years produced almost four 

million barrels of oil . Prior to 1958, it was estimated that the Gulf of Mexico region, 

including on and offshore drilling, produced as much as 70 percent of the oil and gas found 

in the United States (Brantly 1971, pp . 1383-4) . 

In the next few years, several events led to the growth of drilling in the Gulf of Mexico . In 

1938, Texas' first offshore well was completed. In 1946, the Magnolia Petroleum Company 

established a platform six miles off of the coast of Louisiana, ten miles southeast of Eugene 

Island, on a lease from the state of Louisiana (Freudenburg and Gramling 1994, p .18). This 

was the first to be constructed using steel pilings and in the following year Kerr-McGee 

developed a new tender-supported platform which was developed specifically for use on the 

water. This barge, which was attached to three pilings and anchored to the Gulf floor, had 

quarters for crew members and proved to be 95 .3 percent reliable in terms of its ability to 

withstand weather (Brantly 1971, p.1390) . This particular well drilled successfully yielding 

40 barrels per hour . By 1949, this technology had been improved once again with the 

introduction of the first mobile offshore rig, and subsequently three major fields were 

discovered. By 1950, twenty-five percent of the wells drilled offshore were successfully 

drilling oil as compared to ten percent on land (LeBlanc 1994, p .36) . In the years that 

followed, particularly between 1953 and 1958, the technological aspects of the industry were 

continuously changing . By 1958, two hundred rigs were operating in the Gulf of Mexico and 

were routinely drilling in waters as deep as three hundred feet (Brantly 1971, p .1412) . 

As offshore technology improved, more companies began exploring and, finding success, 

moving further offshore . This not only led to an increased number of wells and oil 

production, but also conflicts over who was to control and lease the rights to the protected 

waters off the Louisiana coast (Freudenburg and Gramling 1994, p .18) . These battles went 

on for years over not only the waters off the coast of Louisiana, but also those off the Texas 

and Florida coasts . Eventually these battles were settled by the U.S. Supreme Court and 

Congress. The Tidelands cases of 1947 and 1950 established the legal rights of the federal 

government over all offshore lands. In 1953, Congress passed the Submerged Land Act 

which assigned states title to offshore land within three miles of the mainland . The Supreme 

Court immediately ruled that Texas and Florida had rights to nine miles of submerged land 

off of their Gulf coasts to which they had held title as sovereign nations before entering the 

Union (Freudenburg and Gramling 1994, p.20) . Legislation which immediately followed and 

built on the foundation of these previous rulings focused on the land beyond the reach of the 

states, the Outer Continental Shelf (OCS). The Outer Continental Shelf Lands Act of 1953 

"authorized the Secretary of the Interior to lease the OCS for mineral exploration, through 

competitive bidding, and subsequently to administer the leases" (Freudenburg and Gramling 

1994, p. 20) . In 1954, the first federal lease sale in the Gulf occurred. Leasing proved to be 

a great source of revenue for the federal government generating 28.3 billion dollars in 

bonuses between 1954 and 1978 (Earney 1980, p.95) . 
21 

Production in the Gulf since that first lease sale in 1954 up to 1981 was enormous, 

particularly during the boom period from 1973 to 1981 . There are a number of reasons for 

this . An oil spill off the Santa Barbara coast in 1969 halted lease sales in the Pacific, Atlantic 

and Alaskan coasts for five years . Yet there was no change in leasing policy in the Gulf of 

Mexico . The 1973-74 oil embargo also had a great effect on drilling in the Gulf of Mexico . 

The resulting rise in domestic and foreign oil prices provided economic incentive for 

increased exploration. The northern Gulf of Mexico had become more developed than any 

other offshore area by 1981 (Freudenburg and Gramling 1994, p. 29) . Between 1973 and 

1981, 9-12 percent of the crude oil and 10-20 percent of the natural gas extracted in the U.S . 

had come from the Gulf of Mexico OCS. Although this contribution of the Gulf of Mexico 

region of the U.S . OCS appears to be a small percentage of all oil and gas extracted onshore 

and offshore in the U.S ., the oil and gas extracted from the Gulf of Mexico OCS is a large 

percentage of oil and gas extracted from the U.S . OCS. By 1989, it was estimated that 90 

percent of the oil and gas produced in the entire U.S . OCS had come from the Gulf of 

Mexico (Freudenburg and Gramling 1994, p.26) . At the same time, people were becoming 

more conservation minded and legislation was passed to encourage conservation and decrease 

pollution. Since petroleum products are an elastic commodity, consumption decreased over 

time, and, by 1981, it had fallen below the levels reached before 1973 (Freudenburg and 

Gramling 1994, p.30). This led to "the bust" and a general decrease in production in the 

Gulf. 

The 1980's were a difficult decade for the petroleum industry in general, and the Gulf of 

Mexico was no exception. The price of crude oil and the number of operating rigs declined 

in the early part of the decade, even though the Gulf was opened to areawide leasing in 

1983 . Prices continued to fluctuate through 1985, but remained relatively strong until the 

drop from $22 .39 per barrel in 1985 to $11 .41 per barrel in 1986 (Laska et al . 1993, p .162, 

in inflation adjusted dollars, 1982-1984=100) . Environmental regulations also became 

stronger due to increased public awareness as well as the negative public attention generated 

by major spills such as the Exxon Ualdez spill. By the end of the 1980's, many major 

companies were pulling out of the Gulf of Mexico to "pursue larger prospects outside of the 

United States" (Koen 1993b, p.20). 

Current literature suggests that the 1990's will offer a resurgence for the oil and gas 

industry, yet prices remain relatively low. Oil prices in mid-1994 were often well below $16 

per barrel . Because of this, and the decreasing number of discoveries in the Gulf of Mexico, 

there continues to be a trend of major companies looking abroad for exploration 

opportunities. The New York Times reported in 1991 that Chevron, ARCO, and Texaco 

negotiated with Soviet officials in 1990 to develop vast oil fields in that region (Hayes 1991, 

p.D3 L) . Investment bankers report that capital has been shifting overseas for about the last 

ten years, but that movement is accelerating now (Staff 1992a, p.75) . Still many people are 

optimistic due to the movement of smaller independent companies into the Gulf. Strong U.S . 

natural gas prices and a decrease in the need for initial investment dollars due to improved 

geophysical technology and a pre-existing infrastructure are enabling these companies to be 

very active (Koen 1993b, p.20) . Companies like Forcenergy Gas Exploration, Inc ., based in 
22 

Miami, are looking to the Gulf of Mexico due to dwindling onshore opportunities and 

attractive leasing prices in the Gulf (Kaplan 1994, p.6) . 

Companies are shifting from traditional means of production to alternatives which may prove 

more profitable . More companies are becoming involved in deepwater drilling projects, 

subsalt exploration, and horizontal or directional drilling which may improve prospects. The 

problem is that these projects are costly and risky, especially for the smaller companies. 

There have been deepwater finds in the Gulf of Mexico in the last few years, but the low 

price of oil makes some of them too expensive to drill (Staff 1992a, p.75) . Some of the 

major companies, however, do still seem to be somewhat interested in deepwater projects in 

the Gulf of Mexico . In 1988, Shell Offshore, Inc. launched Bullwinkle, the world's tallest 

human-made offshore structure costing $500 million. And early in 1995, Shell, Amoco, and 

Exxon announced plans to develop a deepwater well in the Gulf of Mexico (Judice, 1995a 

p.D-3) . Subsalt is also a viable option, especially since the availability of 3D seismic data is 

increasing which means that smaller companies can be involved (Tipple and Koen 1994, 

p.33) . Horizontal or directional drilling is being increasingly used as a means of developing 

marginally productive fields, especially those in shallow water. This technique has gained 

acceptance recently with the availability of new, versatile tools and improved knowledge of 

reservoir structure (Groten 1991, p. 4) . 

Another trend in the Gulf of Mexico that many companies are part of is the shift toward an 

increase in natural gas extraction. Natural gas prices are strong and in March of 1994, gas 

rig counts were up 20 percent over 1993 (Judice 1994a, p .C-1) . This may mean more gas 

exploration by more companies in the Gulf of Mexico where gas discoveries have been large 

in the past. 

The overall trends in the Gulf of Mexico where major companies are moving out, companies 

are shifting to non-traditional means of extraction, and natural gas extraction is becoming 

more important implies that the vast resources, particularly oil, once present in the Gulf of 

Mexico have been greatly reduced. Discoveries in the Gulf have become consistently smaller 

and more difficult to find . The average field size and cumulative success rates have 

consistently decreased, and annual success rates have plummeted from 70 percent or more in 

the early 1950's to 7 percent in 1992 (Lore 1992, p.48). 

MAJOR FINDINGS AND DISCUSSION 

Some of the major findings from the study suggest trends that are occurring in the offshore 

oil and gas exploration and production industry in the Gulf of Mexico . First, the results 

suggest that there were more companies involved in the Gulf in the fall of 1994 than in 1986. 

Second, most of the companies obtained more oil and gas in 1993 than in 1986. Third, most 

of the firms were engaged in more exploration activities in the Gulf in the fall of 1994 than 

in 1986 . Fourth, participation in joint ventures increased between 1986 and the fall of 1994 . 

Fifth, changes in the businesses' activities suggested a tendency toward becoming involved in 

downstream integration operations . Sixth, changes in characteristics, views of the 
23 

environment and practices implied that a shift is occurring in activity in the Gulf. However, 

the results did not intimate that the major corporations are less active and the independent 

firms more active, rather the outcome suggested that the nonintegrated independent 

businesses are becoming more involved in the offshore Gulf while the major and integrated 

independent companies are maintaining a steady rate of activity or reducing their involvement 

in the Gulf. 

The rest of the most important results concern business characteristics, environment and 

operations as of the fall of 1994 . First, there was widespread support for both areawide 

leasing, which began in 1983, and the reduction in the minimum bid to $25, which started in 

1987. Second, as would be expected, a vast majority of the executives were against four 

possible regulations in the Gulf: the financial responsibility provisions of OPA '90, the 

increases in lease bonding to cover plug-and-abandon liabilities, the possibility of being 

required to reinject produced water (a potential implication of the Clean Water Act in the fall 

of 1994), and the prospect of the extension of onshore air quality standards to the offshore 

Gulf (a potential implication of the Clean Air Act). Third, there were three key areas of 

employment in oil and gas exploration and production in the offshore Gulf: 

production platform maintenance and operation, exploration, and administration . Fourth, 

there were more differences between the five types of companies by integration (integrated vs 

nonintegrated firms) than by size or the usual categorization scheme of major vs independent 

businesses . Now that the major findings have been summarized, the rest of the chapter will 

be devoted to discussing each of these results. 

Trends 

More Companies, Greater Production, and More Exploring in the Offshore Gulf. The 

results showed a trend toward more operators in the Gulf. Although no questions directly 

asked the executives when their firms became involved in offshore petroleum and gas 

extraction, some of the data collected demonstrated that some businesses began exploration 

and production of oil and gas in the offshore Gulf after 1986 . Twelve companies obtained 

neither oil nor gas from the Gulf in 1986 and derived at least one of these two minerals in 

1993 . Seven of these firms were small nonintegrated businesses, three were large 

nonintegrated firms, one was a large integrated enterprise, and one was a major company . 

Some of the executives for these concerns reported that they were not involved in offshore 

extraction in 1986 and some stated that the switch to areawide leasing or the reduction of the 

minimum bid were either irrelevant because the company was not involved in the offshore 

Gulf at the times when these changes were made or that the reduced minimum bid enabled 

their firms' entries into oil and gas extraction in the Gulf. In addition, four of the seven 

small nonintegrated businesses had no headquarters in 1986; hence, the company might not 

have existed then . The other firms had headquarters in 1986, but they might have been 

engaged in onshore Gulf extraction only or involved in exploration and production elsewhere . 

Thus, some evidence was collected that suggests that there are more operators in the Gulf 

now than in 1986. 
24 

However, there may be a counter trend followed by fewer companies, which is to quit oil 

and gas exploration and production in the Gulf. As mentioned previously, some firms were 

not contacted to be interviewed because they were no longer active in the Gulf. In addition, 

there were three firms that were interviewed that no longer extract oil or gas from the Gulf. 

Another trend indicated by the findings was an increase in production . The respondents were 

asked how the amount of oil and gas their firms extract had changed since 1986 . Two-thirds 

of the executives stated that the amount of oil had increased and three-fourths of them 

declared that the amount of gas had increased. The third trend was the increase in 

exploration activities . Slightly over two-thirds of the officials asserted that their businesses 

were doing more exploring in the fall of 1994 than in 1986 . 

Activity in the Gulf is highly influenced by the prices of oil and gas . When the officials were 

asked how the current prices of oil and gas affected their operations in the Gulf, 41 percent 

of the 51 replies mentioned impacts on activity, 39 percent of these 51 comments concerned 

reduced activity due to the low prices of oil and gas . Further, when queried about the effects 

of anticipated future prices of oil and gas on activities in the Gulf, a third of the 48 replies 

mentioned reduced or a cautious level of activity while another 29 percent referred to 

increased activity . Thus, 41 percent of the replies about the effect of current prices and 62 

percent of the responses concerning the influence of future prices on operations in the Gulf 

presented effects on activity suggesting that prices are related to activity levels . Due to the 

importance of oil and gas prices, it is useful to briefly examine their histories . 

The annual world average prices of a barrel of petroleum were collected from 1956 (U.S . 

Bureau of the Census 1956-1993 ; Hall, 1992) . These dollar figures were then converted into 

constant dollars (1982-1984 = 100) to control for inflation thus enabling the comparison of 

the prices over time (see figure 2 .1) . Between 1956 and 1973, the price of oil was low and 

stable, the prices varied from $11 .00 in 1957 to $8.11 in 1972 . There was an increase of 

almost $5 .00 in the price of a barrel of petroleum from $8.76 in 1973 to $13 .67 in 1974 . 

Between 1974 and 1981, the price of a barrel of petroleum rose rapidly from $13 .67 to 

$34 .95 . The largest increases were between 1979 and 1980 (almost $9.00) and between 1980 

and 1981 ($8 .75) . In 1981, the price of petroleum peaked. From 1981 until 1985, the price 

of petroleum dropped rapidly from $34.95 to $22 .39 . However, the largest decrease in the 

price was between 1985 and 1986 when the price declined by almost half. The price in 1985 

was $22 .39 while the price in 1986 was $11 .41 . The price of petroleum has been low and 

stable since its dramatic decline between 1985 and 1986. With one exception, the price 

varied between $10.63 and $12.79. The exception was 1990, the year of the war in the 

Persian Gulf, when the price of petroleum was $15 .33 . 

The annual world average prices per one thousand cubic feet of natural gas were collected 

from 1960 through 1993 (U .S . Bureau of the Census 1970, 1976, 1987, 1992, 1993) . These 

dollar figures were converted into constant (1982-1984 = 100), inflation controlled dollars to 

allow for comparison (see figure 2 .2) . From 1960 to 1973, natural gas prices were low and 

stable, ranging between $ .44 and $ .51 per one thousand cubic feet . As with oil, natural gas 
25 

prices began to climb around 1974 when the price went to $ .61 . Prices rose steadily until 

1983 when natural gas hit an all time high at $2 .61 . In the next two years, prices dropped 

slightly to $2.60 in 1984 and $2 .32 in 1985 . Between 1985 and 1986, like oil prices, natural 

gas prices fell a drastic $ .59 per thousand cubic feet to $1 .73 and have been slowly on the 

decline ever since. The average price in 1993 was $1 .40. 

The consistent decrease in both oil and natural gas prices has led to changes in the industry . 

At an energy conference in New Orleans in April of 1994, companies focused on how they 

are coping with the low prices . The overall trend seems to be "less drilling in the Gulf of 

Mexico, particularly by independents" (Judice 1995c, C-10). Many companies have moved 

operations overseas where there is more activity and drilling is more productive . This trend 

contradicts forecasts at the end of 1994 that companies would be spending and exploring 

more in the Gulf of Mexico in 1995 (Judice 1994f, C-3). The industry is tightening its belt in 

other ways as well. Many companies are contracting out labor that once was performed inhouse. Field production is no longer a management responsibility, but rather being contracted 

out to companies specializing in production management (Judice 1994g, F-1). 
26 

38 

36 

34 

32 

30 

28 

N 

A 26 

24 

22 

A 

N C 2D - 

O 

U 18 

16 

14 

12 

10 

8 

56 59 60 1 14161 ~61117'0 1 7 2 74 76 7B BD 82 e4 B6 Bb 90 92 

1 62 

, , 1 e 

57 59 6 1 6 6 73 75 7 79 81 83 85 87 9 91 93 

Years 

Oil Prices 

Figure 2 .1 Oil and Gas Prices in Constant Dollars 

2,8 

2 .6 

2 .9 

2 .2 

2 

N 

q 

- 1 8 

9 .6 

ro 

1 .4 N 

O 

U 

1 

0 .8 

O .fi 

0 .4 

67 69 71 73 75 77 79 81 23 BS 87 89 91 93 

68 70 72 74 76 78 BO B2 B4 86 8B 90 92 

Years 

Gas Prices 

Figure 2.2 Gas Prices in Constant Dollars 
27 

With the sudden crash of prices in 1986 several things occurred: 1) the number of rigs 

dropped by over half, 2) the number of platforms installed and removed decreased, 3) total 

exploration dropped, and 4) the number of companies operating in the Gulf increased . This 

last occurrence is most interesting because it seems counter-intuitive . The reason for this is 

that there are factors other than prices that effect change in the Gulf, including dwindling 

onshore reserves . Table 2 .3 provides data concerning the world average price per barrel of 

oil in constant dollars; the wellhead price of natural gas in constant dollars ; the numbers of 

rigs, platforms installed and removed, wells, and operators on the OCS. The table 

demonstrates several pieces of information useful to understanding activity on the OCS. 

First, the price of oil dropped by almost half between 1985 and 1986 and has remained 

relatively low and stable since 1986 with the exception of 1990, the year of the Persian Gulf 

War. Second, the recent prices of natural gas have been low and stable . 

Third, although there is no direct relationship between the price of oil and the number of 

rigs, there are similarities in the numbers over time. When the price of oil was declining 

from 1983 to 1986, the number of rigs was also decreasing . When the price of oil fell by 

almost half, the number of rigs also dropped by almost half. Between 1986 and 1989, the 

price of oil was low and relatively stable but the rig count was increasing . Also, 1990 was 

the most recent peak in both the price of oil and the rig count. Fourth, oil prices and the 

number of platforms installed were alike in that both declined by almost half between 1985 

and 1986; yet, while the price of oil remained low and stable from 1986 through 1989, the 

number of platforms installed increased. Fifth, as would be expected, while oil and gas 

prices have been low and stable, the number of platforms removed has been high and 

relatively constant. Although oil prices fell between 1985 and 1986, the number of platforms 

removed did not did not increase until two years later (between 1987 and 1988) probably due 

to the lag between prices and the reduction in activity resulting in platform removal . It 

should also be noted that as oil prices dropped between 1992 and 1993, platform removal 

jumped . Sixth, there were some comparable changes in the price of oil and the numbers of 

both exploratory and developmental wells . All three series declined between 1985 and 1986 . 

However, the number of exploratory wells recovered from 1987 through 1990 to the pre1985 level while the price of oil and the number of developmental wells remained low and 

stable . Between 1990 and 1991, all three series declined again, although the numbers of both 

types of wells increased between 1992 and 1993 as did the price of gas . Seventh, the 

comparison between the price of oil and the number of operators on the OCS is also 

revealing . Prior to the bust in the price of oil, the number of operators was low and stable . 

When the dramatic drop in price occurred, the number of operators increased and has 

continued to rise since 1987 . 
28 

Table 2.3 

OCS Activity 

Year Price per Price per 1000 Rigs Platforms Platforms Exploratory Developmental Total 

Barrel cu . ft. Installed Removed wells Wells Operators 

1983 26.30 2 .61 214 178 36 420 761 60 

1984 24 .91 2 .60 234 230 47 597 755 65 

1985 22 .39 2 .32 217 217 68 513 656 64 

1986 11 .41 1 .73 107 110 33 273 430 82 

1987 13 .56 1 .50 108 120 24 404 455 77 

1988 10 .63 1 .43 132 178 102 554 372 81 

1989 12 .79 1 .36 185 190 100 498 515 98 

1990 15 .33 1 .31 203 174 107 497 498 104 

1991 12 .11 1 .20 125 143 115 287 373 112 

1992 11 .40 1 .24 153 86 122 199 298 120 

1993 9.83 1 .40 183 109 221 312 486 123 

Sources: Price of oil - Hall 1992 ; U.S . Bureau of the Census 1956-1993 . Price of natural gas - Energy Information Administration, Natural 

Gas Monthly, Table 4 obtained via Internet through the University of Michigan economic bulletin board. The prices were converted into 

constant dollars. Rigs, Platforms, Wells, and Operators - MMS Offshore Stan Second Quarter Report 1994 (USDOI, MMS, 1994a) . 

Joint Ventures . A fourth trend was the increase in joint venture participation; a majority of 

the respondents indicated that their firms were more involved in joint ventures in 1994 than 

in 1986 . Sixty-two percent of the officials stated that participation in such activities had 

increased. Another indication of the importance of these partnerships was the frequency with 

which reduced partnering was stated as a negative outcome of OPA '90 and the increase in 

lease bonding to cover plug-and-abandon costs . These partnerships may be most necessary 

for the more expensive types of exploration, that is subsalt and deepwater projects . Joint 

ventures may be so popular in the Gulf because it is a way for each company involved to 

reduce risks by sharing the risks and resources. Involvement in oil and gas industry 

organizations, conferences and workshops may be useful in forging connections with other 

firms that lead to joint ventures. 

Industry organizations play an important role in the activity of these companies . Some of 

these organizations operate on a local or state level. For example, the Louisiana Independent 

Oil & Gas Association (LIOGA) was incorporated in October 1992 to represent the interests 

of those companies operating in the state by doing the following : lobbying in the legislature, 

acting as a liaison with governmental agencies, and providing information . On the other 

hand, there are some organizations with members from many states . This section will outline 

the two main organizations that represent most of those operators on the OCS. 
29 

First, the Independent Petroleum Association of America (IPAA) was organized in 1929 to 

act as a primary spokesperson for the domestic exploration and production industry in 

Washington, D.C . before all departments and agencies of the federal government and the 

public . According to its informational packet, IPAA provides a full range of services for its 

more than 8,000 members including government relations ; communications ; and statistical 

and economic analysis for the industry, government and the public . 

Second, the American Petroleum Institute (API) was established in 1919 as the first national 

trade association in the United States to encompass all branches of the petroleum industry . 

The API functions in much the same way that the IPAA does, except, for example, the 

former has a much more extensive publications service . Also, the API has seemingly been 

more critical of government policies (Staff 1991) . Both the IPAA and the API coordinate the 

activity of smaller organizations so that a somewhat unified position can be advanced on the 

federal level . 

In addition to the previously mentioned organizations' publications, the industry has many 

other sources that serve its informational needs. Of the wide divergence of existing literature, 

PennWell Publishing Company in Tulsa, Oklahoma is, perhaps, the most important due to 

the variety of its offerings. In addition to publishing the Oil & Gas Journal , arguably the best 

journal in its field, PennWell also publishes the following: International Petroleum 

Encyclopedia, Incorporating : The Oilman, Ocean Oil Weekly Report, and U.S .A. Gulf Coast 

Oil & Gas Industry Directory. 

Another source of information for the industry, although not as widely known, is that of 

legal foundations. For example, the Institute on Oil and Gas Law and Taxation has been 

publishing its annual proceedings for over forty years. Its focus is primarily one of economic 

matters and includes contributors from industry, government, and academia. Moreover, law 

schools, such as those of Tulane and the University of Houston, also publish journals that 

focus on various aspects of the industry . Increasingly, these and other law school journals 

include either environmental law sections or offer completely separate journals, such as the 

Virginia Environmental Law Journal. 

Further, many Gulf region newspapers, such as The Times-Picayune (New Orleans) and the 

Houston Chronicle, also provide a daily record of events that effect government policy or 

industry prices . Both newspapers have editors that focus entirely on oil and gas matters . For 

example, Mary Judice is the Energy Editor for the Times-Picayune . Also, government 

publications, such as Today and Offshore Stats published by MMS, are readily available as 

viable sources for those in the industry . These publications can be obtained either by 

subscription or through MMS by contacting the public relations department or the librarian. 

Finally, a relatively new source for information ranging from historical analysis to current 

production figures can be found on the Internet via gopher (e .g ., the University of 

Michigan's economic bulletin board) . It remains to be seen whether or not this source will be 

greatly utilized by those in industry or in government. 
30 

Conferences and workshops serve at least three purposes for industry leaders by offering a 

forum for discussion, summarizing or updating regulatory or legislative changes, and 

introducing new technologies or management techniques . Whether it is a corporate sponsored 

or a government initiated conference or workshop, the goals remain the same : risk reduction 

and profit maximization. For example, the Clean Gulf and Petro-Safe conferences had a 

regulatory compliance and environmental-technology focus, respectively . Yet both were 

industry sponsored attempts to show operators how to reduce their financial exposure by 

staying current with new and changing regulations, such as OPA '90, and technology, such 

as 3D seismic data manipulation with high speed computers . These types of conferences or 

workshops usually have representatives from all sectors of the industry : major and 

independent companies, federal and state government agencies, attorneys, service 

contractors, and various support companies . 

Those conferences or workshops that are government initiated, such as the Minerals 

Management Service OCS Leasing Workshop, generally have more of a policy or regulatory 

focus . For example, at this particular workshop, all aspects of OCS leasing regulations and 

requirements were covered . This type of information has less to do with giving one company 

a competitive edge, as technology conferences may, than it does with conveying material that 

is essential for operators to remain in compliance . Subsequently, by attending the workshop, 

an operator knows exactly what must be done to avoid unnecessary delays or fines. Such 

information is paramount to the survival of both independent and major companies . 

Another aspect that is important to note regarding both types of conferences or workshops is 

how well those in attendance relate with one another. It was not uncommon to see seemingly 

fierce competitors getting along quite well . 

Trend toward Integration. The results suggested a tendency toward integration. The firms 

were classified by their worldwide activities, but, during the interview concerning operations 

in the Gulf of Mexico, the representatives were asked if their businesses were involved in 

any downstream integration activities in 1994 and in 1986. One representative of a large 

integrated company answered no to the question for 1986 and yes to the question concerning 

1994 as did two officials from small integrated enterprises . In addition, four executives from 

large nonintegrated businesses indicated that their companies were involved in at least one 

downstream integration activity in both 1986 and 1994 . Thus, there may be a tendency 

toward integration among oil and gas firms involved in the Gulf of Mexico . 

Shift in the Gulf. When people mention the shift in the Gulf, they have assumed that the 

independent companies as a whole were becoming more active and the major corporations 

less active, but the findings of this study do not support this assumption. The results implied 

that the nonintegrated firms became more active in oil and gas exploration and production 

activities between 1986 and 1994 while the integrated businesses including the major 

corporations either were equally involved in both years or less engaged in 1994 than in 1986 . 

These findings include the following. First, 10 of the 12 new companies in offshore 

extraction were nonintegrated enterprises . Second, nonintegrated firms extracted more oil, 
31 

were more involved in exploring, had more other offices in the Gulf of Mexico region, 

enlarged their workforces and increased their participation in joint ventures between 1986 

and the present (1993 for the amount of oil, 1994 for the other variables) . The same cannot 

be said for integrated corporations . Third, representatives of nonintegrated enterprises were 

more optimistic about the future of oil and gas exploration and production in the Gulf than 

were integrated companies. Fourth, the changes in the lease policies (areawide leasing in 

1983, the reduced minimum bid in 1987) had the greatest impact on the nonintegrated firms . 

In fact, some executives stated that these changes enabled nonintegrated companies to enter 

and compete in the Gulf. 

Other Major Findings 

Leasing Policies. The respondents were overwhelmingly in favor of areawide leasing and the 

reduction of the minimum bid. Sixty-eight percent of the 47 responses concerning the effect 

of areawide leasing on business practices were positive and only 2 percent were negative . 

The most common positive effects were: more activity, more leases, a greater potential for 

finding oil and gas, and that this was a fairer and easier way to do leasing. The results were 

similar for the reduction in the minimum bid . Sixty-six percent of the 47 replies discussed 

positive effects and there were no mentions of negative impacts. The most common positive 

influences referred to were: increases in bids, leases and acres; more activity ; and that this 

policy enabled companies to enter and compete in the industry in the Gulf. Althought the 

respondents did not mention it, areawide leasing may enable companies to establish core 

areas in the Gulf. 

The authorization for the way in which MMS conducts the federal OCS lease sales comes 

from two primary sources : OCS Lands Act of 1953, as amended in 1978, and 30 CFR Part 

256, codified 43 U.S .C. 1331 et sqq. MMS prepares a 5 year plan for upcoming sales in the 

leasing regions in federal waters . For most states, federal waters begin after the three-mile 

limit; but, in the case of Florida and Texas, federal waters begin after the nine mile limit . 

Unlike an auction, prospective lessees offer sealed bids on federal tracts that are publicly 

revealed the day of the scheduled lease sale . The acceptance of a particular bid is based on a 

complex set of variables with the following goals : 1) receipt of fair market value, 2) reliance 

upon the competitive market to determine fair market value, and 3) efficiency in the 

Government's evaluation process (USDOI, MMS 1994b) . 

Depending on the type of tract being bid on, the MONTCAR Methodology, the selection 

process employed, chooses the one that best satisfies the criteria of the process . The four 

types of tracts as identified by MMS are drainage, wildcat, development, and confirmed. The 

variables of the methodology include: 1) significant geological factors, such as oil recovery 

per acre-foot or depth of geopressure ; 2) significant engineering factors, such as platform 

type or location (water depth) ; and 3) significant economic factors, such as oil and gas price 

projections or inflation rates. 
32 

After the lease sale, the government has 90 days to determine if the prospective lessee has 

acquired the desired lease. Once acquired, the lessee pays rent on the tract for the length of 

the lease, which is usually 5 to 7 years, but may be up to twelve years in deeper water. If 

the lessee is able to produce oil and gas commercially from this lease, a royalty is also paid. 

There has been an increase in activity at recent lease sales due in part to recent trends toward 

subsalt exploration and the increase of the availability of 3D seismic data that helps to 

decrease the risk (Judice 1993) . Although subsalt exploration is risky, it does allow for 

elephant hunting since heretofore untapped large reserves may lie beneath the salt dome. 

Using 3D seismic data, companies can also examine oil oil fields to determine the reserves 

that remain and may be able to reach these resources through horizontal drilling . Also, the 

amount of acreage offered seems to play a role in the amount leased . But, other factors must 

be considered as well. For example, in 1984 when the most acres were offered, the acreage 

leased as a percentage of acreage offered was only 4 .8 percent (see table 2.4) . However, in 

1971 when the least amount of acres were offered, the acreage leased as a percentage of 

acreage offered was 66 percent. It should be noted that 1983 was the first year of area-wide 

leasing which explains in part why there was such a dramatic increase in the acreage offered. 

This had virtually no impact on production levels of either oil or gas when one considers the 

turn-around time for a leased area to go on-line. 

In addition, the table shows that although the switch to areawide leasing increased the 

acreage offered and the acreage leased, the acreage leased did not rise in proportion to that 

offered. Moreover, by 1992 and 1993, the amount of acreage leased had returned to the 

levels prior to the switch to areawide leasing possibly because there are fewer opportunities 

for elephant (i .e ., large field/reserves) hunting in the Gulf and more opportunities for oil and 

gas exploration and production off the coasts of countries other than the United States . Prior 

to 1983, the peak in acreage offered and leased occurred in 1981 which was the year in 

which the price of oil attained its highest amount in constant dollars . Moreover, production 

of oil increased with the change to areawide leasing and was at a high level between 1983 

and 1987 . However, in 1987 and 1988, oil production declined dramatically . This decrease 

was two years after the precipitous drop in the price of oil and was probably related to this 

drastic change. Even with areawide leasing, oil production never returned to its peak of over 

400 million bbl, which was reached in 1971 and 1972 . Further, gas production jumped 

between 1977 and 1978 and remained relatively high until 1984. While oil production was 

relatively high between 1983 and 1987, natural gas production was comparatively low from 

1985 and 1989 . Gas production peaked in 1990 and remained relatively high through 1993 . 
33 

Table 2.4 

Acreage Offered/Leased and Production for Federal 

OCS Leasing Program, 1970-1991 

Acreage Production 

Year Offered Leased Oil (mbbl) Gas (tcf) 

1970 666,845 598,540 361 2 .419 

1971 55,872 37,222 419 2 .777 

1972 970,711 826,195 412 3 .039 

1973 1,514,940 1,032,570 395 3 .212 

1974 5,006,881 1,762,158 361 3.515 

1975 7,247,327 1,679,877 330 3.459 

1976 2,827,342 1,277,937 317 3.596 

1977 1,843,116 1,100,734 304 3.738 

1978 3,140,696 1,297,274 292 4.385 

1979 3,412,249 1,767,443 286 4.673 

1980 2,563,452 1,134,227 277 4.641 

1981 7,680,397 2,265,537 290 4.850 

1982 7,637,122 1,886,360 321 4.680 

1983 119,811,784 6,587,823 348 4.041 

1984 154,383,680 7,397,939 370 4.538 

1985 87,028,709 3,573,544 389 4.001 

1986 58,670,104 734,418 389 3 .949 

1987 59,762,078 3,447,809 366 4.426 

1988 158,016,215 8,838,867 321 4.310 

1989 60,097,672 5,580,929 305 4.200 

1990 29,788,766 4,263,446 324 5 .093 

1991 90,287,925 3,413,560 316 4.516 

1992 52,380,047 1,020,919 337 4.685 

1993 55,070,269 1,714,458 352 4.533 

Source: USDOI, MMS, 1994c . 

In addition, the table shows that although the switch to areawide leasing increased the 

acreage offered and the acreage leased, the acreage leased did not rise in proportion to that 

offered . Moreover, by 1992 and 1993, the amount of acreage leased had returned to the 

levels prior to the switch to areawide leasing possibly because there are fewer opportunities 

for elephant hunting in the Gulf and more opportunities for oil and gas exploration and 

production off the coasts of countries other than the United States . Prior to 1983, the peak in 

acreage offered and leased occurred in 1981 which was the year in which the price of oil 
34 

attained its highest amount in constant dollars. Moreover, production of oil increased with 

the change to areawide leasing and was at a high level between 1983 and 1987 . However, in 

1987 and 1988, oil production declined dramatically . This decrease was two years after the 

precipitous drop in the price of oil and was probably related to this drastic change . Even with 

areawide leasing, oil production never returned to its peak of over 400 million bbl, which 

was reached in 1971 and 1972. Further, gas production jumped between 1977 and 1978 and 

remained relatively high until 1984 . While oil production was relatively high between 1983 

and 1987, natural gas production was comparatively low from 1985 and 1989 . Gas 

production peaked in 1990 and remained relatively high through 1993 . 

Regulations. As would be expected, the executives were overwhelmingly against the four 

regulations included in the interview . Only one respondent mentioned a positive effect of 

OPA '90 whereas ten indicated that their companies would be out-of-business if the $150 

million liability was enforced, and no one referred to a positive impact of any of the other 

three regulations - the increases in lease bonding to cover plug-and-abandon liabilities, the 

possibility of being required to reinject produced water (a potential implication of the Clean 

Water Act in the fall of 1994), and the prospect of the extension of onshore air quality 

standards to the offshore Gulf (a potential implication of the Clean Air Act) . 

Prior to the passage of the Oil Pollution Act of 1990 (OPA '90), the method for preventing 

and compensating victims of oil spills or other types of pollution associated with the oil and 

gas industry was somewhat confusing and underfunded . The Federal Water Pollution Control 

Act, or Clean Water Act, passed in 1972, ambitiously, and somewhat optimistically, set 

compliance standards and deadlines that later were modified. The objective of the Clean 

Water Act was to "restore and maintain the chemical, physical, and biological integrity of the 

Nation's waters" (33 U.S .C . 1251a) . Part of this objective included the elimination of the 

"discharge of pollutants into the navigable waters [of the U.S.]" (33 U.S .C . 1251a.1) . But, 

more specifically, the Clean Water Act included provisions that addressed the problems 

associated with the oil and gas industry . Section 311 of this Act covers oil and hazardous 

substance liability and was intended to provide the government with authority to respond to 

an oil spill (Uda 1991, p.406) . The Act spells out the policy of the federal government by 

offering various administrative, civil, and criminal penalties for an unauthorized discharge 

upon the navigable waters of the United States (33 U.S .C. 1321) . There was even an oil spill 

fund statutorily authorized (33 U.S .C. 1321k .1) to contain up to $35 million, yet at the time 

of the Exxon Valdez accident, the fund contained only approximately $6 million (Uda 1991, 

p.406) . Further, this Act never really provided a clear federal method for its enforcement 

with regard to spills and adequate compensation for victims. Although several laws have been 

enacted to enable victims to seek relief, as evidenced in Askew v American Waterways 

Operators, 411 U.S . 325, many academics, environmentalists, and the oil industry found oil 

spill and discharge laws to be a "confusing maze" (Uda 1991, p .415). 

The next move, and this is in addition to OPA '90 standards, has been to strengthen existing 

laws . For example, extending the Clean Water Act to cover offshore activity, such as the 

reinjection of processed water, has been debated recently . Also, expanding the Clean Air 
35 

Act's ambient air standards to include offshore facilities has been discussed. Here, as with 

the Clean Water Act, some of the concern by the industry involves the possibility of having 

to retrofit existing rigs and platforms . For now, these increased standards, which were 

initiated by the Environmental Protection Agency, will not apply to the Gulf of Mexico 

region (Staff 1992b, p .26) . In addition, in the spring of 1995, steps were taken to weaken the 

Clean Water Act. A House Committee proposed changes in the act that "would make it 

easier to develop wetlands and set more lenient water pollution standards" (Dewar 1995, p . 

A1,16) . 

Other ideas concerning environmental regulations that would affect oil and gas extraction in 

the Gulf include allowing the Solid Waste Disposal Act as amended by the Resource 

Conservation and Recovery Act, 42 U.S.C . 6901 et sqq., to redefine oil as a solid waste . 

This would also enable federal involvement under the Comprehensive Environmental 

Response, Compensation, and Liability Act (CERCLA), or Superfund, 42 U.S .C . 9601 et 

sqq., in oil spills . However, section 106 of CERCLA does not permit the government to 

issue administrative clean up orders to a private party (42 U.S .C. 9606a-b) . Perhaps, the 

utilization of the Pollution Prevention Act of 1990, 42 U.S .C . 13101 et sqq., would be the 

best method for reducing environmental degradation resulting from the offshore oil industry . 

This Act asserts that the policy of the United States is : "pollution should be prevented or 

reduced at the source whenever feasible ; pollution that cannot be prevented or recycled 

should be treated in an environmentally safe manner whenever feasible; and disposal or other 

release into the environment should be employed only as a last resort and should be 

conducted in an environmentally safe manner. " 

The Oil Pollution Act of 1990, 33 U.S .C . 2701 et sqq., was written to address specific areas 

of concern which were not addressed by these previous acts . The major provisions of OPA 

'90 (CQ Almanac Staff, 1990) include the following . First, it increases spillers' liability 

many times over existing federal limits and imposes stiffer civil and criminal penalties. 

Liability could top $200 million for big tankers. Second, it requires companies to pay for 

cleaning up oil spills they produce and to compensate parties economically injured by them. 

(Note : this provision is not explicitly defined but rather implied in section 1012). Third, it 

continues to allow states to impose unlimited liability on shippers . Fourth, it authorizes using 

money from a federal fund, subject to annual appropriations, to pay for clean up and 

compensation costs not covered by the company responsible for the spill . The fund, designed 

eventually to contain $1 billion, was to be financed by a recent five-cents-a-barrel oil tax. 

Fifth, it requires shippers to draft "worst-case" oil-spill response plans for quick clean up . 

Sixth, it enhanced the federal government's oil-spill response capability . District response 

groups have been positioned across the country to aid strike teams, and a new national 

command center was to be established in Elizabeth City, N.C . Seventh, it expands 

Presidential power to control a company's clean up operations . Eighth, it establishes a multiagency oil-pollution panel to coordinate federal research . 

As one might imagine, such an Act, although passed unanimously and then signed by 

President Bush in August of 1990, met with much criticism from those in the oil and gas 
36 

industry and then, subsequently, legislators . Outgoing American Petroleum Institute (API) 

president and chief executive officer of Mobil, Allen E. Murray, claimed the following 

regarding recent U.S . policy toward the oil industry, "[The industry] is being thrown out" 

(Staff 1991, p.21) . Industry complaints include that regulations create undue restraints and 

are costly . As a result the number of independent refineries in the U.S . has declined because 

they are unable to meet the financial burden created by environmental regulations . According 

to H. Leighton Steward, chair and chief executive of the Louisiana Land and Exploration 

Company, the amount of money refineries will have to spend to comply with environmental 

regulations by the year 2000 exceeds the current book value of these companies by six billion 

dollars (Judice 1995b) . Many in the industry claim that increased investing by companies 

outside of the U.S . is a direct result of more stringent environmental regulations in the U.S . 

Such feelings among industry leaders has caused an avalanche of legislation. For example, 

now retiring Senator J . Bennett Johnston D-LA introduced the OCS Deepwater Royalty 

Relief Act (5 .318) on February 4, 1993, which was to suspend some of the royalty payments 

for OCS operators until they had recovered part of their initial investment . The bill was 

soundly defeated as it was labeled "corporate welfare" by its opponents. Also, there have 

been several pro-environment bills offered to keep the federal government from leasing the 

waters off the coasts of Florida (5 .290 introduced by Senator Connie Mack D-FL) and other 

states . Obviously, there are still problems with existing legislation. While the recently 

enacted OPA '90 is not a panacea, it is still a marked improvement over the previous legal 

quagmire (Uda 1991, p.405) . 

Table 2.5 

Environmental Costs of Oil and Gas Exploration and Development by Year 

1986 

Company Total Type of Number Type of Volume of Type of Amount of 

Type Number of Incident by Type Pollution Pollution Damage Damage 

Incidents 

Major 41 Fire 30 Oil 342 Fatality 3 

Blowout 1 Injury 7 

Explosion 0 Structure 5 

Human 5 Property 19 

Pollution 5 

Independent 20 Fire 15 Oil 0 Fatality 2 

Blowout 1 Injury 4 

Explosion 0 Structure 0 

Human 4 Property 7 

Pollution 0 
37 

Table 2.5 

Environmental Costs of Oil and Gas Exploration and Development by Year 

(continued) 

1987 

Company Total Type of Number Type of Volume of Type of Amount of 

Type Number of Incident by Type Pollution Pollution Damage Damage 

Incidents 

Major 30 Fire 24 Oil 0 Fatality 0 

Blowout 6 Injury 3 

Explosion 0 Structure 3 

Human 0 Property 10 

Pollution 0 

Independent 15 Fire 11 Oil 120 Fatality 14 

Blowout 2 Injury 2 

Explosion 0 Structure 2 

Human 1 Property 8 

Pollution 1 

1988 

Company Total Type of Number Type of Volume of Type of Amount of 

Type Number of Incident by Type Pollution Pollution Damage Damage 

Incidents 

Major 27 Fire 20 Oil 15,841 Fatality 0 

Blowout 2 Injury 4 

Explosion 0 Structure 2 

Human 1 Property 9 

Pollution 4 

Independent 13 Fire 7 

Blowout 2 

Explosion 0 

Human 2 

Pollution 2 

Oil 167 Fatality 6 

Injury 8 

Structure 1 

Property 2 
38 

Table 2.5 

Environmental Costs of Oil and Gas Exploration and Development by Year 

(continued) 

1989 

Company Total Type of Number Type of Volume of Type of Amount of 

Type Number of Incident by Type Pollution Pollution Damage Damage 

Incidents 

Major 27 Fire 16 Oil 0 Fatality 9 

Blowout 7 Injury 28 

Explosion 0 Structure 2 

Human 3 Property 7 

Pollution 0 

Independent 11 Fire 2 Oil 300 Fatality 5 

Blowout 6 Injury 2 

Explosion 0 Structure 1 

Human 2 Property 1 

Pollution 1 

1990 

Company Total Type of Number Type of Volume of Type of Amount of 

Type Number of Incident by Type Pollution Pollution Damage Damage 

Incidents 

Major 25 Fire 9 Oil 38,005 Fatality 3 

Blowout 3 Zn Br 110 Injury 25 

Explosion 0 Structure 4 

Human 6 Property 4 

Pollution 7 

Independent 17 Fire 8 

Blowout 4 

Explosion 0 

Human 3 

Pollution 2 

Oil 19,012 Fatality 3 

Injury 24 

Structure 2 

Property 5 
39 

Table 2.5 

Environmental Costs of Oil and Gas Exploration and Development by Year 

(continued) 

Totals for 1986 to 1990 

Company Total Type of Number Type of Volume of Type of Amount of 

Type Number of Incident by Type Pollution Pollution Damage Damage 

Incidents 

Major 150 Fire 99 Oil 54,188 Fatality 15 

Blowout 19 Injury 67 

Explosion 0 Structure 16 

Human 15 Property 49 

Pollution 16 

Independent 76 Fire 42 Oil 19,599 Fatality 30 

Blowout 15 Injury 40 

Explosion 1 Structure 6 

Human 12 Property 23 

Pollution 6 

Source : USDOI, MMS, 1992c. 

Note : Volume of pollution is measured in barrels unless otherwise noted. Structure damage includes large-scale property damage associated 

to but not limited to pipelines, rigs, and platforms. 

Table 2 .5 demonstrates part of the environmental problem as it shows the type, volume and 

damage caused by reported accidents on the OCS by major and independent companies . In 

addition the table demonstrates that independent firms report only about half the amount of 

accidents that the major corporations report each year. Moreover, despite the difference in 

reported incidents, the independent businesses have as many or more fatalities than the major 

corporations each year and the total fatalities for the independent enterprises is twice that of 

the major companies although the reported incidents are only about half those of the major 

firms . Further, with the exception of 1989, the independent businesses have as many or more 

injuries than the major firms per year despite reporting only half as many incidents . Also, 

the major companies reported more structural and property damage than the independent 

firms . 

Agencies . When the executives were asked to list in order the five federal agencies that have 

the greatest impact on their oil and gas exploration and production activities in the Gulf, the 

results in descending order were : the Minerals Management Service, the Environmental 

Protection Agency, the Coast Guard, the Department of Transportation, and the Occupational 

Safety and Health Administration . There were some differences by type of company in the 
40 

ordering of these agencies as will be presented in chapter 4; however, regardless of the kind 

of firm, the Minerals Management Service was ranked as the most important agency . 

Government agencies play an important role in the business activity of Gulf of Mexico 

operators . Although state agencies have an impact that ranges from significant, e.g ., Texas 

Railroad Commission, to marginal, e.g ., Mississippi Oil and Gas Board, the major federal 

agencies possess greater authority to regulate the activity of Gulf of Mexico operators . The 

most important of the federal agencies is the Department of Interior's Minerals Management 

Service (MMS). The legal basis for their actions, whether it be setting bonding requirements 

or holding lease sales, can be found in Title 30 C.F .R. 256 . MMS is the agency that handles 

almost every aspect of the operators' daily life . MMS activities include everything from data 

collection such as sponsored studies to information dissemination, including supporting 

workshops . 

The primary agencies that affect OCS activity besides MMS include : the Environmental 

Protection Agency, the Department of Transportation (Coast Guard and Office of Pipeline 

Safety), the Department of Energy (Federal Energy Regulatory Commission), and the 

Department of Labor (Occupational Safety and Health Administration). The Environmental 

Protection Agency (EPA) was authorized as the primary enforcer of environmental 

regulations by the National Environmental Protection Act of 1969, 42 U.S .C. 4321 et sqq ., 

which was further strengthened in Appendix B of the Code of Federal Regulations Title 40 . 

This latest edition is important to Gulf of Mexico operators for at least two reasons : 1) it sets 

the agency decision making process and 2) it explains the procedures for submitting 

Environmental Impact Statements (EIS) . In short, the EPA is the primary agency for all 

environmental legislation. Next, the Coast Guard, especially with the passage of OPA '90, 

has expanded its duties from assisting clean up procedures to operating the National Pollution 

Funds Center in Arlington, Virginia . 

The Department of Energy does not have the same direct or daily influence on Gulf of 

Mexico operators that MMS has, but rather a more detached and policy setting function as 

evidenced by Deputy Secretary of Energy William H. White's comments before the Senate 

Committee on Energy and Natural Resources held September 14, 1993 . Here, White spoke 

of the need for royalty reduction, increased production, and technological advancement . 

Energy Secretary Hazel O'Leary spoke of the federal government guaranteeing "stable 

markets at home and abroad" when speaking in New Orleans to the Independent Petroleum 

Association meeting held November 8, 1993 . Like other agencies, it sponsors research on 

broader based policy questions . 

The Department of Labor's role is setting standards for occupational safety and health for 

offshore workers as authorized by 29 U.S .C. 651 et sqq . It promotes worker safety and 

provides a channel for airing grievances . The secondary agencies, or those of lesser 

importance to OCS activity, include the Department of Commerce (National Oceanic and 

Atmospheric Administration and National Marine Fisheries Service) and the Federal 

Communications Commission (FCC). 
41 

Employment. Although the numbers of employees differed by type of company, there were 

three categories of employment that had relatively large numbers of employees regardless of 

the type of company - production/platform work, exploration, and administration . Major 

corporations and large integrated firms had about twice as many production platform workers 

as exploration and administration employees whereas small integrated and both sizes of 

nonintegrated businesses had approximately equal numbers of people in these three 

categories. Nevertheless, these were the largest classifications of employment for all five 

types of companies . These three categories - exploration, administration, and 

production platform work - were also the types of employment in which increases in 

employees from 1986 to the fall of 1994 tended to occur. 

In the United States, employment in oil and gas exploration and production rose from 

440,000 to 750,000 between 1979 and 1982 making employment in oil and gas comparable 

to that in automotive manufacturing (McLin 1988) . Also, as the price of oil declined in the 

1980s, employment in oil and gas exploration and production decreased by 150,000 between 

1982 and 1983 and by 180,000 between 1985 and 1986 leaving the industry with just 

420,000 employees in 1986 (McLin 1988) . In Louisiana, employment in energy-related jobs 

decreased by approximately 45,000 during the 1980s (Judice 1991) and Houston experienced 

a decrease in jobs in oil and gas exploration (Feagin 1990) . 

Differences in Characteristics, Environment and Practices by Integration. Almost half of 

the differences by type of company in characteristics, views of the business environment, and 

operations occurred between integrated and nonintegrated firms. Fifteen of the total 31 

variations by type of business depended on integration whereas only seven were between the 

major corporations and the independent firms, one occurred by size of company, two varied 

by integration and size, and one varied by all three dimensions. In addition, there were five 

differences that could not be attributed to integration, size, or major and independent 

companies . 

Technology. When the executives were asked to report whether their firms used or were 

involved in deepwater projects, subsalt exploration, horizontal drilling and 3D seismic data, 

the results indicated that almost all of the businesses used 31) seismic data. In addition, over 

a third were involved in deepwater or subsalt exploration and almost half of the enterprises 

did horizontal drilling . Moreover, almost three quarters of the 51 responses concerning how 

the use of 31) seismic data had affected operations in the Gulf were about positive influences, 

particularly reduced risk and increased success . Similarly, 79 percent of the 24 comments 

about the influence of horizontal drilling on operations in the Gulf presented positive 

impacts, especially that horizontal drilling made extraction more economical particularly in 

shallow water. In contrast, subsalt and deepwater exploration were too new and too 

expensive for many of the officials to be able to discuss actual impacts of these technologies 

on the activity in the Gulf. Also, the use and effects of these technologies differed by type of 

company as will be shown in chapter 4. 
42 

The Gulf of Mexico is a mature region . Its profitability for most companies has been 

declining for several years. The recent subsalt plays and deepwater leasing, though 

expensive, do indicate that there could be increased interest in the region by the major and 

some of the larger independent companies . The days of total domination by the major 

corporations in Gulf of Mexico leasing, exploration, and production has shifted. A.D. Koen 

of The Oil & Gas Journal claimed that "evolving geophysical technology and savvy logistical 

tactics are reducing the upfront investment dollars needed to bring offshore wells on line and 

shortening project development timetables" (Koen 1993b, p.20) . Thus, smaller companies 

with limited capital need not wait as long for a return on their investment ; therefore, such 

firms can be more involved in Gulf extraction. Also, as long as there are moratoriums 

against offshore leasing in Florida and California, the western and central Gulf of Mexico 

may be the only place smaller independent firms can explore . 

The major corporations are finding fewer and fewer 'Mars-like finds' ; therefore, many have 

sought foreign opportunities. For example, number one on Chevron's "Eight Strategic 

Intents" list is to "shift exploration and production emphasis to international opportunities" 

(Stated in Chevron's 1993 Annual Report, p.12) . For them, this means exploring in the 

newly independent Central Asian state of Kazakhstan. For other major firms this may mean 

stepping up production in Vietnam or Nigeria or Russia . 

One important evolution in the Gulf of Mexico that is sometimes overlooked but very 

important in understanding how so many small independent firms can operate in the Gulf is 

the accumulation of a pipeline infrastructure . This has occurred over the past few decades 

and some believe this is "buttressing the growth of independent activity" (Koen 1993b, p.20) . 

However, it should be noted, that this is an infrastructure that is aging . Some of the pipelines 

that are currently being used have been in place for as many as forty years. Considering the 

fact that new pipelines are built today with a life expectancy of about forty years, this preexisting infrastructure may not last much longer, which could be very costly to some of the 

independent companies depending upon it . 

Perhaps the biggest areas of technological advancement that have positively impacted the oil 

and gas industry are three dimensional seismic data and horizontal drilling . Three 

dimensional seismic data reduces the risk involved in the pre-leasing and development stages 

by providing the prospective lessee with more information than a simple 2D. But the use and 

need for 3D goes beyond the geophysical needs of those in the Gulf of Mexico. Jim Watkins, 

manager of commercial and business development for Aran Energy Corp ., Houston, claimed 

that 3D consulting businesses have sprung up in the Gulf of Mexico and have allowed 

independent companies the chance to purchase the data from "real experts" (Koen 1993b, 

p.21) . This gives the independent firms as much information on the Gulf of Mexico as the 

major corporations . Enron Oil & Gas, for example, relied on 3D data for about 75 percent 

of its offshore drilling in 1993 (Koen 1993b, p.21) . 

Horizontal drilling is a technology that has played an important role in Gulf of Mexico 

production, but its cost (estimated by Petroleum Engineering International), which is about 
43 

$1 million per well to drill, still makes it too expensive for all Gulf of Mexico players. Yet 

the IPAA reports that by 1995, 41 percent of independent producers will have horizontal 

drilling technology, which is up from only 15 percent in 1990 (Staff 1992c, p.6) . However, 

its growing importance concerns its ability to increase production . In 1990, the total 

expenditures on horizontal drilling was $662 million, but that was only 6 percent of the total 

spent on drilling according to an Energy Information Administration Technical Report 

sponsored by the Department of Energy. Also, horizontal drilling has a potential impact for 

gas producers because it can: drain partially depleted reservoirs; increase production in 

naturally fractured formations ; access greater lengths of pay; and reduce the number of wells 

required to fully exploit extensive reservoirs (Groten 1991, p .39) . However, there is 

evidence that using horizontal drilling to redrill old wells has several advantages and can save 

money. According to Keith Fisher, senior drilling engineer for the Petroleum Club in New 

Orleans, "re-entry drilling costs can be as low as 37 percent of what it cost to drill the 

original well" (Judice, 1994e) . Redrilling "by-passes zones that would produce water or are 

damaged," and also uses existing structures and pipelines (Judice, 1994e) . 

Deepwater drilling is another form of technology that is becoming more widely used by all 

types of companies, particularly in the Gulf of Mexico . According to MMS, deepwater is 

anything deeper than 1000 feet . Though it is more costly than shallow water drilling, it may 

well be the future of drilling in the Gulf of Mexico where there are fewer and fewer shallow 

water finds . According to a recent report in the Washington Post, geologists say that the Gulf 

of Mexico deep waters "could produce several billion barrels of oil, hundreds of millions of 

dollars in profits and tens of thousands of U.S . jobs" (Southerland 1995, A-1) . There are 

obstacles to overcome in the deep waters of the Gulf, but some companies have already 

begun drilling . Shell Offshore, Inc . began installing Popeye Phase 1 in April of 1995 . This 

deepwater gas well is expected to begin pumping in September of 1995 (Staff 1995, p .26) . 

Shell has several other deepwater projects in the Gulf of Mexico, but Popeye is the most 

technologically sophisticated to date . Other companies who have made deepwater discoveries 

in the Gulf of Mexico include Exxon, Marathon, Texaco, Phillips, Chevron, Amerada, Oryx, 

Conoco, BP, Enserch, Amoco, and Tatham (LeBlanc 1993, p . 30). According to Robert 

Esser, a senior consultant to Cambridge Energy Research Associates, companies are doing 

things in the Gulf of Mexico "that five years ago nobody thought were economically 

possible . This could begin to noticeably slow the decline of U.S. oil output in the late 1990's 

into 2005" (Southerland 1995, p.A-4) . Deepwater technological progress is advancing 

quickly, and if companies are able to develop the needed technologies, the Gulf of Mexico 

could produce as much as "700,000 barrels a day of oil and gas equivalents by 1999" 

(Southerland 1995, p .A-4) . 
45 

CHAPTER 3 

EXPLORATION AND PRODUCTION COMPANIES IN THE GULF OF MEXICO 

In this chapter, the business characteristics, environment and practices of the companies 

involved in exploration and production in the Gulf of Mexico will be presented. Both the 

current (fall of 1994 usually, 1993 sometimes as specified in the text) and past (1986) 

characteristics of the 47 firms that answered all of the questions will be discussed. The 

characteristics examined include the amount and type of resource extracted, involvement in 

downstream integration activities and exploring, size of research and development spending, 

locations of headquarters and other offices, and the number of employees and their activities . 

The next topic will be the business environment, which consists of the federal agencies and 

regulations, technology, joint ventures, use of service companies, and views of the future of 

exploration and production in the Gulf. The final topic will be the companies' operations in 

the Gulf of Mexico . 

BUSINESS CHARACTERISTICS 

The results to be presented shortly will demonstrate the following. First, most of the 

companies extracted both oil and natural gas from the Gulf of Mexico . Second, for most of 

the businesses, production of oil and gas, exploration, and the number of employees 

increased since 1986 . Third, the number of companies operating offshore in the Gulf 

increased since 1986. Fourth, research and development funds decreased since 1986 . 

The respondents were asked if their company extracted oil or natural gas or both from the 

Gulf of Mexico in the fall of 1994. The vast majority of the 47 companies extracted both 

petroleum and gas from the Gulf of Mexico (see figure 3 .1) . One firm obtained only gas and 

two businesses ceased exploration and production operations in the Gulf. The executives also 

were queried about the resource extracted in 1986 . In 1986, only 33 enterprises derived both 

petroleum and gas while 13 endeavors collected neither resource, 12 of these companies 

began operating offshore in the Gulf after 1986 (see figure 3 .2) . The companies' 

representatives were questioned about the amount of oil and natural gas extracted in 1993 and 

in 1986 . The median amount of petroleum derived from the Gulf in 1993 was 940 thousand 

barrel equivalents and the median amount of gas was 27 .85 billion cubic feet . Most of the 

companies were obtaining more petroleum and more gas in 1993 than in 1986 (see figures 

3 .3 and 3 .4) . Yet, some of the businesses were collecting less oil and less gas. To determine 

if a there is a tendency for operators in the Gulf to become integrated over time, the officials 

were questioned about their businesses' involvement in downstream integration activities such 

as petroleum refining, gas processing, wholesale and retail trade. Three more of the firms 

were involved in downstream integration activities in the fall of 1994 than in 1986 . In 1994, 

25 of the 47 firms participated in such operations while, in 1986, 22 companies took part in 

these activities (see figures 3 .5 and 3 .6) . 
46 

Missing [2 .1%J Gas C 2 .1%) wither X4 .3%J 

Figure 3 .1 Resources Extracted in 1994 

Missing C2 .1%) 

Neither X27 .7%J 

Both C70 .2%) 

Figure 3 .2 Resources Extracted in 1986 

Oil end Gas (99 .5%) 
47 

Decrease (32 .5%) 

Increase (65 .0%) 

No Change CZ .S%~ 

Figure 3 .3 Change in Petroleum Extraction 1986 to 1993 

Decrease C19 .0%) 

Same C4 .8%> 

Increase (76 .2%) 

Figure 3 .4 Change in Gas Extraction 1986 to 1993 
48 

No C46 .0%, 

Yes (53 .2%) 

D 

Figure 3 .5 Downstream Integration in 1994 

Yes C46.8%) 

No C53 2%) 

Figure 3 .6 Downstream Integration in 1986 
49 

The respondents were requested to state if their businesses were more or less involved in 

exploring in the fall of 1994 than in 1986 . Based on this information, there was more 

exploring for petroleum and gas in 1994 than in 1986 (see figure 3 .7) . Over two-thirds of the 

companies' representatives asserted that their arm was engaged in more exploration in 1994 

while under one-fourth responded that their business was involved in less exploration. The 

executives also talked about the size of the firms' research and development spending in 1993 

and in 1986 . In contrast to the results concerning exploring, less money was spent on 

research and development in the Gulf in 1993 than in 1986. The median amount of dollars 

used for research and development in 1993 was 1 million while the median in 1986 was 1 .2 

million. However, caution should be exercised in interpreting these results . Only 13 of the 

companies' representatives gave dollar amounts for 1993 and only 10 gave dollar quantities 

for 1986. In answer to the item for 1993, 64 percent of the respondents said 0 dollars while 

70 percent stated no dollars for the item concerning 1986 . The medians reported are based 

only on the nonzero dollar amounts. 

LL 

C21 .3%) 

S- C 10 696) 

More (66 1%) 

,C ess 

Figure 3 .7 Change in Exploring 1986 to 1994 

The executives also talked about the location of the companies' headquarters and other 

offices in 1994 and 1986. These results are summarized in figures 3 .8 through 3 .13. The 

majority of the companies had headquarters in a city in the Gulf of Mexico region (Texas, 

Louisiana, Mississippi, or Alabama), particularly in Houston, Texas . Those that operated out 

of Louisiana, had headquarters in New Orleans . Only four firms changed their headquarters 

between 1986 and 1994. Two enterprises moved from small cities in Texas to large cities in 

Texas, one moved from one large city in Texas to another, and one company added a 
50 

headquarters in Texas, although the corporate headquarters was not in the Gulf of Mexico. In 

addition, there were four businesses, all small nonintegrated ones, that had no headquarters 

in 1986 because they began operating after that year. 

Fifty of the other offices were in the Gulf of Mexico, 33 were in Texas. Almost half (48 

percent) of those in Texas were in Houston while approximately a third (30 percent) were in 

Midland, 9 percent were in Tyler, 6 percent were in Amarillo and another 6 percent were in 

Corpus Christi . Sixteen of the total other offices were in Louisiana; of these, 56 percent 

were in Lafayette and 38 percent were in New Orleans . Sixteen of the other offices were not 

in the United States . Many (44 percent) were in Calgary and 13 percent were in London. 

The most popular cities for the location of other offices were Houston, Midland and 

Lafayette . Nine companies had no offices other than their headquarters . The average number 

of other offices declined from 2.8 in 1986 to 2.4 in 1994 and the range decreased by 4 

during the same period (0 to 11 in 1986 and 0 to 7 in 1994) . 

Not GOM X25.5%~ 

GOM X74.5%J 

Figure 3 .8 Location of Headquarters in 1994 
51 

Alabama (2 .9%) 

Loulslana C~4 .3%J 

Texas (82.9%) 

Figure 3 .9 Location of GOM Headquarters by State in 1994 

Figure 3 .10 Common Cities for Headquarters in 1994 
52 

Figure 3 .11 Location of Other Offices in 1994 

Figure 3 .12 Location of Other Office by State in 1994 
53 

Figure 3 .13 Common Cities for Other Offices in 1994 

The executives responded to questions concerning the number of employees involved in 

offshore activities in the Gulf of Mexico. According to their answers, the offshore petroleum 

and gas companies had between 0 and 1,650 employees working in activities related to 

extraction in the Gulf (see table 3 .1) . The mean number of workers was 167 while the 

median was 40. Ninety percent of the companies employed more than 5 people while only 10 

percent had more than 441 employees. Over half (53 percent) of the businesses increased 

their staff involved in activities in the Gulf since 1986 while 38 percent decreased their 

workforce and 9 percent had the same number of employees (see table 3 .2) . 
54 

Table 3.1 

Distribution of Employees in 1994 

Mean Median Mode Minimum Maximum 

Total Workers 167 40 --- 0 1650 

Drilling 6 2 2 0 80 

Exploration 23 10 3 0 290 

Production/Platform Work 72 7 4 0 700 

Research and Development 2 0 0 0 35 

Administration 23 12 3 0 250 

Engineering 16 3 .5 0 0 330 

Shipping/Pipelines 1 0 0 0 30 

Note : Production and Platform work were combined because some companies could not report the number of employees in each category 

separately . One company was omitted because the respondent could not give only the number of offshore employees . 

Table 3 .2 

Changes in Workforce Distribution from 1986 to 1994 

Percentage of Companies 

Increase Decrease Same Number 

Total Workers 53 38 9 

Drilling 48 30 22 

Exploration 57 30 13 

Production 49 29 22 

Platform Work 37 30 33 

Research and Development 4 17 78 

Administration 50 35 15 

Engineering 33 33 34 

Shipping/Pipelines 9 15 76 

Note: Most of the companies had no employees in research and development or shipping/pipelines in either year. 

The officials were asked to indicate the number of people employed in each of the following 

activities in the Gulf: drilling, exploration, production, platform maintenance/operation, 

research and development, administration, engineering, and shipping/pipelines . Most of the 

employees who were involved in the Gulf were employed in administration, exploration, and 

production and platform maintenance/operation . The largest median numbers of employees 

were 12 for administration, 10 for exploration and 7 for production and platform 

maintenance/operation (see table 3 .1) . The median number of employees in the other 
55 

categories were lower : 3 .5 for engineering, 2 for drilling, and 0 for shipping/pipelines and 

research and development. Very few companies had any employees in shipping/pipelines and 

research and development. The companies' representatives also discussed how the number of 

employees in the Gulf in each of these activities had changed (increased, decreased, or stayed 

the same) since 1986 . Approximately 50 percent of the firms had increased the numbers of 

employees in exploration (57 percent), administration (50 percent), production (49 percent) 

and drilling (48 percent) since 1986 (see table 3 .2) . In addition, 37 percent of the 

respondents said that their business had more employees in platform maintenance/operation in 

1994 than in 1986 . In most of the companies, the number of employees in research and 

development (78 percent) and shipping/pipelines (76 percent) had not changed since 1986 . 

However, few firms had any employees in either of these two categories in either 1994 or 

1986 . In addition, the numbers reported for 1994 should be considered approximate since 

some respondents had difficulty separating onshore from offshore employees . 

BUSINESS ENVIRONMENT 

There are several aspects of the business environment of companies operating in the Gulf of 

Mexico. Some components of this business environment are the following : the federal 

agencies and regulations that control offshore oil and gas extraction, the technology 

available, the relationships among the companies that operate in the Gulf including their 

participation in joint ventures, the ability of service companies to assist oil and gas extraction 

firms with their activities, and the oil and gas extracting enterprises' views of the future of 

such operations in the Gulf of Mexico . 

The findings can be summarized as follows . First, the five federal agencies with the greatest 

influence on oil and gas extraction companies' operations in the Gulf in descending order 

were : the Minerals Management Service, the Environmental Protection Agency, the Coast 

Guard, the Department of Transportation, and the Occupational Safety and Health 

Administration. Second, when asked about four pending regulations that would apply to 

offshore operations, the executives ranked the Clean Water Act as having the greatest impact 

on their procedures succeeded in descending order by the financial responsibility provisions 

of OPA '90, the Clean Air Act, and the increase in lease bonding to cover plug-and-abandon 

liabilities . Third, when queried about the employment of new technology, the respondents' 

answers demonstrated that almost all of the companies used 3D seismic data, almost half of 

them did horizontal drilling, and somewhat over a third of them were involved in deep water 

and subsalt exploration. Fourth, the outcome concerning joint ventures shows that almost all 

of the firms were involved in joint ventures, most participated in more joint ventures now 

than in 1986, and the type of company most frequently mentioned as a joint venture partner 

was major corporations . Fifth, the responses about hiring service companies indicated that 

almost all of the businesses contracted out some activities, the use of such companies 

increased since 1986, and the proportion of Gulf of Mexico operating costs expended in 

hiring service companies increased since 1986 . Sixth, the executives views on the future of 

oil and gas exploration in the Gulf were optimistic. 
56 

Federal Agencies and Regulations 

Federal agencies and regulations are part of the business environment in which oil and gas 

extraction from the Gulf of Mexico occurs . The respondents were asked to list in order the 

five federal agencies whose policies and regulations have the most effect on their companies' 

operations in the Gulf of Mexico. Table 3 .3 displays the results. 

Table 3 .3 

Federal Agencies with the Greatest Effect on Gulf Extraction 

Total 

Rankings Mentions 

1 2 3 4 5 

Coast Guard 0 13 20 4 1 38 

Coastal Zone Management 0 0 0 2 0 2 

Corp of Engineers 0 0 1 1 1 3 

Department of Commerce 0 0 0 0 1 1 

Department of Transportation 0 0 6 12 4 22 

Environmental Protection Agency 2 25 9 2 1 39 

Federal Communication Commission 0 0 0 0 1 1 

Federal Energy Regulatory Commission 0 2 0 0 1 3 

Internal Revenue Service 0 0 0 1 0 1 

Minerals Management Service 41 2 1 1 0 45 

National Marine Fisheries Service 0 0 1 2 3 6 

National Oceanic and Atmospheric Administration 0 0 0 1 1 2 

Occupational Safety and Health Administration 1 0 2 6 5 14 

Office of Central Compliance--Department of 0 0 0 0 1 1 

Labor 

Total Companies 44 42 40 32 20 --- 

Examining the total number of mentions for each of the 14 agencies it is apparent that the 

five most important agencies were : the Minerals Management Service, the Environmental 

Protection Agency, the Coast Guard, the Department of Transportation, and the Occupational 

Safety and Health Administration . However, the problem with this analysis is that ignores the 

fact that the executives were asked to list the agencies in order from that with the most effect 

to that with the least and not just to list five federal agencies that are important in their 

operations in the Gulf. Therefore, it is necessary to examine the agencies within each rank to 

determine which agency is most often listed as having the greatest effect, which has the 

second largest influence and so forth. Comparing agencies within each of the five ranks, the 

most important agencies in terms of their impact on offshore oil and gas extraction in 
57 

descending order were : 1) the Minerals Management Service, which was the agency most 

frequently mentioned as having the greatest impact; 2) the Environmental Protection Agency, 

which was the agency most often refereed to as having the second largest influence; 3) the 

Coast Guard; 4) the Department of Transportation (two respondents qualified their listing of 

this department by stating specifically the Office of Pipeline Safety) ; and 5) the Occupational 

Safety and Health Administration. 

When examining the federal agencies listed in table 3 .3, three other aspects of the findings 

should be noted. First, a plethora of federal agencies were involved in offshore oil and gas 

extraction in the Gulf. Fourteen agencies were mentioned as among the five having the most 

impact on these firms' operations . Second, the greater the rank (the less impact), the less 

consensus there was in the choice of agency. The Minerals Management Service was 

overwhelmingly mentioned as having the greatest effect ; only two other offices were 

mentioned and neither was referred to more than twice . In contrast, the Environmental 

Protection Agency was the agency most often listed as second, but the Coast Guard received 

over half the mentions the Environmental Protection Agency got as being second in impact. 

In addition, more agencies were listed . The consensus became less with each successive 

rank. Third, the more rankings requested, the smaller number of respondents who gave an 

agency name. Forty-four company representatives listed an agency as first, 42 gave a name 

for the second rank, 40 submitted an agency as third, but only 32 officials mentioned an 

agency as fourth and only 20 gave an agency name for the fifth rank. 

As stated previously, not only do federal agencies affect operations in the Gulf, but also 

regulations are of great importance in impact on these activities . There are four major 

regulations that are of concern for companies operating in the Gulf of Mexico : the increases 

in lease bonding to cover plug-and-abandon liabilities, the possibility of a water quality 

standard that would require reinjection of produced water (Clean Water Act as of the fall of 

1994), the potential for an extension of onshore standards for air emission controls to the 

offshore Gulf (Clean Air Act), and the financial responsibility provisions of the Oil Pollution 

Act of 1990. The respondents were asked to rank these four regulations from 1 for the 

regulation that would have the greatest impact on their operations to 4 for the regulation that 

would have the least impact. When two regulations were given the same ranking by a 

respondent, the rankings were recalculated to enable the range of rankings to be from 1 to 4. 

For example, if a respondent said that the plug-and-abandon liabilities was 1, the implications 

of the clean water and air acts were both 2, and the financial responsibility provisions were 

3, the ranks were reassigned as follows : the plug-and-abandon liabilities regulation was coded 

1, the implications of the clean water and air acts were each coded 2 .5 (the mean of the two 

ranks - 2 and 3), and OPA '90 was coded 4 . This is the manner used to accommodate ties 

when calculating statistics such as Spearman's rho. 

The summary statistics for the rankings by the respondents are in table 3 .4 . The regulation 

that the companies' representatives felt would have the greatest effect on their operations in 

the Gulf was the Clean Water Act followed closely by OPA '90. The Clean Water Act had 

the lowest mean while OPA '90 had the second lowest mean. Both regulations had the lowest 
58 

medians and modes . The other two regulations had much higher means, but the Clean Air 

Act elicited greater concern than did the increases in lease bonding to cover plug-andabandon liabilities . The mean for the Clean Air Act was slightly lower than that for the plugand-abandon liabilities, although the medians were the same . The Clean Air Act had two 

modes while the plug-and-abandon liabilities had the highest mode . However, each regulation 

was ranked as having the greatest impact by at least one company and each regulation was 

ranked as having the least impact by at least one company. 

Table 3 .4 

Rankings of Regulations 

All Companies 

Mean Median Mode Minimum Maximum 

Plug and Abandon 3 .0 3 4 1 4 

Liabilities 

Reinjecting Produced Water 2.0 2 1 1 4 

Air Emission Controls 2.9 3 - 1 4 

Financial Responsibility 2.1 2 1 1 4 

in OPA '90 

Major Corporations 

Mean Median Mode Minimum Maximum 

Plug and Abandon 3 .5 4 4 1 4 

Liabilities 

Reinjecting Produced Water 1 .4 1 1 1 3 

Air Emission Controls 2.4 2 2 1 4 

Financial Responsibility 2.7 3 3 2 4 

in OPA '90 

Large Integrated Businesses 

Mean Median Mode Minimum Maximum 

Plug and Abandon 3.6 4 4 3 4 

Liabilities 

Reinjecting Produced Water 1 .5 1 1 1 4 

Air Emission Controls 2.3 2 2 1 4 

Financial Responsibility 2.5 3 3 1 4 

in OPA '90 
59 

Plug and Abandon 

Liabilities 

Reinjecting Produced Water 

Air Emission Controls 

Financial Responsibility 

in OPA '90 

Plug and Abandon 

Liabilities 

Reinjecting Produced Water 

Air Emission Controls 

Financial Responsibility 

in OPA '90 

Plug and Abandon 

Liabilities 

Reinjecting Produced Water 

Air Emission Controls 

Financial Responsibility 

in OPA '90 

Table 3.4 

Rankings of Regulations 

(continued) 

Small Integrated Firms 

Mean Median Mode Minimum Maximum 

3 .0 3 3 3 3 

1 .7 1 1 1 3 

1 .7 2 2 1 2 

3.7 4 4 3 4 

Large Nonintegrated Enterprises 

Mean Median Mode Minimum Maximum 

3 .1 4 4 1 4 

2.3 2 2 1 4 

3.3 3 3 3 4 

1 .2 1 1 1 2 

Small Nonintegrated Endeavors 

Mean Median Mode Minimum Maximum 

1 .7 2 2 1 3 

3.0 3 3 2 3.5 

3.9 4 4 3.5 4 

1 .4 1 1 1 2 

Technology 

As oil and gas reserves in the Gulf shrink, better technology to extract the remaining oil and 

gas becomes more important. Therefore, the respondents were asked to report if their 

company : was currently involved in or planning to do deep water projects, used 3D seismic 

data, was involved in subsalt exploration, or did horizontal drilling . Somewhat more than a 

third of the businesses were involved in or planning to do deep water projects and the same 

amount were involved in subsalt exploration (see figure 3 .14) . A slightly greater percentage 

of the firms did horizontal drilling in the Gulf. In contrast, almost all of the enterprises 

employed 3D seismic data. 
60 

Figure 3 .14 Use of New Technology 

Joint Ventures 

As oil and gas exploration in the Gulf of Mexico becomes more expensive and entails greater 

risk, ways to share expenses and reduce risk become more important. One way to 

accomplish both objectives is to participate in joint ventures. The executives were asked if 

their company had conducted any joint ventures in the past year and in 1986. The responses 

indicated that almost all of the companies were involved in joint ventures in the last year (see 

figure 3 .15) and most of the firms participated in joint ventures in 1986 (see figure 3 .16). 

For the pretest, the respondents were asked to list the names of the companies with which 

they conducted joint ventures, although some mentioned a few companies and then stated a 

total number of joint ventures. The number of companies listed by name or given as a total 

number ranged from 2 to 50 with a mean of 16 and a median of 8.5 . On the interview, the 

representatives of the firms were asked the total number of companies with which they had 

conducted joint ventures . These answers ranged from 0 to 90 with a mean of 11, a median of 

8 and a mode of 10. On the interview, the respondents answered a question concerning how 

the number of joint ventures had changed since 1986. The majority said that their firm was 

involved in more joint ventures now while some stated that the number of joint ventures had 

decreased since 1986 and others claimed that the number had not changed since 1986 (see 

figure 3 .17) . 
61 

No C4 3%D 

Figure 3 .15 Participation in Joint Ventures in 1994 

Cz7 .~, 

Yes (72 .3%) 

Figure 3 .16 Participation in Joint Ventures in 1986 

Yes C95 .7%) 
62 

Missinq ~ia .9%> Decrease (17.0~ 

No Change C12 .8%) 

Increase C55 .3%) 

Figure 3 .17 Changes in Joint Venture Participation 1986 to 1994 

For the interview, the respondents were asked to list their company's most frequent joint 

venture partners . The findings were examined to determine three things : 1) what type of 

company was most often mentioned as the most common joint venture associate, 2) did the 

type of company stated as the most frequent partner differ by the type of company the 

respondent was employed by, and 3) if any particular company(ies) were listed repeatedly as 

the most habitual partner. First, the type of company most often listed as the most regular 

partner was a major corporation (see table 3 .5) . Second, with one exception, large concerns 

mentioned major corporations as their most common partner . In contrast, with one exception, 

large and small nonintegrated enterprises gave the names of small nonintegrated businesses as 

their most frequent colleague . Third, the company declared most often as the most regular 

partner was a major company ; however, two large nonintegrated firms and one small 

nonintegrated business were mentioned almost as often . 
63 

Table 3 .5 

Most Frequent Joint Venture Partner 

Most Frequently Mentioned Companies by Type Number of Mentions 

Major 11 

Large Integrated 4 

Small Integrated 

Large Nonintegrated 

Small Nonintegrated q 

Commonly Selected Companies Number of Mentions 

Major A 3 

Large Nonintegrated A 

Large Nonintegrated B 

Small Nonintegrated A 

Table 3 .6 

Joint Venture Partners 

Most Frequently Mentioned Companies Number of Mentions 

Major 1 10 

Major 2 

Major 3 6 

Major 4 9 

Major 5 

Major 6 (, 

Major 7 9 

Major S 5 

Large Integrated 1 7 

Large Integrated 2 8 

Large Nonintegrated 1 5 

Large Nonintegrated 2 5 

Small Nonintegrated 1 9 

Small Nonintegrated 2 7 
64 

Although the pretest and interview used slightly different questions (the pretest asked for the 

names of all partners and the interview elicited the names of the five most frequent partners), 

the responses concerning who is participating with whom were the same . There were 14 

companies that were listed as common joint venture partners by five or more other 

businesses . Of these 14, 8 were major corporations, 2 were large integrated concerns, 2 were 

large nonintegrated firms, and 2 were small nonintegrated businesses (see table 3 .6) . 

Use of Service Companies 

Another way to reduce investment in the Gulf is to hire service companies to undertake some 

aspects of oil and gas exploration and production . Thus, the executives were queried about 

their firms' use of outside contractors in the fall of 1994 and in 1986, the cost of hiring 

outside companies and the types of activities for which these companies were hired. Almost 

all of the businesses used outside companies to conduct some of their activities in the Gulf 

(see figure 3 .18) . Most of the firms' representatives reported that their use of outside 

companies had increased since 1986, while some claimed that their use had not changed and 

others stated that they used outside companies less now (see figure 3 .19) . The respondents 

answered a question concerning the current cost of their use of outside companies as a 

percentage of their costs of operations in the Gulf. The percentages ranged from 0 to 100 

percent with a mean of 60, a median of 75, and a mode of 90. In addition, most of the 

officials indicated that the percentage of operating costs in the Gulf incurred by hiring outside 

companies had increased since 1986 while another large group stated that the percentage had 

not changed and a few claimed that the percentage had decreased (see figure 3 .20) . 

No C 4 . 3%) 

Figure 3 .18 Use of Contractors in 1994 

Yes X95.7%) 
65 

Decrease C~~~1%) 

No Change X22 .2%) 

Increase C66 .7%) 

Figure 3 .19 Change in the Use of Contractors 1986 to 1994 

Decrease (4 7%) 

Increase (59 .2%) 

T No Change C44 .2%) 

Figure 3 .20 Change in Percentage of GOM Cost 1986 to 1994 
66 

The respondents were asked about whether they hired outside companies to engage in 

specific tasks . The responsibilities differed on the interview and the pretest; therefore the 

results will be discussed separately. For the interview (N=37), the activities that the 

companies were most likely to contract out were (in descending order) : seismic and other 

geophysical (94 percent), drilling (91 percent), platform maintenance/operation (86 percent), 

and other (82 percent) . Some respondents listed the types of work they were including in the 

category "other" : field study, logging, evaluation, construction design, consulting, helicopter 

transportation and other transportation . Seventy-four percent of the companies contracted out 

the following activities : production, engineering, and shipping/pipelines . Very few businesses 

(9 percent) hired outside companies to do accounting . For the pretest (N=10), the operations 

most likely to be contracted out were (in descending order) : drilling (90 percent), exploration 

(80 percent), platform work (80 percent) and engineering (70 percent) . A moderate 

percentage of businesses employed outside companies to work on shipping and pipelines (60 

percent), to do research and development (50 percent) and to do production (44 percent) . 

Very few of the oil and gas extracting enterprises contracted out administration activities (22 

percent) . 

Outlook on the Future of Oil and Gas in the Gulf 

Another aspect of the business environment is the prospect for future oil and gas exploration 

and production in the Gulf of Mexico . If the companies perceive the outlook to be dismal, 

this prediction is likely to affect their current operations as would the perception that the 

outlook is bright . To ascertain the outlook for the future of these activities, the respondents 

were asked to compare the amount of exploring in which their company would be engaged in 

1998, the size of the workforce in 1998, and the independent companies' share of Gulf 

activity in 1998 with the status of these three factors in the fall of 1994 . Overall, the officials 

involved in this study were optimistic about the future of oil and gas exploration in the Gulf 

of Mexico. Most of the executives felt that their companies would be more engaged in 

exploring for oil and gas in 1998 than in 1994 and half of the officials thought that the 

workforce would be larger in 1998 than in 1994 . Specifically, when the respondents were 

asked if they thought their company would be more or less involved in oil and gas 

exploration in the Gulf in 1998, the majority said that their company would be more involved 

(see figure 3 .21). 

For the interview, the respondents were also asked why they predicted the level of 

involvement in exploration that they anticipated. These answers were quite diverse . The 

reasons why their firm would be doing more exploring in 1998 included : the anticipated 

prices of oil and gas, particularly gas (4 people); the opportunities available due to subsalt 

technology (2); other growth opportunities in the Gulf (3); the characteristics of the Gulf (1) ; 

the leases they have and the drilling requirements necessary to keep these leases (1); their 

ability to participate in joint ventures (2); and their company's commitment to the Gulf (2) . 

The explanations for less involvement in exploration were : the fact that the Gulf is a mature 

resource extraction area (1 person); the expense of deep water projects (1); their particular 
67 

firms' characteristics (2) ; and regulations for extraction in the Gulf (1). Some executives 

expected their firms to continue exploring at the same rate that they were exploring in 1994 . 

Their arguments for this prediction consisted of their company's particular focus (1 person) ; 

the anticipated prices of oil and gas, particularly gas (3) ; and other miscellaneous reasons 

(3) . 

Dec . .... (13 5%) 

N. Change (15 9%) 

Increase (70 . 5%) 

( r,ase 

Figure 3 .21 Expected Change in Exploration 1994 to 1998 

Over half of the respondents felt that the workforce involved in offshore oil and gas 

exploration and production in the Gulf in 1998 would be larger than it is presently (see figure 

3 .22) . Their rationales for their predictions varied greatly. Their explanations for the 

expectation of a larger workforce consisted of the following : there will be more fields and 

development (3 people) ; the anticipated prices and payoff for new technology employed in 

the Gulf (4) ; the greater exploration expected in 1998 (1); the idea that the workforce now is 

as small as possible (2) ; the presumption that there will be more companies in 1998 (3); the 

anticipated expansion of Gulf activities (3) ; and the complexity of projects in the Gulf (1) . 

Some executives predicted that the workforce will be smaller for the following reasons : the 

disposition of properties by the major corporations (1 person) ; reduced exploration and 

production (2) ; streamlining of the workforce (1) ; and new regulations (1). Those who 

thought that the workforce would be the same size in 1998 as in 1994 cited streamlining of 

the workforce (3 people) and outsourcing (1). 
68 

The company representatives were also queried about the independent companies' share of 

activity in the Gulf in 1998 . Most of the respondents thought that the independents' 

proportion of activity in the Gulf in 1998 would be larger than it currently is while a few 

Decrease ClB .2%) 

Increase (52 .3% 

No Change C29,5%) 

Figure 3 .22 Expected Change in Workforce 1994 to 1998 

declared that it would be smaller and one felt that it would remain the same (see figure 

3 .23) . Again the reasons varied widely. Those who predicted that the independent firms' 

share would be larger gave the following explanations : the general trend in this direction in 

the Gulf (3 people); the marginal and mature nature of the fields in the Gulf (7) ; the trend of 

the major corporations to leave the Gulf (6); the competitive strategies of the independent 

firms (4) and the overall approach of the major corporations (2) . In addition, one person 

stated that the independent businesses viewed the Gulf as a rapid growth opportunity and 

another claimed that 3D seismic data would assist the independents . Some executives pointed 

out that the independent firms' share in the Gulf as a whole might be greater, but the major 

corporations' participation would be greater in subsalt areas (1 person) and deep water (5) . 

One representative from a major company suggested that the independent companies' 

allotment of the activity would be smaller in 1998 due to regulations, particularly financial 

responsibility and bonding while one official from a large integrated concern stated that the 

shares would remain as they were in 1994 because the major corporations were taking note 

of the success of the independent firms and changing their operations accordingly . In fact, in 

answers to the questions about exploration, the workforce, and the independent companies' 

share of activity, an executive from one major corporation repeatedly stated that his/her 

company operated in the Gulf like a small independent company but had the financing of a 
69 

major corporation. Five executives were unwilling to predict the size of the independent 

firms' share of activity in the Gulf and one of these stated that the portions depended on the 

major corporations' divestitures and federal regulations . 

Missing C12 .8%~ cecr~s~h~~4e%~2 .1%J 

T Increase C80 .9%) 

Figure 3 .23 Expected Change in Independents' Share 1994 to 1998 

BUSINESS PRACTICES 

Another purpose of this study was to ascertain how business characteristics affect business 

practices . The respondents were not asked directly how their companies' characteristics are 

related to business practices because it is doubtful that they could have answered this 

question. However, some of the information obtained can be used to examine this issue. It is 

not possible to discuss how business traits affect practices overall because the influence of 

these traits on operations differed by type of company. Thus, the impact of characteristics on 

practices will be presented in the next chapter . 

An additional purpose of the investigation was to examine how the business environment in 

the Gulf of Mexico is associated with the companies' practices. Some of the questions 

directly obtain this information in that the executives were asked how prices, leasing policies, 

technology, and regulations affect their companies' operations in the Gulf. Further, it is 

possible to present how the business environment influenced practices of the companies in 

general and this information will be presented here. 
70 

The findings concerning the effect of the business environment on practices in the Gulf 

showed the following . First, the largest group of respondents suggested that the current 

prices of oil and gas reduced exploration and production activity in the Gulf. Second, almost 

half of the executives were not optimistic about future prices and expected these prices to 

decrease activity in the Gulf. Third, the officials overwhelmingly supported two leasing 

policies : areawide leasing and the reduction of the minimum bid to $25 . Some of the study 

participants credited these two policies for increasing operations in the Gulf. Fourth, the 

respondents viewed the influence of 3D seismic data on operations very positively and those 

familiar with horizontal drilling were favorable about this technology's impact on activity, 

but deep water and subsalt exploration technologies are too expensive and too new for many 

of the executives to be able to discuss the effects on procedures in the Gulf. Fifth, as would 

be expected, the officials were overwhelmingly against the four pending regulations . 

Practices as Affected by the Business Environment 

Business practices can be affected by aspects of the business environment. The executives 

were queried about how some factors of the environment affected the oil and gas extraction 

companies' operations in the Gulf. These facets were : 1) the current prices of oil and gas and 

the firms' predictions of future prices ; 2) leasing policies, specifically the switch to areawide 

leasing in 1983 and the reduction of the minimum bid to $25 per acre in 1987; 3) 

technologies to enhance extraction in the Gulf, particularly deep water technology, 3D 

seismic data, technology used in subsalt exploration, and horizontal drilling ; and 4) 

regulations, especially the financial responsibility provisions of OPA '90, the increases in 

lease bonding to cover plug-and-abandon liabilities, and the Clean Air and Water Acts. The 

effect of these four aspects of the business environment on operations in the Gulf will be 

discussed in the order listed . 

The Effects of Prices on Operations . Both the current prices of oil and gas and the 

expectations for future prices of oil and gas can affect business practices of oil and gas 

extraction companies in the Gulf of Mexico. To ascertain how the prices of oil and gas affect 

operations in the Gulf, the respondents were asked to talk about how the current prices of oil 

and gas have affected operations in the Gulf. Almost half of the company representatives 

discussed how activities in the Gulf slowed down due to the deflated prices of oil and gas 

(see figure 3 .24) . For example, one executive said, "Current prices slow operations down, 

stretched out the process and prevented us from some development" . Other officials pointed 

out that low prices : slowed down exploration and production ; caused the firm to sell some 

properties or to forego exploration, drilling, lease sales and new projects ; and prompted the 

business to examine more closely all properties, development and exploration. Another 

common response focused on the company's other economic problems due to the low prices . 

These difficulties included : budgeting issues, decline in the capital budget, the cost of 

exploratory drilling due to the way dry holes are charged to budgets, the decrease in 

investments and profits, curtailed cash flow, the hardship in trying to make a return, the 

increased economic limits of early abandonment, and banks demanding faster loan 

repayments which decreases the money available . 
71 

Another large group of respondents claimed that the current prices had no effect on their 

businesses' operations . Similarly, some of the representatives pointed out that their company 

focuses only on future prices . For instance, one person said, "We made our exploration and 

development expenditures based on long-term prices . What happens this month generally 

Figure 3 .24 Effects of Current Prices in Percentages 

does not affect our long-term policy . We don't jockey our program around unless it is a 

trend." Another respondent stated, "Prices have not affected our operations due to our 

position . We look to future prices right now. " Six people discussed the tradeoff between oil 

and gas operations . Two of these declared that oil prices were acceptable and that their 

activity fluctuated currently due to gas prices . Four others asserted that gas prices were 

firmer now and one of these said that the company had decreased its interest in oil. In 

addition, two people answered the question by presenting the ways that their firms were 

reducing costs . An illustrative statement is the following, "Some effects of the lower prices 

are: reduced work force. We operate with 40 percent less personnel than in 1986. . . . Less 

than 24 hour surveillance of production platforms (platform is unsupervised at night) . Less 

food service for field personnel (galley services people cook for themselves). Less 

supervisors (15 percent) . . . . Extending of platform maintenance (e .g ., paint job intervals, 

electric/pneumatic upgrades and revamps) . More preplanning in response to less 

transportation availability (35-45 percent less) ." Only one person expressed a very positive 

view of the current prices, "Increased our activity - we are taking advantage of low prices ." 
72 

The respondents also discussed the effect of their companies' projections of the future prices 

of oil and gas on operations in the Gulf. Almost half of the replies suggested that projections 

for future prices of oil and gas were not optimistic (see figure 3 .25) . Twenty-eight percent of 

the executives stated that the projections for future prices of oil and gas had reduced their 

businesses' activities in the Gulf. Some of the ways in which these predictions reduced 

activity were : property sales, declines in exploration activity, slowed down fields, delayed 

field production, curtailed drilling activities, and curtailed or lessened production. Similarly, 

three people discussed their firms' cautious approach toward operations . These people said : 

"Cautious, projects are awarded based upon rate of returns and reserve replacement. ", 

"Future prices caused us to be more selective of projects . We have not stepped up activity .", 

and "No increase in 1995 activity - we may slow down" . In a like manner, three respondents 

presented ways that their companies are cutting costs including: "Our view that oil and gas 

prices will be relatively flat has caused us to focus much more intently on improving the 

margin. We are : actively measuring our performance in overall profitability, finding and 

development cost and operating cost; setting targets for improvements; establishing work 

teams to analyze processes and recommend and implement improvements; and disposing of 

non-performing or non-material assets . " Another three executives mentioned economic issues 

related to low prices such as "Had to get into our reserves and seek other ways to make 

money. " 

Figure 3 .25 Effects of Future Prices in Percentages 
73 

Some respondents had a brighter outlook for the prices of oil and gas. Two people made 

statements that implied that prices were expected to stabilize . In addition, thirty percent of 

the executives felt that prices would rise, especially the price of natural gas, and that activity 

would increase accordingly . Examples of these responses included: "The industry projections 

of higher gas prices in the future have increased the company's exploration and production 

activities in the Gulf of Mexico .", "Increased acquisitions for the future .", "Although short 

term pricing is not good, we are optimistic about long term gas prices . This optimism has 

allowed us to budget funds for offshore blocks and seismic data to drill wells in coming 

years .", "Projections have made us more active, more involved in the Gulf of Mexico. It is 

the best place for gas reserves . " and "We believe that the situation will be better especially 

in gas pricing. We look to the Gulf for resources." 

Further, two respondents talked about prices stating that "Prices in the short term will be 

slow" and "The cost of operating has had and will have an impact on prices" . Six people 

stated that projections of future prices did not affect their company's operations . One of these 

said, "Opportunities have more to do with our activity than prices ." Two executives did not 

respond to the question. 

The Effects of Leasing Policies on Gulf Operations. The respondents were asked to discuss 

how two leasing policies affected their firms' operations in the Gulf of Mexico . The first 

leasing policy was the use of areawide leasing beginning in 1983 . The second policy was the 

reduction of the minimum bid to $25 per acre, which became effective in 1987 . The impact 

of these two changes in leasing strategies will be presented in turn. 

In 1983, areawide leasing was used instead of nominated leasing . The company 

representatives overwhelmingly found this change in leasing policy to be positive. Sixty-eight 

percent of the officials discussed positive impacts of areawide leasing while only 2 percent 

talked about negative effects . These positive effects consisted of: stimulating activity, 

reducing risk, justifying the purchase of new technology for extraction, increasing the 

potential for finding oil and gas, ease and increased fairness in the leasing procedure, 

reducing costs, increasing exploration, increasing the number of leases, enabling some 

companies to become active in Gulf extraction, and farmouts and farm-ins. The most 

commonly mentioned positive impacts were: increasing activity, increasing leasing, 

increasing the potential for finding oil and gas, and easing bidding and making the process 

fairer (see figure 3 .26). 

For instance, one representative from a major corporation stated, "Dramatically impacted our 

activity, especially for deep water . It is very positive . It allowed us to pursue innovative 

ventures, more predictability, less risk . It justified extensive 3D use in the GOM and justified 

other technology purchases." while another said "Operations were made more convenient 

because we were exposed to a wider area . Often our analysis of leases are not completed 

until shortly before the lease sales and it allows us to narrow down our focus on a subset of 

the leases initially reviewed. Also, it allows us to look at GOM in a regional context rather 

than a block by block basis ." An official from a large integrated firm was also in favor of 
74 

areawide leasing, "It helped our operations by allowing us to put together multiblock 

prospects . Prior to this change, this was a nomination process, now we have a better chance 

at assembling blocks ." A statement made by an executive from a large nonintegrated concern 

was similar, "Advocate of areawide leasing, it made more prospects drillable . It helped us to 

be a larger player much faster and to build focus areas, more competitive. It encouraged 

better and faster evaluation of the GOM. " An analogous statement was made by a member of 

a small nonintegrated enterprise, "This was an incentive for medium sized independents to 

become involved in offshore exploration when leased lands were offered in the entire Gulf. 

This allowed us to participate in generation of prospects Gulfwide without having to 

necessarily compete with companies that nominated blocks or try and generate prospects only 

on lands not nominated by others ." 

More Activity Mb- Lease. More Potential Better Leasing 

Responses 

Figure 3 .26 Most Common Positive Responses to Areawide Leasing 

One person from a major corporation said that the effect of areawide leasing was negative . 

This person said, "More companies are competing for properties. We stopped with lease 

sales due to the low return on investment" . In addition, 30 percent of the respondents made 

statements that did not suggest either positive or negative effects . The most common response 

was that the switch to areawide leasing was not applicable to their company. Some of these 

executives stated that their firms started leasing and operating in the Gulf after 1983 (4 

people) or their businesses were not actively leasing (2 people) . 

The executives were also queried about how the reduction of the minimum bid to $25 per 

acre in 1987 affected their operations in the Gulf of Mexico. Again the reaction was 
7s 

overwhelmingly positive . Two-thirds of the respondents discussed positive impacts of this 

policy including: more activity ; increased bids, leases, and acres ; greater exploration; 

reduced costs; enabling entry into extraction in the Gulf; and allowing funds to be used for 

extraction activities rather than acquiring lands (see figure 3 .27) . The most commonly 

mentioned positive influence was the increase in bids, leases and acreage. Some examples of 

these favorable statements were: "Positively, more leases could be bought and matured 

marginal properties could be developed" and "Overall, allowed us to bid on high risk 

prospects many of which didn't get drilled" (both from large integrated firms) ; "Helped 

independents" (small integrated endeavor); and "The minimum bid allowed limited funds 

companies to invest more in exploration and drilling as opposed to having a larger investment 

in land, limiting evaluation funds. " 

Figure 3 .27 Positive Responses to Reduced Minimum Bid 

Three representatives made statements that could not be coded as either positive or negative 

effects, such as the change in expectations, "It only served to raise the threshold and change 

expectation ratios" (large integrated business) . Another officer said, "We acquire small 

prospects for smaller leases . Our focus is gas" (small nonintegrated enterprise) . Nineteen 

percent of the executives stated that the reduced minimum bid had no effect on their 

companies' operations . Examples of these statements were : "It doesn't affect us because we 

don't make bids on blocks unless we see significant opportunity and value" (major 

corporation) and "No effect . A lease is judged on merits and profitability . No real impact" 

(large integrated firm) . There were no negative reactions to the decrease in the minimum bid . 
76 

The Effects of Technology on Operations . Earlier the number of companies using each type 

of technology was presented. In addition to obtaining information from the executives 

concerning their companies use of each of four specific technologies in exploration and 

production in the Gulf, the respondents were asked about the impacts of these four 

technologies on operations in the Gulf. Therefore, the focus in this section is on the influence 

of the technologies on operations and the responses reported are those of firms who use each 

of the four technologies -deep water, 3D seismic data, subsalt exploration, and horizontal 

drilling . As will be shown, deep water projects and subsalt exploration are too new for the 

executives to know how the technologies involved in these activities will affect their 

businesses' operations . Moreover, the results will demonstrate that the respondents feel very 

positively about the impacts of 3D seismic capabilities and horizontal drilling upon their 

enterprises' operations . 

During the interview, but not the pretest, the respondents were asked about the effect of deep 

water projects on their companies' operations in the Gulf of Mexico . The comments are 

summarized in figure 3 .28 . Some of the officials were optimistic about deep water projects. 

One representative of a major corporation pointed out that the company had several projects 

in the 1,000 feet range while another executive stated that deep water was a major growth 

opportunity . One major corporation was involved in such projects only as a joint venture 

because these activities tax capital and slow down shallow water projects . Officials from 

large integrated companies had similar comments. One stated that deep water projects require 

partners . Another mentioned that such projects are expensive and that tax incentives would 

be helpful . A member from a third large integrated concern, like the representative from a 

major corporation, asserted that deep water is a growth opportunity. An executive from a 

small integrated company declared that the firm was planning to become involved in deepwater extraction. 

One the other hand, some respondents were less optimistic about deep water activities in 

general or their businesses' ability to undertake such projects . A person from a large 

nonintegrated enterprise stated that the company had no plans to get involved in deep water 

because it was not economical. This respondent added that risky ventures should not be 

subsidized at the expense of proven plays and that the market should set the limits . An 

executive from a small nonintegrated firm felt that the company might be able to farm out its 

acreage if success occurs nearby . Overall, it seems that deep-water projects are too new and 

too expensive for most of the respondents to know what the impacts will be . 

The opposite is the case with 3D seismic data. All but two of the companies currently use 

such data and one small integrated firm is planning to obtain this data . The respondents were 

overwhelmingly positive about the effects of this technology on their companies' operations 

in the Gulf (see figure 3 .29) . Thirty-seven representatives discussed the positive effects of 3D 

seismic data on their activities . These impacts were reduced risk and increased success, 

increased activity, and the cost effectiveness of using 3D data (see figure 3 .30). For 

example, one official stated that the company does not do anything without 3D data because 

it is helpful in defining reserves in a mature region like the Gulf (major corporation) while 
77 

another declared that the company's operations had been drastically affected and that 3D data 

was critical to developing offshore acreage. Executives from nonintegrated concerns (1 large 

and 2 small) felt that 3D seismic data allowed their firms to be more aggressive and 

competitive. 
78 

Figure 3 .28 Effect of Deep Water Projects 

Figure 3 .29 Effect of 3D Seismic Data 
79 

Figure 3.30 Positive Effects of 3D Seismic Data 

Besides the positive effects of 3D seismic data on Gulf extraction, a few respondents pointed 

out that use of such data affected evaluation time, increased costs because expenses for 3D 

data have gone up, increased staff, and increased hardware and software needed. A few 

executives did not know the effect of 3D data as yet because they just started using it . 

However, the most common impacts mentioned were positive . 

The interview included a question concerning the effect of subsalt exploration on operations 

in the Gulf of Mexico. Like deep water technology, subsalt exploration technology is too 

new for many companies to have experience with it . Most of the executives from firms that 

have some involvement in subsalt exploration stated that it was too early for them to know 

the impacts of such endeavors (see figure 3 .31) . Officials from major corporations were the 

most likely to mention positive effects including : greater exploration, increased activity, 

increased operations, and that subsalt technology was a key issue for deep water exploration. 

Two other representatives of major corporations pointed out that subsalt activity is a longterm activity and that it requires a large capital investment . Executives from large integrated 

firms tended to mention either a positive effect (increased activity) or the requirements of 

subsalt exploration (increased staff as well as hardware and software). Officials from 

nonintegrated businesses stated that they have subsalt acreage and one of these officers said 

that they would let others pioneer first. 
80 

Figure 3 .31 Effect of Subsalt Exploration 

As demonstrated previously, some companies have used horizontal drilling offshore in the 

Gulf of Mexico. Nineteen officials from these firms felt positively about the effects of this 

technology on their operations (see figure 3 .32). The most common favorable response was 

that horizontal drilling made extraction more economical, particularly in shallow water. 

Many officers who mentioned the economic impacts also stated that it was used in shallow 

waters . In fact, one company, a large nonintegrated business, has one field based solely on 

horizontal drilling and two more coming on line soon. Other positive effects of this 

technology included the creation of additional finds, improved production rates, and 

increased activity . A couple of respondents pointed out that horizontal drilling has limited 

uses, but one of these representatives said that the company used it when necessary . One 

officer stated that horizontal drilling had had a minimal impact on the firm's operations thus 

far and four claimed that their businesses were planning to use this technology or would use 

it if it were advantageous . 

In summary, with the exception of 3D seismic data, which almost every company uses, the 

technology studied was too new for the respondents to really know what the impacts on their 

operations in the Gulf would be. However, representatives of firms that were using these 

new technologies seemed optimistic about them and some were able to mention at least a few 

positive effects of these technologies . 
81 

Figure 3 .32 Positive Effects of Horizontal Drilling 

The Effects of Regulations on Operations. Earlier the results concerning the federal 

agencies with the most impact on oil and gas extracting companies in the Gulf were 

presented as well as the respondents' rank ordering of four pending regulations : 1) the 

financial responsibility provisions of OPA '90, 2) the increase in lease bonding to cover 

plug-and-abandon liabilities, 3) the Clean Water Act, and 4) the Clean Air Act . The officials 

were also asked to consider the impacts of these regulations on their firms' activities in the 

offshore Gulf. In this section, the findings concerning how the four regulations will affect the 

oil and gas firms' operations will be presented. As will be displayed shortly, the overall 

outcome demonstrates that, although some reactions to these four regulations were neutral, 

most of the comments were negative, some extremely negative, and none of the responses 

were favorable toward these regulations, as was anticipated . Moreover, the results 

concerning the impacts of the financial responsibility provisions of OPA '90 and the increase 

in lease bonding to cover plug-and-abandon liabilities were very similar probably because 

both regulations have the potential to increase the costs of operating in the Gulf. The findings 

concerning the effects of the Clean Water and Air Acts were also comparable possibly 

because both of these could necessitate retrofitting platforms or abandoning some wells and 

platforms where retrofitting is not economically feasible. One respondent, while discussing 

OPA '90, summarized the effects of these four regulations as follows : "All of these 

regulations will have a ysa [respondent emphasized this] negative effect on continuing to 

explore in the Gulf. OPA '90 will, in effect, put most independents out-of-business in the 

Gulf. This is an onerous act that was an over-reaction to the Exxon Valdez 
82 

spill. This must be changed for operations to continue in the Gulf. Most companies cannot 

show financial responsibility up to $150 million." (large nonintegrated company). 

The executives were asked about the effects of the financial responsibility provisions of OPA 

'90 on their companies' operations in the Gulf. The results are summarized in figure 3 .33 . A 

large variety of impacts were discussed by the respondents. The most common group of 

effects was economic impacts while the second was indirect impacts and the third was that 

some companies would be out-of-business. Responses by two representatives of small 

nonintegrated companies summarized the comments by the 10 executives that feared that 

OPA '90 would put them out-of-business, "This will put people out-of-business because no 

one will bond or insure us. The only people in the Gulf of Mexico will be the majors. " and 

"It depends on the writing of the legislation. One hundred and fifty million dollar liability is 

too strict . We will be out-of-business. " Although some executives stated that their particular 

firms would not be directly affected because they could self-insure, these officers were quite 

concerned about the consequences for other smaller businesses in the Gulf. Responses of this 

type were common and similar to the following: "The primary effect is the impact on 

independents and service companies . We do business with them so it indirectly impacts us ." 

(major corporation) and "The immediate impact will be somewhat small because we are large 

enough for self-insurance . . . . Business is helped and supported by healthy independents, that 

will indirectly and adversely affect them." (large integrated firm) . Other outcomes presented 

were influences on activity and administrative impacts. 

Figure 3 .33 Effect of OPA '90 
83 

Of the economic aftermaths, the one most frequently referred to was additional costs; nine 

respondents mentioned additional costs . The other economic consequences were less often 

reported: the tying up of money (3), the reduced profit margin (1), the inability to self-insure 

or get bonding (2), the need for additional bonding (1), and the reduced ability to sell 

properties (1) . The most commonly referred to indirect impact was that this regulation would 

hurt the independent firms, particularly the small ones (10) . The executives also stated that 

their companies would be adversely affected because the service and contracting businesses 

would be negatively impacted (3) and that there would be a reduction in available partners 

because some enterprises would be out-of-business (2). Some officials discussed 

consequences for activity including reduced activity (5); reduced partnering (1), which is 

important in Gulf operations as was discussed previously in the section on joint ventures; 

reduced growth of companies that can remain in the Gulf (1) ; and the possibility of increased 

opportunities for some companies that will still be able to operate in the Gulf (1) . A couple 

of respondents discussed administrative consequences, particularly increased paperwork. 

When the respondents were queried about the effects of the increase in lease bonding to 

cover plug-and-abandon liabilities on operations in the Gulf, the results were similar to those 

concerning the consequences of OPA '90 . Again, there was a large diversity in the 

responses, although not as much as there was for OPA '90 . As occurred in the comments 

concerning OPA '90, economic impacts were the most commonly mentioned aftermaths (see 

figure 3 .34), particularly additional costs, but also reduced profits and the tying up of 

money. Unlike the responses to OPA '90, the impacts on activity in the Gulf were the second 

most frequently presented results of the increase in lease bonding to cover plug-and-abandon 

liabilities while indirect effects were the third most often voiced outcomes. Another 

dissimilarity in the findings for these two regulations was that none of the representatives 

stated that their firm would be out-of-business due to the increase in lease bonding and a 

large number of them asserted that their company would not be directly affected . 

The most frequently discussed influence of the increase in lease bonding to cover plug-andabandon liabilities on activity was reduced activity succeeded by selectivity concerning which 

wells and properties would be exploited; reduced competition, which was not presented as a 

positive result ; and reduced company growth. Only two indirect impacts were referred to, the 

most common being the adverse influence on independent businesses, particularly small ones, 

and the reduction in partnering, which is an important, negative effect . Examples of 

responses concerning the negative impact on independent firms were, "A large effect . Plugand-abandon escrows make it tough for independents . We are very concerned." (large 

nonintegrated company) and "It doesn't put us out-of-business. We don't want our 

competitors out-of-business, this adversely affects us ." (large integrated firm) . Three good 

statements to summarize the feelings of the respondents toward this regulation were the 

following : "It negatively affects the profitability of the company for no apparent added 

benefit. Because we act as a prudent operator, we behave in a manner that will not 

jeopardize our long-term standing in the Gulf of Mexico . We believe we have a track record 

to prove it . Additionally, when we sell nonmaterial properties it is to the tier of producers 
84 

Figure 3 .34 Effect of Plug and Abandon Liabilities 

directly below us and we take care in ensuring that the recipient is financially responsible . " 

(major corporation), " . . . This could take away additional money for development. We honor 

our obligations . Too many don't honor their obligations with plug-and-abandon costs . Levies 

placed on all may increase the problem. More marginal companies may not honor their 

commitments. It's stupid, get them out of the Gulf of Mexico . " (large integrated company) 

and "It makes life difficult . We have always had a sinking fund, but now MMS has an 

arbitrary number to cover this ." (small nonintegrated firm) . 

When the respondents were questioned concerning how a water quality standard that would 

result in requiring reinjection of produced water (a potential implication of the Clean Water 

Act in the fall of 1994) would affect their companies' operations in the Gulf, the most 

common answer was that such a regulation would increase the costs of operating and would 

lead to premature abandonment of wells, fields and projects . The comments are summarized 

in figure 3 .35 . The most frequently mentioned impacts were economic effects. Seventy-seven 

percent of the 47 respondents discussed economic outcomes, primarily additional costs, but 

also reduced profits and the tying up of funds . The second most often remarked upon 

consequences were those related to activity in the Gulf. Forty-nine percent of the executives 

discussed such outcomes, particularly premature abandonment, but also some similar results 

including the reduction of reserves and their recovery, the avoidance of marginal wells, and 

the decrease in overall activity . Influences on operations were also presented; these consisted 

of more unmanned wells, space problems on the platforms, and increased downtime . Only 

one officer said that the company had not been affected yet because the firm was so small 

and two representatives were not sure what the aftermath of such a regulation would be . 
85 

Figure 3 .35 Effect of the Clean Water Act 

The respondents own comments best illustrate their concern about the possibility of being 

required to reinject produced water. Two representatives of major corporations stated, "The 

EPA has estimated costs for all this as over $2 billion. Our part would be $234 million [one 

time] plus $14 million a year. Such a profound effect would cause many properties to be 

unprofitable ." and "This will have the most impact. This will cost us about 2 to 5 million 

dollars per platform if we do not have to enlarge some of the platforms. If a structure does 

not have enough space for the tanks, injection pumps, etc., we may have to shut in the water 

producing wells on that platform. Some of the fields producing lots of water could have a 

larger investment of 10 million." Similarly, respondents from large integrated firms 

commented, "This is potentially a major issue, this could decrease profitability, especially if 

existing platforms have to be retrofitted. Some leases could be closed . " and "We will have to 

shut in and plug-and-abandon more than one-third of our platforms. " An executive of a large 

nonintegrated company had this to say, "It depends on how it is written . If it applies to 

existing wells, then we would have to abandon wells and keep marginal prospects off line . " 

while an officer of a small nonintegrated company declared, "This could kill small projects . 

It hurts many small projects, production would be hurt. For example, we have considered not 

drilling an eight billion cubic feet well due to probable costs. " These quotes demonstrate the 

degree of concern elicited by the requirement to reinject produced water. 

The executives interviewed were next asked how an extension of onshore standards for air 

emission controls to the offshore Gulf would affect their companies' operations, which was a 

possible implication of the Clean Air Act. The responses were similar to those concerning 

the Clean Water Act discussed above. Again, the most frequent comments concerned 

economic impacts (see figure 3 .36), mainly additional capital and operating costs, but also 
86 

reduced profits, the tying up of funds, and the slowed rate of return . As occurred for the 

Clean Water Act, the second most common remarks concerning the extension of the Clean 

Air Act were about impacts on activity . These impacts consisted of reduced overall activity, 

premature abandonment, the avoidance of marginal wells, and the cut in reserves and their 

recovery . The least frequently alluded to results were influences on operations, which 

included increases in equipment, maintenance, and personnel as well as the slowing down of 

the permit process . Two executives mentioned that the consequences would be less than those 

of the Clean Water Act and three pointed out that gas driven and producing platforms would 

not be affected . More officers were not sure how the extension of the Clean Air Act would 

affect their operations than were unsure about the effects of the Clean Water Act and more 

representatives stated that their firms were not affected than did so in response to the Clean 

Water Act. 

Figure 3 .36 Effect of the Clean Air Act 

The respondents own comments about the Clean Air Act best illustrate their concerns . Two 

executives of major corporations declared, "We anticipate a significant negative impact, $100 

million [one time] and $16 million [annually], to comply. Many of our fields would become 

unprofitable . We have no direct estimate for the number of fields that are closed . " and "Air 

emissions could be very costly to us . Some of the estimates are $200,000 per compressor to 

install catalytic converters . . . .that is $12 million. Also, the upkeep cost of these systems are 

expensive since some need replacing every two to five years. " A response from an officer of 

a large integrated business was similar, "This is potentially a major issue, this could decrease 

profitability, especially if existing platforms have to be retrofitted . Some leases could be 
87 

closed . We have to install new equipment to meet these standards, one-fourth to one-half a 

million per facility . Strict control would curtail new production ." as was a comment from a 

representative of a small nonintegrated firm, "It would cause some increase in operation 

costs. Hopefully, it won't affect current projects . In the future it may. " 

SUMMARY 

The results concerning the firms' characteristics demonstrated the following. First, most of 

the companies extracted both oil and natural gas from the Gulf of Mexico . Second, for most 

of the businesses, production of oil and gas, exploration, and the number of employees, 

increased since 1986. Third, the number of companies operating offshore in the Gulf rose 

between 1986 and 1994 . Fourth, research and development funds decreased since 1986. 

The findings about the business environment can be summarized as follows . First, the five 

federal agencies with the greatest effect were : the Minerals Management Service, the 

Environmental Protection Agency, the Coast Guard, the Department of Transportation, and 

the Occupational Safety and Health Administration . Second, the executives ranked the four 

pending regulations in descending order as the Clean Water Act, the financial responsibility 

provisions of OPA '90, the Clean Air Act, and the increase in lease bonding to cover plugand-abandon liabilities. Third, almost all of the companies used 3D seismic data, almost half 

of them did horizontal drilling, and somewhat over a third of them were involved in deep 

water and subsalt exploration. Fourth, almost all of the firms were involved in joint ventures, 

most participated in more joint ventures now than in 1986, and the type of company most 

frequently mentioned as a joint venture partner was major corporations . Fifth, almost all of 

the businesses contracted out some activities to service companies, the use of such companies 

increased since 1986, and the costs of hiring service companies increased since 1986. Sixth, 

the executives were optimistic about the future of oil and gas exploration in the Gulf. 

The outcome concerning the effect of the business environment on practices in the Gulf 

showed the following . First, the largest group of respondents believed the current prices of 

oil and gas have reduced exploration and production activity in the Gulf. Second, almost half 

of the executives were not optimistic about future prices and expected these prices to 

decrease activity in the Gulf. Third, the officials overwhelmingly supported areawide leasing 

and the reduction of the minimum bid to $25 . Fourth, the respondents viewed the influences 

of 31) seismic data and horizontal drilling on operations very positively, but deep water and 

subsalt exploration technologies are too expensive and too new to be evaluated at this time . 

Fifth, as would be expected, the officials were overwhelmingly against the four pending 

regulations . 
89 

CHAPTER 4 

COMPARISONS AMONG THE FIVE TYPES OF COMPANIES 

The purpose of the last chapter was to describe the business characteristics and business 

environment for the entire sample of companies without regard to the type of company . The 

focus of this chapter is the similarities and differences across the five types of companies in 

their business characteristics, environment, and practices. Due to the complexity of some 

issues, particularly the characteristics and joint ventures, it will be necessary to first present 

the results for each type of company separately and then discuss the similarities and 

differences . 

BUSINESS CHARACTERISTICS 

Due to the fact that the largest section of the study concerned the business characteristics of 

the companies, it will be necessary to characterize each of the five types of companies 

separately before discussing their similarities and differences . The five kinds will be 

examined in the following order: major corporations, large integrated independent 

companies, small integrated independent firms, large nonintegrated independent enterprises 

and small nonintegrated independent concerns. Then, the similarities across the five 

categories of offshore oil and gas exploration and production companies will be discussed 

followed by a demonstration of the differences across the five classifications . The 

characteristics examined were the following: the type and quantity of resource extracted from 

the Gulf of Mexico, the amount of exploration and the companies' involvement in 

downstream integration, the location of headquarters and other offices, and the number and 

tasks of offshore employees . 

The results to be discussed will show that there were three similarities across the five types 

of companies in business characteristics . First, almost all of the enterprises extracted both oil 

and gas. Second, the vast majority of the concerns obtained more gas in 1993 than in 1986 . 

Third, the largest categories of employment were production/platform maintenance and 

operation, exploration, and administration. The outcome also will demonstrate that there 

were several differences by type of company. Four of the differences in business 

characteristics varied by integration . Most of the nonintegrated businesses obtained more oil 

in 1993 than in 1986 while the majority of the integrated enterprises extracted less oil . The 

majority of the other offices established by the integrated companies were outside of the Gulf 

zone while the majority of the other offices of the nonintegrated firms were in this area. The 

integrated businesses tended to close offices in the Gulf region, but the nonintegrated 

enterprises increased their numbers of other offices in this area. The integrated companies 

had more employees than did the nonintegrated firms, especially the majors, and the 

integrated businesses decreased their workforces between 1986 and 1994 whereas the 

nonintegrated endeavors increased the size of their staffs . One variation by type of company 

demonstrated a difference between major and independent firms . Most of the major 

corporations' headquarters were outside the Gulf of Mexico region whereas the bulk of the 
90 

independent endeavors had headquarters in the Gulf area . Two differences by type of 

company could not be explained by any of the three dimensions that distinguish the five types 

of companies. First, the quantities of oil and gas extracted in 1993 varied by type of 

company . Second, the nonintegrated firms and the large integrated concerns were more 

involved in exploring in 1994 than in 1986 while the major corporations and small integrated 

businesses were not. 

Business Characteristics of Major Corporations 

All of the major corporations extracted both oil and natural gas from the Gulf of Mexico in 

1994, but only 10 of the 11 companies removed both in 1986 (see table 4 .1) . The other 

company obtained neither resource in 1986. The median amount of oil derived from the Gulf 

in 1993 was 9.855 million barrels while the median quantity of natural gas was 109.5 billion 

cubic feet . Five of these businesses extracted more oil in 1993 than in 1986 while 4 obtained 

less oil and one got the same amount of oil . In contrast, 8 of these firms obtained more 

natural gas in 1993 than in 1986 while only 1 removed less gas. 

Table 4.1 

Major Corporations 

Oil and Gas Oil and Gas More Oil More Gas More Exploring 

1994 1986 

Yes 11 10 5 8 6 

No 0 1 5 2 5 

Total 11 11 10 10 11 

Downstream Integration Downstream Integration Headquarters GOM Other Offices' GOM 

1994 1986 1994 1994 

Yes 9 9 5 14 

No 2 2 6 18 

Total 11 11 11 32 

'Total number of offices, not companies . 

Six of the major companies were doing more exploring for oil and gas now than in 1986 

while 5 were less involved in exploring now (see table 4.1) . Currently and in 1986, only 9 of 

the 11 companies were involved in downstream integration activities such as petroleum 

refining, gas processing, wholesale trade and retail trade in the Gulf of Mexico. This finding 

does not suggest that the firms were misclassified since the categorization into the five kinds 

of businesses was based on their operations worldwide. Too few of the companies gave 

dollar amounts for the questions concerning research and development funds to enable these 

quantities to be analyzed. Slightly over half of the major firms had their headquarters outside 

of the Gulf of Mexico region . The five companies with headquarters in the Gulf region were 
91 

based in Houston. Similarly, most of the other offices of the major enterprises were located 

outside the Gulf area and these firms closed offices located in the Gulf zone between 1986 

and 1994 . 

The major corporations employ large numbers of people in the Gulf of Mexico (see table 

4 .2) . The largest number of employees were employed in production and platform 

maintenance/operation. The categories that had moderate numbers of employees were 

administration, exploration and engineering . The remaining types of work had very few 

employees, particularly shipping/pipelines and research and development. Most of the major 

firms had fewer employees in 1994 than in 1986 (see table 4.2). Not only did the total 

number of workers decrease in most of the companies, but for every type of employment 

except research and development and shipping/pipelines, the modal change in number of 

employees was a decrease. Research and development and shipping/pipelines tended not to 

lose workers partly because some of the companies had no workers in either category in 

either year. 

Table 4.2 

Major Corporations' Employees 

1994 

Mean Median Minimum Maximum 

Total Workers 465 277 40 1650 

Drilling 16 8.5 1 80 

Exploration 61 33 5 290 

Production/Platform Work 210 155.5 14 700 

Research and Development 6 0 0 35 

Administration 55 36.5 10 250 

Engineering 52 22 3 330 

Shipping/Pipelines 4 0 0 30 
92 

Table 4.2 

Major Corporations' Employees 

(continued) 

Change Since 1986 

Increase Decrease Same 

Total Workers 3 7 1 

Drilling 4 6 1 

Exploration 4 7 0 

Production 4 5 2 

Platform Work 4 6 1 

Research and Development 1 5 5 

Administration Z 7 2 

Engineering 4 6 1 

Shipping/Pipelines 0 4 7 

Business Characteristics of Large Integrated Companies 

Twelve of the 13 large integrated enterprises extracted both oil and gas from the Gulf of 

Mexico in 1994 and in 1986 (see table 4.3). The other firm is no longer involved in 

exploration and production in this area. The median amount of oil extracted in 1993 was 

400,000 barrels while the median amount of gas was 10 billion cubic feet . Five of the 

companies obtained more oil and 7 got less oil now than in 1986 while eight derived more 

gas and 4 extracted less gas now than in 1986 . Eight of the enterprises were involved in 

more exploration activities now while two were less involved and three were doing about the 

same amount of exploring now as in 1986 . Nine of the respondents stated that their 

companies were engaged in downstream integration activities currently in the Gulf of Mexico 

and only eight declared that their firms were so engaged in 1986. Most of the large 

integrated businesses were based in the Gulf region, especially Houston. In contrast, these 

companies located most of their other offices outside the Gulf area . In general, the large 

integrated concerns closed offices in the Gulf region between 1986 and 1994 . 

Table 4.3 

Large Integrated Independent Companies 

Oil and Gas Oil and Gas More Oil More Gas More Exploring 

1994 1986 1993 1993 1994 

Yes 12 10 5 8 S 

No 1 1 7 4 5 

Total 13 13 12 12 13 
93 

Table 4.3 

Large Integrated Independent Companies 

(continued) 

Downstream Integration Downstream Integration Headquarters GOM Other Offices' GOM 

1994 1986 1994 1994 

Yes 9 8 12 16 

No 4 5 1 23 

Total 13 13 13 39 

aTotal number of offices, not companies . 

Large integrated companies employed fewer workers than did the major companies (see table 

4.4) . Like the major corporations, the largest number of employees were engaged in 

production and platform work and a moderate number were working in exploration and 

administration . Also, similar to the major businesses, very few of the workers were engaged 

in drilling and research and development and none of the employees worked on shipping and 

pipelines. Although seven of the large integrated companies experienced a decline in the total 

number of employees, six enlarged their workforces (see table 4.4) . In contrast to the major 

corporations, in some employment categories the modal change was an increase since 1986 : 

drilling, exploration, production, platform work and administration . However, the number of 

firms that decreased their workers in each of these categories was almost as large as the 

number that increased the number of employees. The largest number of businesses decreased 

their engineering staffs while employment in research and development and 

shipping/pipelines did not change. Again, very few of the companies had any workers in the 

latter two categories in either year. 

Table 4.4 

Large Integrated Firms' Employees 

1994 

Mean Median Minimum Maximum 

Total Workers 156 90 0 420 

Drilling 7 4 0 21 

Exploration 23 20 0 70 

Production/Platform Work 76 45 0 245 

Research and Development 2 0 0 26 

Administration 21 13 0 59 

Engineering 10 3 0 50 

Shipping/Pipelines 0 0 0 0 
94 

Table 4.4 

Large Integrated Firms' Employees 

(continued) 

Change Since 1986 

Increase Decrease Same 

Total Workers 6 7 0 

Drilling 7 5 1 

Exploration 6 4 3 

Production 6 5 2 

Platform Work 7 6 0 

Research and Development 1 1 11 

Administration 7 6 0 

Engineering 4 6 3 

Shipping/Pipelines 0 1 12 

Business Characteristics of Small Integrated Companies 

Only three of the five small integrated independent companies answered the questions of the 

interview . One firm refused to participate and the other one does not do exploration and 

production in the Gulf and thus did not answer the interview questions . All three of the 

businesses were extracting oil and gas from the Gulf both currently and in 1986 (see table 

4 .5) . The amount of oil obtained ranged from 219,000 to 1,275,000 barrels and the quantity 

of gas ranged from 6 .5 to 34 .97 billion cubic feet . Two of the firms extracted more oil and 

one got less oil in 1993 than in 1986 while one firm obtained more gas, one derived less gas 

and one extracted the same amount of gas . One enterprise had the same level of involvement 

in exploration in 1994 as in 1986 while two were less engaged in exploration activities . All 

three businesses were engaged in downstream integration activities in 1994, but two were not 

in 1986. Most of these companies located their headquarters in the area around the Gulf of 

Mexico, particularly in Texas. Half of the other offices maintained by the small integrated 

firms were in the Gulf region, although these businesses had fewer other offices in this area 

in 1994 than in 1986. 

Table 4.5 

Small Integrated Independent Companies 

Oil and Gas Oil and Gas More Oil More Gas More Exploring 

1994 1986 1993 1993 1994 

Yes 3 3 2 1 0 

No 0 0 1 2 3 

Total 3 3 3 3 3 
95 

Table 4.5 

Small Integrated Independent Companies 

(continued) 

Downstream Integration Downstream Integration Headquarters GOM Other Offices' GOM 

1994 1986 1994 1994 

Yes 3 1 2 3 

No 0 2 1 3 

Total 3 3 3 6 

'Total number of offices, not companies 

As expected, the number of employees in small integrated independent companies was much 

smaller than the numbers in major corporations and large integrated independent businesses 

(see table 4.6) . Unlike major corporations and large integrated independents who had their 

largest numbers of employees in production and platform work, the largest category for small 

integrated independent firms was administration . Yet, the median number of workers was 

five for three types of employment : administration, exploration and production platform 

work . Unlike the other integrated types of firms, these companies had no employees in 

research and development, but, like the large integrated enterprises, there were few workers 

in shipping and pipelines. In contrast to the two other kinds of integrated concerns, all of 

these enterprises decreased their workforces since 1986 and none of these companies 

increased the number of employees in any type of employment since 1986 (see table 4 .6) . 

Table 4 .6 

Small Integrated Firm's Employees 

1994 

Mean Median Minimum Maximum 

Total Workers 73 20 12 187 

Drilling 2 1 1 4 

Exploration 4 5 3 5 

Production/Platform Work 6 5 2 12 

Research and Development 0 0 0 0 

Administration 14 5 1 35 

Engineering 2 1 1 5 

Shipping/Pipelines 0 0 0 1 
96 

Table 4.6 

Small Integrated Firm's Employees 

(continued) 

Change Since 1986 

Increase Decrease Same 

Total Workers 0 3 0 

Drilling 0 2 1 

Exploration 0 2 1 

Production 0 2 1 

Platform Work 0 2 1 

Research and Development 0 2 1 

Administration 0 2 1 

Engineering 0 2 1 

Shipping/Pipelines 0 2 1 

Business Characteristics of Large Nonintegrated Companies 

Eight of the nine large nonintegrated independent enterprises extracted both oil and gas from 

the Gulf in 1994 while one obtained only gas (see table 4.7) . In contrast, only six of these 

nine businesses derived both resources from the Gulf in 1986 and three obtained neither oil 

nor gas . Based on the respondents answers to other questions, these three companies recently 

became involved in exploration and production in the offshore Gulf of Mexico although all 

three of these firms existed in 1986 . The median quantity of oil extracted by these firms in 

1994 was 702,500 barrels while the median for gas was 22 billion cubic feet . The majority 

of these enterprises extracted more oil and more gas in 1993 than in 1986 . All nine of these 

companies were more involved in exploring currently than in 1986 . In both 1994 and 1986, 

four of these companies were involved in some downstream integration activities . These 

firms' headquarters were in the Gulf area, especially Houston. In addition, most of the other 

offices of these enterprises were also in the Gulf zone, mainly Texas, and this set of 

businesses gained offices in the Gulf region between 1986 and 1994. 

Table 4.7 

Large Nonintegrated Independent Companies 

Oil and Gas Oil and Gas More Oil More Gas More Exploring 

1994 1986 1993 1993 1994 

Yes 8 6 6 8 9 

No 1 (gas) 3 1 1 0 

Total 9 9 7 9 9 
97 

Table 4.7 

Large Nonintegrated Independent Companies 

(continued) 

Downstream Integration Downstream Integration Headquarters GOM Other Offices' GOM 

1994 1986 1994 1994 

Yes 4 4 9 8 

No 5 5 0 5 

Total 9 9 9 13 

'Total number of offices, not companies . 

In general, the large nonintegrated companies employed fewer people than did the integrated 

businesses (see table 4.8) . Like the small integrated firms, the largest employment categories 

in the large nonintegrated firms were administration, exploration and production platform 

work, especially administration . The enterprises reported few employees in the other kinds of 

work; many had no workers in shipping and pipelines and none had employees involved in 

research and development . In contrast with the integrated businesses, the total size of the 

staffs at most of the large nonintegrated companies increased between 1986 and 1994 (see 

table 4.8) . However, the increases were mainly in two categories - exploration and 

administration. In five types of positions, the modal direction of change was no change since 

1986 : drilling, platform work, research and development, engineering, and 

shipping/pipelines . Again, none of these firms had workers in research and development in 

either year and most had no employees involved with shipping and pipelines in either year. 

Table 4.8 

Large Nonintegrated Firms' Employees 

1994 

Mean Median Minimum Maximum 

Total Workers 32 29 0 70 

Drilling 2 1 .5 0 6 

Exploration 7 6.5 3 12 

Production/Platform Work S 2.5 0 35 

Research and Development 0 0 0 0 

Administration 15 6 .5 0 70 

Engineering 4 3 .5 0 10 

Shipping/Pipelines 2 0 0 12 
98 

Total Workers 

Drilling 

Exploration 

Production 

Platform Work 

Research and Development 

Administration 

Engineering 

Shipping/Pipelines 

Table 4.8 

Large Nonintegrated Firms' Employees 

(continued) 

Change Since 1986 

Increase 

6 

3 

6 

3 

2 

0 

4 

2 

2 

Decrease 

1 

1 

1 

1 

0 

0 

1 

1 

0 

Same 

2 

4 

1 

3 

6 

8 

3 

5 

6 

Business Characteristics of Small Nonintegrated Companies 

The small nonintegrated independent endeavors are the most numerous and least documented 

businesses in the Gulf of Mexico. Of the eleven firms examined, nine collected both oil and 

gas in 1994 and one extracted neither resource (see table 4.9) . Only two of these enterprises 

obtained both oil and gas in 1986 while eight derived neither oil nor gas. Based on other 

information obtained, seven of these firms recently began offshore extraction in the Gulf of 

Mexico and four of these seven may be new businesses because they had no headquarters in 

1986 . The other small nonintegrated concern collected neither resource in either year. The 

median quantity of oil extracted was 110,000 barrels and the median amount of natural gas 

was 10.9 billion cubic feet . Eight of the companies collected more oil in 1994 than in 1986 

while seven obtained more gas . Nine of these businesses were more involved in exploring for 

oil and natural gas presently than in 1986 while one was conducting the same amount of 

exploring and the final one had decreased its exploration activities . None of these enterprises 

were involved in downstream integration activities in either year . Most of the headquarters of 

these businesses were in the Gulf zone, especially Houston. The bulk of their other offices 

were in the Gulf area as well, about half in Texas and about half in Louisiana. This group of 

companies had more other offices in the Gulf region in 1994 than in 1986 . 
99 

Table 4.9 

Small Nonintegrated Independent Companies 

Oil and Gas Oil and Gas More Oil More Gas More Exploring 

1994 1986 1993 1993 1994 

Yes 9 2 8 7 q 

No 1 8 0 1 2 

Total 10 10 8 8 11 

Downstream Integration Downstream Integration Headquarters GOM Other Offices' GOM 

1994 1986 1994 1994 

Yes 0 0 7 g 

No 11 11 4 3 

Total 11 11 11 11 

'Total number of offices, not companies . 

The small nonintegrated independent enterprises had the smallest workforces (see table 4.10). 

The largest categories of employment were: production platform work, administration and 

exploration. Identical to small integrated firms, none of the businesses had any employees 

assigned to research and development and the largest number of workers involved in shipping 

and pipelines was one . The small nonintegrated independent enterprises is the group that is 

growing in the Gulf. These firms were the most numerous in the sampling frame (discussed 

previously) and, like the large nonintegrated businesses, they experienced increases in their 

labor forces . Ten of the eleven companies had increased their total number of workers since 

1986 (see table 4.10) . The majority of the companies reported having more people involved 

in the following types of positions in 1994 than in 1986 : drilling, exploration, production, 

and administration . In four categories, the numbers of employees did not change : platform 

work, research and development, engineering, and shipping/pipelines . 
100 

Table 4.10 

Small Nonintegrated Firms' Employees 

1994 

Mean Median Minimum Maximum 

Total Workers 17 13 2 51 

Drilling 1 1 .5 0 3 

Exploration 6 4 2 12 

Production/Platform Work 7 4 1 40 

Research and Development 0 0 0 0 

Administration 7 4 2 19 

Engineering 2 1 .5 0 6 

Shipping/Pipelines 0 0 0 1 

Change Since 1986 

Increase Decrease Same 

Total Workers 10 0 1 

Drilling 8 0 3 

Exploration 10 0 1 

Production 9 0 2 

Platform Work 4 0 7 

Research and Development 0 0 11 

Administration 10 0 1 

Engineering 5 0 6 

Shipping/Pipelines 2 0 9 

Similarities Across Type of Company 

The firms in the five categories were similar in a few ways . Regardless of type of company, 

the majority of the businesses extracted both oil and natural gas. Only a few enterprises 

obtained only one resource, but the few that focused on one mineral collected natural gas and 

not oil . The firms were also similar in that the vast majority of them, regardless of the type 

of company, extracted more gas in 1993 than in 1986 . The distribution of employees among 

the types of work was comparable, regardless of the type of company (see table 4 .11). The 

three categories with the largest numbers of employees were production platform 

maintenance and operation, exploration and administration . 
101 

Table 4.11 

Distribution of Employees in 1994 by Type of Company 

Major 

Mean Median Minimum Maximum 

Total Workers 465 277 40 1650 

Drilling 16 8.5 1 80 

Exploration 61 33 5 290 

Production/Platform Work 210 155 .5 14 700 

Research and Development 6 0 0 35 

Administration 55 36 .5 10 250 

Engineering 52 22 3 330 

Shipping/Pipelines 4 0 0 30 

Large Integrated 

Mean Median Minimum Maximum 

Total Workers 156 90 0 420 

Drilling 7 4 0 21 

Exploration 23 20 0 70 

Production/Platform Work 76 45 0 245 

Research and Development 2 0 0 26 

Administration 21 13 0 59 

Engineering 10 3 0 50 

Shipping/Pipelines 0 0 0 0 

Small Integrated 

Mean Median Minimum Maximum 

Total Workers 73 20 12 187 

Drilling 2 1 1 4 

Exploration 4 5 3 5 

Production/Platform Work 6 5 2 12 

Research and Development 0 0 0 0 

Administration 14 5 1 35 

Engineering 2 1 1 5 

Shipping/Pipelines 0 0 0 1 
102 

Table 4.11 

Distribution of Employees in 1994 by Type of Company 

(continued) 

Large Nonintegrated 

Mean Median Minimum Maximum 

Total Workers 32 29 0 70 

Drilling 2 1 .5 0 6 

Exploration 7 6 .5 3 12 

Production/Platform Work 8 2.5 0 35 

Research and Development 0 0 0 0 

Administration 15 6.5 0 70 

Engineering 4 3 .5 0 10 

Shipping/Pipelines 2 0 0 12 

Small Nonintegrated 

Mean Median Minimum Maximum 

Total Workers 17 13 2 51 

Drilling 1 1 .5 0 3 

Exploration 6 4 2 12 

Production/Platform Work 7 4 1 40 

Research and Development 0 0 0 0 

Administration 7 4 2 19 

Engineering 2 1 .5 0 6 

Shipping/Pipelines 0 0 0 1 

Note : One major company was omitted from this analysis because the respondent definitely could not separate offshore and onshore 

employees. 

Differences by Type of Company 

The businesses were different by the type of company in many ways . First, the quantities of 

oil and gas extracted from the Gulf differed . In general, based on the medians, the major 

corporations obtained the most oil followed by the various kinds of independent businesses in 

descending order : the small integrated independent enterprises, the large nonintegrated 

businesses, the large integrated firms and the small nonintegrated endeavors . The amount of 

gas extracted differed somewhat from that for oil (in descending order) : major corporations, 

large nonintegrated firms, small integrated enterprises, small nonintegrated endeavors, and 
103 

large integrated businesses . Second, the change in the amount of oil extracted varied by type 

of company. A large majority of firms in the small and large nonintegrated groups were 

extracting more oil currently than in 1986 while the number of firms obtaining more oil now 

and less oil now were almost equal for small integrated enterprises and major corporations . 

In further contrast, the majority of the large integrated businesses were obtaining less oil 

currently . A third distinction was involvement in exploration activities . The number of major 

corporations doing more exploring and that doing less were almost equal . In contrast, the 

majority of the small integrated independent endeavors were conducting fewer exploration 

operations while the vast majority of the other three types of companies - large integrated 

and large and small nonintegrated independent businesses - were more involved in exploring 

currently than in 1986 . 

Some variations by type of company concerned the locations of headquarters and other 

offices . The only difference in the location of the businesses' headquarters by type of 

company was that the majority of the major corporations had their headquarters outside of 

the Gulf of Mexico region while the bulk of each of the other types of companies had their 

headquarters in the Gulf (see table 4 .12) . Yet, regardless of the type of company, almost all 

of those that were based in the Gulf had headquarters in Texas, usually Houston. The 

changes in the location of the headquarters also varied little by type of company. Two 

nonintegrated companies moved their headquarters from small cities in Texas to large cities 

in Texas. In addition, four small nonintegrated endeavors had no headquarters in 1986. 

Table 4.12 

Headquarters in 1994 

All M. L. I . S.I . L. N. S. N. 

Gulf of Mexico 35 5 12 2 9 7 

Texas 29 5 8 2 8 6 

Louisiana 5 0 4 0 0 1- 

Alabama 1 0 0 0 1 0 

Not in the Gulf 12 6 1 1 0 4 

Oklahoma 4 2 1 0 0 1 

Not in the USA 3 1 0 0 0 2 

Common Cities 

Dallas 4 0 1 1 2 0 

Houston 24 5 7 1 6 5 

New Orleans 5 0 4 0 0 1 

Note : M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large nonintegrated and S .N . stands for 

small nonintegrated . 
104 

There were four disparities by type of company in the location of other company offices. 

First, slightly more than half of the offices occupied by major corporations and large 

integrated concerns were not in the Gulf of Mexico region (56 and 60 percent, respectively) 

while more than half of the other offices belonging to the large and small nonintegrated 

businesses were in this area (62 and 73 percent, respectively) (see table 4.13) . Second, major 

and large integrated companies had more other offices in other countries than did the other 

types of firms. Yet, regardless of the type of company, the majority of the other offices that 

were in the Gulf area were in Texas, especially Houston. The remaining offices in the Gulf 

region were in Louisiana, particularly Lafayette and New Orleans. 

Table 4.13 

Other Offices in 1994 

All M. L. 1 . S.I . L. N. S. N. 

Gulf of Mexico 50 14 16 3 9 8 

Texas 34 8 14 2 6 4 

Louisiana 16 6 2 1 3 4 

Not in the Gulf 50 18 23 3 3 3 

Oklahoma 3 1 2 0 0 0 

Colorado 4 0 4 0 0 0 

Not in the USA 16 5 7 0 . 1 3 

Common Cities 

Amarillo 2 0 0 0 2 0 

Calgary 7 2 4 0 1 0 

Corpus Christi 2 0 2 0 0 0 

Denver 4 0 4 0 0 0 

Houston 16 5 6 0 2 3 

Lafayette 9 3 2 1 2 1 

London 2 0 2 0 0 0 

Midland 10 3 4 1 2 0 

New Orleans 6 3 0 0 0 3 

Oklahoma City 3 1 2 0 0 0 

Tyler 3 0 2 1 0 0 

No Other Offices 9 1 I 1 2 4 

Note : M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large nonintegrated and S .N . stands for 

small nonintegrated . 
105 

The third disparity concerned the change in the numbers of other offices . The findings 

indicated that the small nonintegrated firms established new other offices between 1986 and 

1994 whereas the other types of businesses closed some of their other offices . The mean 

number of other offices for small nonintegrated independent firms increased while the means 

for the other types of companies decreased (see table 4.14). Similarly, the range in the 

number of other offices increased for the small nonintegrated firms and decreased for the 

other types of concerns . Fourth, a comparison of the actual location of other offices in 1986 

and 1994 revealed that the integrated concerns tended to remove offices from the Gulf area 

while the nonintegrated businesses gained offices in this region . The net reductions of cities 

in the Gulf that were the host of other offices were 3 for the major corporations, 6 (removed 

7 and added 1) for the large integrated enterprises and 2 for the small integrated firms . The 

net increases in the use of cities in the Gulf for other offices were 2 for the large 

nonintegrated businesses and 6 (1 removed and 7 added) for the small nonintegrated 

endeavors . Therefore, it appears that the nonintegrated companies are more committed to 

extraction in the Gulf of Mexico than are the integrated concerns . 

Table 4.14 

Change in Numbers of Other Offices 1986 to 1994 

1994 1986 

Type of Company Mean Minimum Maximum Mean Minimum Maximum 

All Companies 2.4 0 7 2 .8 0 11 

Major 3.4 0 7 4.2 0 11 

Large Integrated 3.5 0 7 4.2 1 9 

Small Integrated 2.0 0 4 3 .3 0 5 

Large Nonintegrated 1 .4 0 4 1 .9 0 6 

Small Nonintegrated 1 .0 0 4 0.4 0 1 

Another difference by type of company was the size of the workforces. As expected, the 

major corporations had the largest numbers of employees, the large integrated independent 

businesses had the second highest numbers of workers, followed in descending order by the 

small integrated, large nonintegrated, and small nonintegrated independent firms. The biggest 

disparity was between the major corporations and the large integrated independent 

businesses . The final dissimilarity was in the change in the number of employees between 

1986 and 1994 (see table 4 .15) . Overall, integrated companies tended to reduce their staffs 

whereas nonintegrated firms enlarged theirs . The clearest changes were in the small 

enterprises. The small nonintegrated endeavors were clearly increasing their labor forces 

during these eight years . The vast majority of these firms increased their total workforce and 

the numbers of employees in several categories rose as well . In sharp contrast, the small 

integrated enterprises lost employees during this period . All three firms had fewer total 
106 

workers and two businesses experienced declines in each of the types of positions examined. 

The changes were less distinct for the large companies . In the major corporations, the modal 

number of companies had a decrease in total workers and in most of the employment types; 

however, there were a few companies that experienced increases in each of the kinds of 

employment except shipping and pipelines . Yet another pattern of changes occurred in the 

large integrated cluster. The numbers of firms increasing and decreasing employment were 

similar in all categories except research and development and shipping/pipelines . The final 

configuration of changes in workers in the last eight years happened in the large 

nonintegrated set . Although most of the companies increased their total workforces, the 

modal type of change was no change for five of the eight employment types . 

Table 4.15 

Changes in Workforce Distribution from 1986 to 1994 

by Type of Company 

Number of Companies 

Major Companies Large Integrated 

Increase Decrease Same Increase Decrease Same 

Total Workers 3 7 1 6 7 0 

Drilling 4 6 1 7 5 1 

Exploration 4 7 0 6 4 3 

Production 4 5 2 6 5 2 

Platform Work 4 6 1 7 6 0 

Research and Development 1 5 5 1 1 11 

Administration 2 7 2 7 6 0 

Engineering 4 6 1 4 6 3 

Shipping/Pipelines 0 4 7 0 1 12 

Small Integrated Large Nonintegrated 

Increase Decrease Same Increase Decrease Same 

Total Workers 0 3 0 6 1 2 

Drilling 0 2 1 3 1 4 

Exploration 0 2 1 6 1 1 

Production 0 2 1 3 1 3 

Platform Work 0 2 1 2 0 6 

Research and Development 0 2 1 0 0 8 

Administration 0 2 1 4 1 3 

Engineering 0 2 1 2 1 5 

Shipping/Pipelines 0 2 1 2 0 6 
107 

Table 4.15 

Changes in Workforce Distribution from 1986 to 1994 

by Type of Company 

(continued) 

Small Nonintegrated 

Increase Decrease Same 

Total Workers 10 0 1 

Drilling 8 0 3 

Exploration 10 0 1 

Production 9 0 2 

Platform 4 0 7 

Work 

Research and Development 0 0 11 

Administration 10 0 1 

Engineering 5 0 6 

Shipping/ 2 0 9 

Pipelines 

Note : Most of the companies had no employees in research and development and shipping/pipelines in either year . 

BUSINESS ENVIRONMENT 

Although all of the companies examined in this study were operating in the Gulf of Mexico, 

aspects of the environment were sometimes viewed similarly and sometimes differently by 

the type of company . The purpose of this section of this chapter is to present these 

similarities and differences . The factors of the business environment examined were : federal 

agencies and regulations, technology, joint ventures, use of service companies, and outlook 

for the future of oil and gas exploration and production in the Gulf of Mexico . 

The results can be summarized as follows . There were five similarities across the five types 

of companies. The first similarity involved the respondents' views of federal agencies that 

oversee oil and gas exploration and production in the Gulf of Mexico. The executives 

overwhelmingly chose the Minerals Management Service as the agency with the greatest 

influence on their activities and they tended to mention the Department of Transportation as 

the agency with the fourth largest impact. The second resemblance concerned the use of 

technology; almost all of the companies used 3D seismic data . The third thing the companies 

had in common regardless of type was that almost all of them participated in joint ventures in 

the last year . The fourth similarity was about the use of service companies . Almost all of the 

companies contracted out some activities in 1994, almost all of them increased their use of 

service companies between 1986 and 1994, they contracted out the same types of activities, 
108 

and the ranges of the percentage of their Gulf of Mexico budgets expended on service 

companies were similar across the five categories of firms. 

The differences by the type of company were more numerous than the similarities . Some of 

these variations were due to integration. First, integration had some effect on the rankings of 

the federal agencies ; representatives of integrated firms ranked the Environmental Protection 

Agency as the agency with the second largest impact on their operations while those from 

nonintegrated businesses selected the Coast Guard. Second, integration influenced the 

rankings of regulations ; integrated firms ranked the Clean Water Act as the one with the 

greatest potential impact on their operations and the Clean Air Act as second while 

nonintegrated firms ranked the financial responsibility provision of OPA '90 as the most 

influential regulation. Third, integration was related to joint ventures as demonstrated by the 

finding that the majority of nonintegrated firms participated in more joint ventures in 1994 

than in 1986 while integrated firms did not and nonintegrated businesses partnered with large 

and small companies while integrated enterprises overwhelmingly partnered with large 

companies . Fourth, integration was associated with service company use in that officers from 

nonintegrated concerns reported spending a greater percentage of their Gulf operating 

budgets contracting out activities than did integrated firms . Fifth, integration affected the 

respondents' views of the future of Gulf extraction of oil and gas because representatives of 

integrated concerns were less optimistic about the size of the workforce in the Gulf in 1998 

than were those of nonintegrated businesses . 

Two variations seemed to be related to both integration and size . One occurred in the ranking 

of regulations - major and large integrated corporations (two largest types of firms and both 

are integrated) ranked the financial responsibility provisions of OPA '90 as third . The other 

variation showed up in the companies' involvement in deep water projects; approximately 

half of the integrated firms were engaged in these projects while almost all of the small 

nonintegrated businesses and almost none of the large nonintegrated concerns were engaged 

in deep water exploration. One variation depended on size - large companies ranked the 

increase in lease bonding to cover plug-and-abandon costs as fourth . One difference varied 

along the typical dimension used to examine oil and gas companies - major corporations vs 

independent firms . Major corporations were more likely to be engaged in subsalt exploration 

than were independent businesses . Three other differences cannot be explained by size, 

integration or the difference between major and independent corporations . These are : 1) 

major corporations and nonintegrated businesses were the most likely to use horizontal 

drilling, 2) major corporations were the most involved in joint ventures followed in 

descending order by the nonintegrated firms and then the integrated independent companies, 

and 3) the majority of executives from large integrated and small nonintegrated businesses 

reported spending a greater percentage of their Gulf operating budgets on service companies 

in 1994 than in 1986 while the majority of the other three types of firms did not. Now that 

the results have been summarized, they will be presented in greater detail . 
109 

Federal Agencies and Regulations 

As pointed out in the previous chapter, federal agencies and regulations can have an 

enormous impact on the operating conditions and activities of exploration and production 

companies in the Gulf of Mexico . The respondents' rankings of the five agencies with the 

most influence on their operations in the Gulf by type of company are shown in table 4 .16. 

Examining the table, it is difficult to discern similarities and variations by type of company 

in the relative impact of these agencies on operations . Nevertheless, by analyzing the modal 

choice of agency by type of company within each rank the similarities and differences can be 

found. 

Table 4.16 

Federal Agencies with the Greatest Effect on Gulf Extraction 

Agencies Ranked First 

Environmental Protection Agency 

Minerals Management Service 

Occupational Safety and Health 

Administration 

Total Companies 

All M. L. 1 . S.I . L.N. S.N. 

2 1 0 0 0 1 

41 9 11 3 8 10 

1 1 0 0 0 0 

44 11 11 3 8 11 

Agencies Ranked Second 

Coast Guard 

Environmental Protection Agency 

Federal Energy Regulatory Commission 

Minerals Management Service 

Total Companies 

All M. L. 1 . S.I . L. N. S.N . 

13 0 3 0 4 6 

25 9 5 3 4 4 

2 0 2 0 0 0 

2 2 0 0 0 0 

42 11 10 3 8 10 
110 

Table 4.16 

Federal Agencies with the Greatest Effect on Gulf Extraction 

(continued) 

Agencies Ranked Third 

All M. L. I . S.I . L.N . S. N. 

Coast Guard 20 11 2 2 3 2 

Corp of Engineers 1 0 0 0 0 1 

Department of Transportation 6 0 2 0 1 3 

Environmental Protection Agency 9 0 5 0 1 3 

Minerals Management Service 1 0 0 0 0 1 

National Marine Fisheries Service 1 0 0 1 0 0 

Occupational Safety and Health 2 0 0 0 2 0 

Administaration 

Total Companies 40 11 9 3 7 10 

Agencies Ranked Fourth 

All M. L. I . S .I . L. N. S. N. 

Coastal Zone Management 2 0 0 1 0 1 

Coast Guard 4 0 1 0 1 2 

Corp of Engineers 1 0 1 0 0 0 

Department of Transportation 12 5 3 0 2 2 

Environmental Protection Agency 2 1 0 0 0 1 

Internal Revenue Service 1 0 1 0 0 0 

MMS 1 0 0 0 1 0 

National Marine Fisheries Service 2 1 1 0 0 0 

National Oceanic and Atmospheric 1 1 0 0 0 0 

Agency 

Occupational Safety and Health 6 2 2 0 1 1 

Administration 

Total Companies 32 10 9 1 5 7 
111 

Table 4 .16 

Federal Agencies with the Greatest Effect on Gulf Extraction 

(continued) 

Agencies Ranked Fifth 

Coast Guard 

Corp of Engineers 

Department of Commerce 

Department of Transportation 

Environmental Protection Agency 

Federal Communication Commission 

Federal Energy Regulatory Commission 

National Marine Fisheries Service 

National Oceanic and Atmospheric 

Administration 

Occupational Safety and Health 

Administration 

Office of Contract ComplianceDepartment of Labor 

Total Companies 

All M. L.I . S.I . L.N . S.N . 

1 0 1 0 0 0 

1 0 1 0 0 0 

1 0 0 0 1 0 

4 2 1 0 1 0 

1 0 0 0 0 1 

1 1 0 0 0 0 

1 0 0 0 1 0 

3 2 1 0 0 0 

1 1 0 0 0 0 

5 2 2 0 0 1 

1 0 0 0 0 1 

20 8 6 0 3 3 

Note : M. stands for major, L.I . is large integrated, S.I, means small integrated, L.N . represents large nonintegrated and S.N . stands for 

small nonintegrated. 

Similarities in Selection of Agencies Across Type of Company. There were two similarities 

in the modal choice of agency by type of company. First, representatives of all types of 

companies overwhelmingly chose Minerals Management Service as the federal agency with 

the most effect on their firms' operations . Second, for the types of company where more 

than half of the respondents picked a fourth agency, the Department of Transportation was 

selected as the agency having the fourth largest impact on operations in the Gulf. 

Differences in Selection of Agencies by Type of Company. The choice of the second 

agency varied by integration; respondents from the integrated businesses picked the 

Environmental Protection Agency as the second most influential agency whereas those from 

the nonintegrated enterprises tended to mention the Coast Guard. The third selection did not 

differ by any of the three dimensions that separate the companies into the five categories. 

Officials from major, small integrated and large nonintegrated endeavors favored the Coast 

Guard as being the third most influential federal agency . On the other hand, members of 

large integrated firms picked the Environmental Protection Agency and those from small 

nonintegrated businesses tended to choose either the Environmental Protection Agency or the 

Department of Transportation . The fifth choice realistically cannot be analyzed due to the 

scarcity of mentions of any agency. 
112 

Differences in Regulations by Type of Company. As would be expected, the rankings of 

the four regulations differed by type of company. Both integration and size of company 

influenced the representatives' rankings of the four regulations. This result can be discerned 

most clearly by comparing either the median or modal rank across the five groups of 

companies (see table 4.17) . The integrated firms ranked the Clean Water Act as first and the 

Clean Air Act as second while the nonintegrated businesses ranked the financial 

responsibility provisions as first. Complying with the Clean Water and Air Acts might 

require retrofitting platforms, which was a big concern of the integrated firms, while obeying 

OPA '90 necessitates a large amount of insurance, which was a major issue for the 

nonintegrated businesses . The large nonintegrated concerns, of which four were involved in 

some downstream integration activities, ranked the Clean Water and Air Acts as second and 

third while the small nonintegrated enterprises ranked them as third and fourth . Size was a 

factor in the selection of the fourth regulation possibly because size determines ability to 

establish large escrows . The large companies ranked the increases in lease bonding to cover 

plug-and-abandon liabilities as fourth whereas the small firms, which might have fewer 

resources for this kind of escrow, ranked this regulation as second (small nonintegrated 

firms) or third (small integrated concerns). Also, it is noteworthy that the rankings for the 

major corporations and the large integrated businesses were identical possibly because these 

two kinds of firms are similar in many ways . The manner in which these regulations are 

expected to affect the companies' operations in the Gulf will be discussed later . 
113 

Table 4.17 

Rankings of Regulations for All Companies and by Type of Company 

Major Corporations 

Mean Median Mode Minimum Maximum 

Plug and Abandon 3 .5 4 4 1 4 

Liabilities 

Reinjecting Produced Water 1.4 1 1 1 3 

Air Emission Controls 2.4 2 2 1 4 

Financial Responsibility 2.7 3 3 2 4 

in OPA '90 

Large Integrated Businesses 

Mean Median Mode Minimum Maximum 

Plug and Abandon 3.6 4 4 3 4 

Liabilities 

Reinjecting Produced Water 1.5 1 1 1 4 

Air Emission Controls 2 .3 2 2 1 4 

Financial Responsibility 2 .5 3 3 1 4 

in OPA '90 

Small Integrated Firms 

Mean Median Mode Minimum Maximum 

Plug and Abandon 3 .0 3 3 3 3 

Liabilities 

Reinjecting Produced Water 1 .7 1 1 1 3 

Air Emission Controls 1 .7 2 2 1 2 

Financial Responsibility 3 .7 4 4 3 4 

in OPA '90 

Large Nonintegrated Enterprises 

Mean Median Mode Minimum Maximum 

Plug and Abandon 3 .1 4 4 1 4 

Liabilities 

Reinjecting Produced Water 2.3 2 2 1 4 

Air Emission Controls 3 .3 3 3 3 4 

Financial Responsibility 1 .2 1 1 1 2 

in OPA '90 
114 

Table 4.17 

Rankings of Regulations for All Companies and by Type of Company 

(continued) 

Small Nonintegrated Endeavors 

Mean Median Mode Minimum Maximum 

Plug and Abandon 1 .7 2 2 1 3 

Liabilities 

Reinjecting Produced Water 3.0 3 3 2 3.5 

Air Emission Controls 3.9 4 4 3.5 4 

Financial Responsibility 1 .4 1 1 1 2 

in OPA '90 

Technology 

As mentioned in the previous chapter, technology can be an important ally in exploration and 

extraction in the Gulf of Mexico . The companies' employment of four types of technology 

revealed one similarity across the five kinds of firms and three differences (see table 4.18) . 

Table 4.18 

Technology Use by Company Type 

Technology M. L.I . S.I . L.N . S .N. 

Deepwater Projects 6 7 2 1 10 

3D seismic Data 11 12 2 8 11 

Subsalt Exploration 9 5 1 2 0 

Horizontal Drilling 6 4 0 4 5 

Number of Companies 11 13 3 8 11 

Note : Numbers in the table are the numbers of companies currently engaged in or currently planning to become engaged in projects using 

these technologies . In addition, M. stands for major, L.I. is large integrated, S.I . means small integrated, L.N . represents large 

nonintegrated and S .N . stands for small nonintegrated. 

Similarities in Use of Technology Across Type of Company. Almost every company used 

3D seismic data (only 1 large and one small integrated firm did not) . The importance of this 

technology will be elucidated in the section concerning how the business environment affects 

operations in the Gulf. 

Differences in Use of Technology by Type of Company. Integration seems to influence 

involvement in deep water projects . A moderate number of the integrated firms were 

involved in such projects while the nonintegrated businesses demonstrated the two extremes 
115 

of involvement. Slightly more than half of the integrated businesses were involved in deep 

water activities while almost all (10 of 11) of the small nonintegrated endeavors indicated 

that they were involved in or planning to do deep water projects while almost all (7 of 8) of 

the large nonintegrated firms claimed that they were not. Interest in subsalt exploration 

demonstrated a difference between the major corporations and independent companies . In 

general, only major corporations were involved in subsalt exploration. The majority of the 

representatives of major corporations stated that their firm was conducting subsalt 

explorations while the bulk of the independent businesses claimed that their companies were 

not. The use of horizontal drilling did not vary by any of the three factors that identify the 

five types of companies. Overall, nonintegrated firms and the major corporations were the 

most likely to use this technology . Over half of these three types of firms did horizontal 

drilling while less than half of the integrated independent enterprises used this technique . The 

effects of these technologies on the companies' operations will be discussed later. 

Joint Ventures 

Joint ventures are important in offshore oil and gas exploration and extraction in the Gulf of 

Mexico . These partnerships reduce each company's risk and provide funds for expensive 

exploration that none of the firms could have obtained on their own. Therefore, it is 

important to examine participation in joint ventures by type of company to understand 

activity in the Gulf of Mexico . Due to the complexity of examining which companies were 

involved in joint ventures with which other companies, it is necessary to first describe the 

results for each of the five types of companies before discussing the similarities and 

differences by type of company. The five categories will be discussed in the following order : 

major corporations, large integrated concerns, small integrated firms, large nonintegrated 

businesses, and small nonintegrated companies . Due to differences between the pretest and 

the interview in some of the questions and the small number of companies in each group 

examined during the pretest, only the interview findings will be reported here . Thus, the 

outcome for participation in joint ventures in 1986 and 1994 is based on the entire sample 

while the findings for the number of partners and the change in involvement in joint ventures 

since 1986 are from the companies studied during the interview only . 

Major Corporations. The company representatives were questioned concerning their firms' 

participation in joint ventures. All of the major corporations were involved in joint ventures 

in 1994 and in 1986 . During the interview, the representatives were asked to give the total 

number of joint venture partners in the last year. These numbers ranged from 2 to 90 with a 

median of 11 .5 . These respondents were queried about how the number of joint ventures had 

changed since 1986 . Five firms were involved in more joint ventures in the last year while 

four were involved in fewer joint ventures . 

Large Integrated Companies. Eleven of the 13 large integrated independent enterprises 

were involved in joint ventures in the last year whereas only 9 of these businesses conducted 

joint ventures in 1986. The number of joint venture partners given ranged from 0 to 10 with 

a median of 5 .5 . Four executives reported an increase in joint ventures since 1986 while two 
116 

claimed that joint venture activity had decreased and two said their companies were involved 

in the same number of joint ventures in both years . 

Small Integrated Concerns . All three of the small integrated businesses were engaged in 

joint ventures in both 1986 and 1994. The range of the number of joint venture associates 

was from 3 to 20, the median was 5 . Two of the companies were involved in the same 

number of joint ventures in the last year as in 1986 while one firm was involved in more of 

these activities . 

Large Nonintegrated Businesses. All nine large nonintegrated independent enterprises were 

involved in joint ventures in the last year; seven businesses conducted joint ventures in 1986 . 

The range of the number of joint venture partners was from 3 to 30 and the median number 

was 8 . Five were engaged in more of these activities in 1994 than in 1986, one conducted 

the same number of joint ventures and two were less involved in such operations . 

Small Nonintegrated Firms. All eleven small nonintegrated independent enterprises were 

involved in joint ventures in 1994 whereas only four small nonintegrated enterprises were 

thus engaged in 1986. The number of partners ranged from 2 to 20 with a median of 10 . 

Eight of the respondents reported that their firms were conducting more joint ventures now 

than in 1986 while one stated that the number of these operations had not changed since 

1986. 

Similarities in Joint Ventures Across Type of Company. Regardless of type of company, 

almost all firms involved in oil and gas extraction in the Gulf were conducting joint ventures. 

The two businesses that were not involved in joint ventures were both in the large integrated 

category . 

Differences in Joint Ventures by Type of Company. Although the number of joint ventures 

did not vary by any of the three dimensions that distinguish the five types of firms, the 

change in participation in joint ventures and the size of partners varied by integration. The 

median number of joint venture partners in the last year varied to some degree across the 

five types of companies . The major corporations conducted the largest number of these 

operations whereas the integrated independent businesses participated in the fewest (see table 

4.19) . The change in the number of joint ventures from 1986 to 1994 was another distinction 

among the five types of companies . Nonintegrated firms overwhelmingly increased their 

participation in joint ventures while integrated companies did not. A final disparity by type of 

company was the size of the businesses mentioned as their partners in joint ventures . The 

integrated firms listed mainly large companies as their partners while the nonintegrated 

enterprises were more likely to have both large and small firms as their partners (see table 

4 .20) . 
117 

Table 4.19 

Joint Venture Involvement by Type of Company 

Participation in Joint Ventures in 1994' 

M. L.I . S.I . L. N . S. N . 

Yes 11 11 3 9 11 

No 0 2 0 0 0 

Total 11 13 3 9 11 

Number of Partners" 

Median Minimum Maximum 

Major Corporations 11 .5 2 90 

Large Integrated 5 .5 0 10 

Small Integrated 5 .0 3 20 

Large Nonintegrated 8.0 3 30 

Small Nonintegrated 10 .0 2 20 

Change in Joint Ventures" 

M. L.I . S.I . L.N . S. N. 

Increase 5 4 1 5 S 

Same 0 2 2 1 1 

Decrease 4 2 0 2 0 

Total 9 8 3 8 9 

Note : M. stands for major corporations, L.I . represents large integrated, S.I . means small integrated, L.N . is large nonintegrated and S.N 

indicates small nonintegrated firms. 

'All respondents were asked this question . 

"The results are from the interview only since this question differed on the pretest. 
118 

Table 4.20 

Joint Venture Partners by Type of Company 

Type of Company 

Majors 

Large Integrated 

Small Integrated 

Large Non-integrated 

Small Non-integrated 

Use of Service Companies 

Partners 

Large, mainly majors 

Three partner with at least one small non-integrated 

Large 

Five partner with at least one small non-integrated 

One partners mainly with small non-integrated 

Mainly majors 

Mix of Partners 

Four mainly large 

One mainly majors 

Four mix all types 

One mainly small non-integrated 

Mix of Partners 

Three mainly large 

One mainly majors 

Six mix all types 

One mainly small 

Similarities in Service Company Use Across Type of Company. Employment of service 

companies did not vary by type of company. Only two firms did not contract out some 

activities - one large integrated and one large nonintegrated. In addition, with the exception 

of the small integrated endeavors, the majority of every type of company reported an 

increase in their use of outside companies (see table 4.21) . Moreover, the kinds of activities 

contracted out were very similar across the five types of companies (see table 4.21) . The 

only activity that the businesses rarely hired outside companies to complete was accounting. 

The majority of the executives reported contracting out the other activities . Further, the 

ranges of the percentages of Gulf operating costs expended on using outside contractors were 

similar. These percentages ranged from at least 17 to 90. The percentages for nonintegrated 

firms varied between 0 and 100 while those for integrated businesses were between lows of 0 

(small integrated), 5 (large integrated) or 17 (major corporations) and highs of 90 (integrated 

independents) or 100 (major corporations) . 
119 

Table 4.21 

Use of Contractors by Type of Company 

Change in Use of Service Companies 1986 to 1994' 

M. L.I . S .I . L.N. S.N. 

Increase 7 8 1 5 9 

Same 0 3 2 3 2 

Decrease 4 1 0 0 0 

Total 11 12 3 8 11 

Activities Contracted Out" 

M. L.I . S.I . L. N. S . N. 

Drilling 9 6 2 7 8 

Seismic/Other Geophysical 9 7 2 7 8 

Production 7 5 2 6 6 

Platform Work 7 6 3 7 7 

Accounting 1 0 0 1 1 

Engineering 6 5 3 7 5 

Shipping/Pipelines 6 4 3 6 7 

Number of Companies 9 S 3 7 9 

Change in Percentage of Operating Costs 1986 to 1994' 

M. L. 1 . S.I . L. N . S.N. 

Increase 4 7 1 2 8 

Same 4 4 2 6 3 

Decrease 2 0 0 0 0 

Total 10 11 3 8 11 

Note: M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N. represents large nonintegrated and S.N . stands for 

small nonintegrated . 

'The results are from all of the companies. 

"The results are from the interview only because the activities were different on the pretest. 

Differences in Service Company Use by Type of Company. Although the ranges of the 

percent of Gulf operating costs incurred by hiring outside companies were similar across the 

type of company, the average costs and their change since 1986 varied by the kind of 

company . In general, nonintegrated enterprises spent more of their Gulf budgets on outside 

companies than did integrated businesses . The median percentages of Gulf operating costs 

expended on outside companies were (in descending order) : 90 for the small nonintegrated 
120 

group, 82.5 for the large nonintegrated set, 67.5 for the major corporations, 60 for the small 

integrated firms, and 27 for the large integrated businesses . The change in the percentage of 

operating costs expended by hiring outside companies did not vary along any of the three 

dimensions. The majority of large integrated and small nonintegrated firms increased their 

percentages between 1986 and 1994 while the bulk of the large nonintegrated businesses held 

their percentages steady (see table 4 .21) . 

Future of Gulf Activity 

Similarities in Future Across Type of Company. The outlook on the future of oil and gas 

in the Gulf did not vary much by type of company. The majority of each type of company 

expected to be more engaged in exploring for oil and gas in the Gulf in 1998 than at present 

(see table 4.22) . The large integrated and major businesses were a little less optimistic since 

two firms of each type expected to do the same amount of exploring and two enterprises of 

each type anticipated doing less exploring . In addition, there was no pattern in the 

explanations for the predictions about exploration in 1998 (see table 4 .23) . 

Table 4.22 

Future of Gulf Activities by Type of Company 

A. Oil and Gas Exploration in 1998 by Type of Company 

M. L. 1 . S.I . L. N. S . N. 

More 7 8 2 8 6 

Same Amount 2 2 0 0 3 

Less 2 2 1 0 1 

B. Workforce in 1998 by Type of Company 

M. L.I . S.I . L.N . S . N. 

Larger 2 5 2 8 6 

Same Amount 5 5 1 0 2 

Smaller 4 3 0 0 1 

C. Independents' Share of Gulf Activity in 1998 

by Type of Company 

M. L.I. S.I . L.N . S.N . 

Larger 8 10 3 7 10 

Same Amount 0 1 0 0 0 

Smaller 1 1 0 0 0 

Note : M stands for major, L.I . is for large integrated, S.I . means small integrated, L.N . represents large nonintegrated and S.N . stands for 

small nonintegrated. 
121 

Table 4 .23 

Exploration in the Gulf in 1998 

A. Why More Exploration 

All M. L. I . S.I . L. N. S.N . 

Prices 4 1 1 0 2 1 

Subsalt 2 1 0 1 0 0 

Growth Opportunities 3 1 1 0 1 0 

Gulf Characteristics 1 0 1 0 0 0 

Current Leases 1 0 1 0 1 0 

Collaborative Efforts 2 0 0 1 0 1 

Company Commitment to Gulf 2 0 0 0 0 2 

Other 7 3 1 0 3 0 

Total Responses 24 6 5 2 7 4 

B. Why Less Exploration 

All M. L. I . S.I . L.N. S. N. 

Mature Area 1 1 0 0 0 0 

Economics of Deep Water 1 0 0 1 0 0 

Company Charactistics 2 0 1 0 0 1 

Regulations 1 0 0 0 0 1 

Total Responses 5 1 1 1 0 2 

C . Same Amount of Exploration 

All M. L. 1 . S.I . L.N . S.N. 

Company Focus 1 1 0 0 0 0 

Prices 3 0 2 0 0 1 

Other 3 1 0 0 0 2 

Total Responses 7 2 2 0 0 3 

Note : M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large non-integrated and S.N . stands for 

small nonintegrated. 

There was little variation by type of company concerning the independents' share of Gulf 

activity in 1998. The majority of representatives from all five types of companies claimed 

that the independent firms' proportion would be greater and all of the respondents from small 

integrated and large and small nonintegrated firms predicted that the independents' share 

would be greater (see table 4.22) . Further, there were no differences in the reasons given for 

these predictions (see table 4.24). 
122 

Table 4.24 

Independents' Share in the Gulf in 1998 

A. Larger 

All M. L.I . S.I . L.N. S. N . 

General Trend 3 1 0 1 1 0 

Marginal/Mature GOM 7 1 1 0 3 2 

Independents Overall/Majors in : 6 2 0 1 2 1 

Subsalt 1 1 0 0 0 0 

Deepwater 5 1 0 1 2 1 

GOM Rapid Growth for Independents 1 1 0 0 0 0 

Majors Leaving Gulf 6 1 1 1 2 1 

3-D Seismic Helps 1 0 1 0 0 0 

Independents' Competitive Advantage 4 0 1 0 0 3 

Majors' Strategies 2 0 1 0 0 1 

Other 3 1 1 0 0 1 

Total Responses 39 9 6 4 10 10 

B. Smaller 

All M. L. 1 . S.I . L. N. S. N. 

Regulations 1 1 0 0 0 0 

Total Responses 1 1 0 0 0 0 

C. Same 

All M. L. I . S .I . L.N. S. N. 

Majors Changing Operations 1 0 1 0 0 0 

Total Responses 1 0 1 0 0 0 

Note : Five executives had no opinion. One of these said the share depends on majors' divestitures and regulations. Also, M. stands for 

major, L.I. is large integrated, S .I . means small integrated, L.N . represents large non-integrated and S.N . stands for small nonintegrated 

Differences in Future by Type of Company. There was some difference by type of 

company in expectations concerning the size of the workforce in 1998 . Executives from 

integrated companies were less optimistic about the potential for an increase in the Gulf 

workforce than were those from nonintegrated businesses (see table 4.22) . The modal answer 

for the major corporations was that the workforce would be the same size as it currently is 

while the modal response for the small integrated and large and small nonintegrated firms 

was that the workforce would be larger . There was no modal reply for the large integrated 

businesses, five of the respondents felt that the labor force would be larger and five thought 

it would be smaller . In addition, representatives of the major corporations and large 

integrated independent firms were more likely to expect that the workforce would be smaller 
123 

in 1998 - four of the respondents from major corporations and three of those from large 

integrated firms stated that the labor force would be smaller. Moreover, there was some 

divergence in the reasons for their expectations concerning the size of the workforce in 1998 

(see table 4 .25). Representatives of major corporations exclusively stated the following 

reasons for either a smaller workforce or one that was unchanged in size : disposition of 

properties, reductions in exploration and production, and outsourcing. 

Table 4.25 

Workforce in the Gulf in 1998 

A. Why Workforce Larger 

All M. L.I . S.I . L.N . S.N . 

More Fields and Development 3 0 2 0 1 0 

Gas Prices/Technology 4 0 1 0 3 0 

New Exploration 1 0 0 1 0 0 

Now as Small as Possible 2 0 0 1 0 1 

More Companies 1 0 0 0 1 0 

Expansion 3 1 0 0 1 1 

Complexity of Projects 1 0 0 0 0 1 

Other 2 0 0 0 1 1 

Total Responses 17 1 3 2 7 4 

B. Why Workforce Smaller 

All M. L.I . S.I . L.N . S.N . 

Disposition of Properties 1 1 0 0 0 0 

Reduced Exploration 1 1 0 0 0 0 

Reduced Production 1 1 0 0 0 0 

Streamlining 1 1 0 0 0 0 

New Regulations 1 0 0 0 0 1 

Other 1 0 1 0 0 0 

Total Responses 6 4 1 0 0 1 
124 

Streamlining/" Right sizing" 

Outsourcing 

Other 

Total Responses 

Table 4.25 

Workforce in the Gulf in 1998 

(continued) 

C. Why Workforce will be the Same 

All M. L. 1. S.I . L. N. S.N . 

3 1 1 0 0 1 

1 1 0 0 0 0 

7 2 3 1 0 1 

11 4 4 1 0 2 

Note : One large nonintegrated company and two small nonintegrated firm did not have an opinion on this question . The respondents from 

the small nonintegrated businesses said it depends on prices and one added that it depends on the results of exploration. Also, M. stands for 

major, L.I . is large integrated, S.I . means small integrated, L.N . represents large non-integrated and S.N . stands for small nonintegrated . 

BUSINESS PRACTICES 

Business practices can be affected by both the characteristics of the companies themselves 

and by the environment in which the companies operate. In the last chapter, the effect of the 

environment on practices for the companies as a group was presented, in this chapter the 

similarities and differences in practices by characteristics and the environment will be 

discussed . Each of the similarities were about the effect of the environment on operations . 

The texts of the respondents' answers concerning how the current prices of oil and gas 

reduced activity in the Gulf were comparable, regardless of the type of company, as were the 

texts of the replies about the effects of future prices on activity . Moreover, the majority of 

the executives were in favor of areawide leasing and the reduction of the minimum bid. In 

addition, most of the officers talked favorably about the impacts of 3D seismic data and 

horizontal drilling on the operations in the Gulf. Further, all of the representatives were 

against each of the four regulations examined. 

The differences largely concerned the effect of business characteristics on practices, although 

there were some minor variations in the responses about the impacts of the environment. 

Some of the dissimilarities occurred along the dimension distinguishing the major 

corporations from the independent firms . First, the major corporations extracted more oil and 

gas in 1994 than did the independent businesses . Second, the majority of the independent 

companies were more involved in exploring in 1994 than in 1986 while most of the major 

corporations were not. Third, the bulk of the major corporations did not have their 

headquarters in the Gulf region while the headquarters of the independent enterprises were in 

this area. Fourth, in response to the question concerning how current prices affect 

operations, representatives of major businesses tended to mention cost cutting and the trade 

off between oil and gas while those from independent firms did not. Fifth, when discussing 

the effect of future prices on activities, executives from major corporations mentioned cost 

cutting while those from independent businesses did not . Sixth, people from major firms 

responded favorably to the question concerning how subsalt technology had influenced their 
125 

operations while those from independent companies responded that they were waiting to see 

how subsalt affected others before they would decide to become involved . 

Other variations demonstrated the differences between integrated and nonintegrated 

companies. Most of the nonintegrated businesses extracted more oil in 1993 than in 1986 

while most of the integrated firms did not. Also, the nonintegrated firms had a greater 

proportion of their other offices in the Gulf area and tended to establish more other offices in 

this region while integrated companies had more other offices outside the Gulf zone and 

tended to close offices in this region between 1986 and 1994 . In addition, nonintegrated 

enterprises increased their workforces between 1986 and 1994 while integrated endeavors did 

not. Moreover, the answers concerning some aspects of the business environment differed 

along this dimension. First, respondents from nonintegrated firms often stated that the 

reduced minimum bid allowed them to begin operations in the Gulf while those from 

integrated businesses tended to reply that the reduced minimum bid had no influence on their 

operations . Second, members of nonintegrated companies repeatedly said that they were 

waiting to see how other firms were affected by deep water projects while those from 

integrated corporations were more likely to mention actual impacts of these projects on their 

operations . Third, when responding to the question concerning the effect of the financial 

responsibility provisions of OPA '90 on activities in the Gulf, executives from nonintegrated 

enterprises frequently declared that this regulation would put their firms out-of-business 

whereas those from integrated companies asserted that they could self-insure . 

One difference in business practices occurred along all three dimensions - workforce size . 

Major companies had the largest labor forces in the offshore Gulf followed by large 

integrated, small integrated, large nonintegrated and small nonintegrated . Thus, major 

corporations had larger numbers of employees than did independent firms, integrated 

businesses had more workers than did nonintegrated firms, and, within integration, larger 

companies had more employees than did smaller firms . 

Differences in Practices by Characteristics 

The respondents were not questioned directly about how their characteristics affected their 

practices ; however, some of the information gleaned about their businesses suggests how 

these traits affect practices. The distinctions among the five groups include 1) the capability 

to conduct extraction activities in other countries (major vs independent), 2) downstream 

integration (major and integrated independents vs nonintegrated independents) and 3) size 

(major and large independents vs small independents) . Practices in the Gulf seem to vary by 

these dimensions, although not in consistent ways . 

For example, the amounts of oil and gas extracted in 1993 varied by the type of company. 

As would be expected, major corporations obtained the most oil and gas . However, the 

reported amounts of oil and gas derived by the other types of companies did not vary in a 

consistent or anticipated manner. The major corporations obtained the most oil followed in 

descending order by the : small integrated firms, large nonintegrated enterprises, large 
126 

integrated businesses and small nonintegrated endeavors. The pattern for gas extracted 

differed from that for oil. Again the major corporations derived the largest amounts 

succeeded by: the large nonintegrated concerns, the small integrated businesses, the small 

nonintegrated operations, and the large integrated firms. Thus, there is a difference by type 

of company in the quantities of oil and gas extracted, major companies derived more oil and 

gas than did independent firms . The change from 1986 to 1993 in the quantity of oil obtained 

varied by integration. In general, most of the nonintegrated firms obtained more oil in 1993 

than in 1986 while the majority of the integrated companies did not . 

In contrast, the change in involvement in exploration operations differed along the major vs 

independent distinction. The majority of the independent firms were doing more exploring in 

1994 than in 1986 while approximately equal numbers of the major companies were doing 

more and less exploring in 1994 . In addition, the location of headquarters differed along the 

same dimension. The majority of the major companies had their headquarters outside of the 

Gulf of Mexico region while the bulk of the other four types of companies had their 

headquarters in the Gulf area. The location of other offices varied more by integration. The 

integrated firms had more other offices than did the nonintegrated concerns and many of 

these other offices were outside the Gulf region while those of the nonintegrated businesses 

were in this area. Moreover, the integrated firms were more likely than the nonintegrated 

enterprises to have other offices in other countries than the United States . Further, integrated 

companies tended to close offices in the Gulf area while the nonintegrated endeavors tended 

to open offices in this region . 

The size of the workforce of oil and gas extracting companies varied by all three dimensions. 

The major corporations had the largest staffs followed by : the large integrated concerns, the 

small integrated operators, the large nonintegrated endeavors and the small nonintegrated 

enterprises. The same statement cannot be made concerning the change in the numbers of 

employees from 1986 to 1994. The nonintegrated businesses tended to gain workers ; in 

contrast, the integrated firms tended to lose workers . 

In summary, there appears to be some difference by type of company in operations -

quantities of oil and gas extracted, changes in the amount of exploring between 1986 and 

1994, location of headquarters and other offices, and workforce size . However, only some of 

these can be attributed to the three dimensions that differentiate the five types of companies. 

Similarities and Differences in the Influence of the Environment on Business Practices 

As discussed in the previous chapter, the respondents were asked to discuss how some 

aspects of the business environment affected their companies' operations in the Gulf of 

Mexico. The results for the companies without regard to type of company were presented in 

the last chapter. In this chapter, the focus is on the similarities and differences in the impact 

of aspects of the business environment on practices. These factors are : current and 

anticipated future prices of oil and gas, leasing policies, technology and regulations . 
127 

Similarities in the Effect of Current Prices Across Type of Company. The text of the 

answers did not vary by type of company (see table 4.26). When discussing how current 

prices slowed down operations, representatives from all company types stated that the prices 

reduced their activities ; slowed down exploration activities ; induced them to sell some 

properties; prompted them to delay and stall drilling and development; and even prompted 

them to forego exploration, lease sales and new projects . The one disparity was that 

respondents from large integrated businesses tended to add that low prices slowed production 

and even curtailed production on some properties. Four of the seven executives from large 

integrated concerns talked about reduced production while none of the those from major 

corporations, small integrated firms, and large nonintegrated businesses referred to reduced 

production and only one person from a small nonintegrated endeavor mentioned production. 

There were no distinctions in the text of the comments by type of company for the other 

impacts of the current prices on operations . 

Table 4.26 

The Effect of Prices on Operations 

A. Curent Prices 

All M. L.I . S.I. L.N . S.N . 

Reduced Activity 20 3 7 1 4 5 

Other Economic Problems 8 1 3 1 2 1 

Cut Costs 2 2 0 0 0 0 

Tradeoff Between Oil and Gas 6 5 0 0 1 0 

Increased Activity 1 0 0 1 0 0 

No Effect 8 1 2 0 1 4 

No Effect-Focus on Future Prices 6 1 2 0 1 2 

Number of Statements 51 13 14 3 9 12 
128 

Table 4.26 

The Effect of Prices on Operations 

(continued) 

B. Future Prices 

All M. L.I . S.I . L. N. S.N . 

Reduced Activity 13 2 5 0 2 4 

Cautious Level of Activity 3 0 1 0 0 2 

Cut Costs 3 3 0 0 0 0 

Economic Issues 3 0 1 0 1 1 

Stable Activity 2 0 2 0 0 0 

Increased Activity 14 4 2 2 4 2 

Projections of Prices Only 2 1 0 0 1 0 

No Effect 6 2 1 1 0 2 

No Response 2 0 1 0 1 0 

Number of Statements 48 12 13 3 9 11 

Note : The number of statements are greater than the number of companies because some companies gave answers that had elements that fit 

in more than one category . Also, M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large nonintegrated and S.N . stands for small nonintegrated . 

Differences in the Effect of Current Prices by Type of Company. There were few 

differences by type of company in the responses to the question concerning how current 

prices affect operations in the Gulf. Yet, the most frequent answer varied somewhat by type 

of company (see table 4.26) . The most common reply for the large integrated firms and the 

large and small nonintegrated businesses was that the current prices slowed down their 

operations . However, an almost equal number of respondents from small nonintegrated 

endeavors claimed that the current prices had no impact on their activities . The most frequent 

answer for the major corporations included discussions of the tradeoff between oil and gas 

activities . There was no reaction that occurred more often than any other for the respondents 

from small integrated enterprises . Moreover, only representatives of major corporations 

presented strategies for reducing costs as their response to the price situation and only 

executives from large companies (5 major and 1 large nonintegrated businesses) mentioned 

the tradeoff between oil and gas . 

Similarities in the Effect of Future Prices Across Type of Company. The text of the 

responses to the question concerning the effect of future prices on operations in the Gulf did 

not vary by type of company (see table 4.26) . When respondents discussed reductions in 

operations, they sounded similar regardless of the type of company in which they were 

employed . The executives used phrases such as : " . . .Development has slowed. . . ." (major 

corporation) ; "Curtailed drilling activities, postponed development decisions." (large 

integrated independent) ; "Reduced activity level . . ." (large integrated independent) ; 
129 

" . . .Curtailed some activity . " (large integrated independent) ; "Limits prospects. " (large 

nonintegrated independent) ; "Restricted our operations ." (small nonintegrated independent) ; 

"Slowing down activity ." (small nonintegrated independent) ; and "Curtailed existing 

production for future prices . . ." (small nonintegrated independent) . 

When the executives mentioned ways that projections of future prices led to increased 

activity, again, there was no difference by type of company in the text of the answers. For 

instance, the representatives made statements such as the following : "Bright outlook for shelf 

exploration and subsalt. " and "Increased acquisitions for the future ." (major corporations) ; 

"The industry projections of higher gas prices in the future have increased the company's 

exploration and production activities in the Gulf of Mexico ." (large integrated independent) ; 

"Increased activity ." (small integrated independent) ; "Projections have made us more active, 

more involved in the Gulf of Mexico. It is the best place for gas reserves ." (large 

nonintegrated independent) ; and "We believe that the situation will be better especially in gas 

pricing. We look to the Gulf for resources ." (small nonintegrated independent) . Thus, there 

were few differences by type of company in the kind of responses and no variations in the 

text of the answers. 

Differences in the Effect of Future Prices by Type of Company. There were very few 

differences by type of company in the responses concerning how projections of future prices 

affect operations in the Gulf (see table 4 .26) . Only representatives of major corporations 

discussed cutting costs due to forecasts of prices . Moreover, only people from large 

integrated concerns made statements that indicated that their company expected prices to be 

more stable . 

Similarities in the Effects of Leasing Policies Across Type of Company. Given the 

similarity in the overall results - the fact that over two-thirds of the respondents said that 

areawide leasing had positive effects - and the diversity in the actual favorable impacts, it is 

difficult to discern any differences by type of company in the influence of areawide leasing 

(see table 4.27) . The text of the answers did not vary by type of company as demonstrated 

by the quotes in the previous chapter. As occurred for the responses to the switch to 

areawide leasing, there were few discernable differences by type of company in the manner 

in which the reduced minimum bid affected the firms' operations in the Gulf (see table 4.28) . 
130 

Table 4.27 

Effects of Areawide Leasing 

All M. L. 1 . L. N. S.I . S. N. 

Positive Effects 32 8 12 1 5 6 

More Activity 8 4 4 0 0 0 

Reduced Risk 3 3 0 0 0 0 

Justified Technology Purchases 1 1 0 0 0 0 

More potential for finds 5 1 3 0 1 0 

Easier/Fairer way to Lease 5 1 2 0 2 0 

Reduced Costs 2 0 2 0 0 0 

Increased Exploration 1 0 1 0 0 0 

More Leases 7 0 4 0 0 3 

Enabled entry into GOM 2 0 0 0 1 1 

Farmouts from Majors 1 0 0 0 1 0 

Farm-ins 1 0 0 0 0 1 

Negative Effects 1 1 0 0 0 0 

Low Return on Investment 1 1 0 0 0 0 

Other 14 2 1 2 4 5 

More Farmouts 1 0 0 1 0 0 

No Response 1 0 1 0 0 0 

Not Applicable/Not Leasing 8 0 0 0 3 5 

No Effect 2 0 0 1 1 0 

Total Responses 47 11 13 3 9 11 

Note : M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large non-integrated and S.N . stands for 

small nonintegrated. 
131 

Table 4.28 

Reduction of the Minimum Bid 

All M. L.I . S.I . L.I . S .N . 

Positive 31 8 9 1 6 7 

More Activity 6 3 0 0 1 2 

Increased Bids/ 15 4 7 0 2 2 

Leases/Acres 

More Exploration 3 0 2 0 0 0 

Reduced Costs 2 0 2 0 0 0 

Enabled Entry/ 5 0 0 0 2 3 

Competition in GOM 

Freed Funds for Activity 1 0 0 0 0 1 

Other 3 0 1 1 0 1 

Changed Expectations 1 0 1 0 0 0 

No Effect 9 3 3 1 1 1 

Not Applicable/Not Leasing 3 0 0 0 1 2 

No Response 1 0 0 0 1 0 

Total Responses 47 11 13 3 9 11 

Note : M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large non-integrated and S.N . stands for 

small nonintegrated . 

Differences in the Effects of Leasing Policies By Type of Company. One difference in the 

effects of areawide leasing as discussed by the respondents was the fact that major 

corporations and large integrated concerns focused on how areawide leasing made operating 

in the Gulf easier (more activity, reduced risk, greater potential for obtaining oil and gas, 

easier leasing strategy) while the nonintegrated firms tended to state either that areawide 

leasing was a better way to do leasing and increased leases or that the question was not 

applicable to their company because they were not operating or leasing in the Gulf prior to 

1983 . One obvious variation in the responses to the reduced minimum bid was that only 

nonintegrated businesses stated that this policy enabled their company to become active or 

competitive in the Gulf. Another disparity was the finding that respondents from major 

corporations and large integrated firms were more likely to claim that the reduced bid had no 

effect . Two-thirds of the people who stated that this policy had no influence were from major 

or large integrated companies . 

Similarities in the Effects of Technology Across Type of Company. There were few 

variations in the responses concerning the influence of 3D seismic data on operations in the 

Gulf by type of company (see table 4.29). The majority of the executives from each kind of 

business discussed positive effects of 3D seismic data, particularly reduced risk and increased 
132 

success as well as increased activity . Members of large integrated firms were the most likely 

to mention other impacts including increases in: costs, staff, and hardware and software . 

Nevertheless, the overall response to the use of 3D seismic data in operations in the Gulf was 

favorable . 

Table 4.29 

The Effect of Technology on Operations in the Gulf 

A. Deep Water Projects 

All M. L. I . S.I . L. N. S.N. 

Joint Venture 2 1 1 0 0 0 

Economic Impacts 2 1 1 0 0 0 

Major Growth Opportunity 2 1 1 0 0 0 

Other 4 1 0 1 1 1 

Total Responses 10 4 3 1 1 1 

B. 3D Seismic Data 

All M. L. 1. S .I . L. N. S.N. 

Positive Effects 37 12 8 2 6 9 

Reduced Risk/Increased Success 22 9 6 1 2 5 

Increased Activity 13 4 1 1 4 3 

Reduced Cost/Cost Effective 5 1 2 0 1 1 

Other Effects 6 1 4 0 0 1 

Evaluation Time 1 1 0 0 0 0 

Increased Costs 1 0 1 0 0 0 

Increased Staff 3 0 2 0 0 1 

Increased Hardware and Software 1 0 1 0 0 0 

Little/No Effect yet/Too new 5 0 1 0 1 3 

No Effect/Not Involved 2 0 2 0 0 0 

Plan to get 3-D data 1 0 0 1 0 0 

Total Responses 51 13 15 3 7 1 
133 

Increase Exploration 

Increase Activity 

Increase Operations 

Key Issue for Deep Water 

Long-term Activity 

Large Capital Expenditure 

Increase Hard and Software 

Increase Staff 

Have Subsalt Acreage 

Planning to do Subsalt 

Too Early to Know Impacts 

Total Responses 

Positive Effects 

Created Additonal Finds 

Made Extraction Economical 

Improved Production Rates 

Develop Shallow Wells 

Increased Activity 

Use Limited/Done when needed 

Minimal Effect thus far 

Planning/Will use if needed 

Total Responses 

Table 4.29 

The Effect of Technology on Operations in the Gulf 

(continued) 

C. Subsalt Exploration 

All M. L. 1 . S.I . L.N . S. N. 

1 1 0 0 0 0 

2 1 1 0 0 0 

1 1 0 0 0 0 

1 1 0 0 0 0 

1 1 0 0 0 0 

1 1 0 0 0 0 

1 0 1 0 0 0 

1 0 1 0 0 0 

3 0 0 0 2 1 

1 0 0 0 0 1 

8 4 3 1 0 0 

21 10 6 1 2 2 

D. Horizontal Drilling 

All M. L.I . S.I . L.N. S .N . 

19 6 4 0 4 5 

1 1 0 0 0 0 

9 1 3 0 2 3 

2 1 0 0 1 0 

5 2 0 0 2 1 

1 0 0 0 0 1 

1 0 1 0 0 0 

1 0 0 0 0 1 

4 0 2 0 1 1 

24 6 6 0 5 7 

Note : M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large non-integrated and S.N . stands for 

small nonintegrated. 

There were no differences by type of company in the responses concerning the impacts of 

horizontal drilling (see table 4 .29) . The majority of the executives from each type of firm 

presented favorable effects of this technology . With the exception of the major corporations, 

the most common positive influence of horizontal drilling was the fact that it made extraction 

from some fields economical . Yet, the overall response, regardless of type of company, was 

positive . 
134 

Differences in the Effects of Technology by Type of Company. Due partly to the small 

number of responses concerning the influence of deep water projects on operations, there 

were few discernable patterns by type of company in these comments (see table 4 .29) . Yet, 

the people from major corporations and large integrated companies were more likely to 

mention actual impacts while those from the nonintegrated firms were either against it (1 

person) or were waiting to see the results that other businesses achieve in deep water 

projects . As pointed out in the previous chapter, deep water technology appears to be too 

new and too expensive for most of the executives to know how it will affect their companies' 

operations . 

There was some difference by type of company in the comments about subsalt exploration; 

however, due to the small number of responses, this difference should not be given much 

importance (see table 4.29) . People from major corporations were the most positive about 

subsalt exploration in the Gulf (four comments) while those from large integrated concerns 

tended to mention the costs of this exploration and those from nonintegrated enterprises were 

more likely to say that their company was waiting to see the results of other firms' projects . 

Similarities in the Effects of Regulations Across Type of Company. There were some 

similarities in the executives' replies when asked about the influence of OPA '90 on their 

businesses' activities in the Gulf (see table 4.30). People from all five types of companies 

discussed either additional costs or reduced profits due to OPA '90 . Moreover, respondents 

from large and small firms as well as integrated and nonintegrated concerns discussed 

impacts on activity, particularly reduced activity . In summary, the effects of the financial 

responsibility provisions of OPA '90, as presented by the executives of Gulf extraction firms, 

were overwhelmingly negative, and some were severely adverse including the possibility of 

putting companies out-of-business . 
135 

Table 4.30 

The Effect of Regulations on Gulf Operations 

A. OPA '90 

All M. L. I . S.I . L. N. S. N. 

Economic Impacts 15 4 6 1 3 1 

Added Costs 9 0 5 1 2 1 

Reduced Profit Margin 1 1 0 0 0 0 

Unable to Self Insure or Get Bonding 2 0 2 0 0 0 

Additional Bonding 1 1 0 0 0 0 

Ties up Money 3 1 1 0 1 0 

Reduced Ability to Sell Properties 1 1 0 0 0 0 

Activity Impacts 6 1 2 0 0 3 

Reduced Partnering 1 1 0 0 0 0 

Reduced Activity 5 0 3 0 0 2 

Increase Opportunities some Company 1 0 0 0 0 1 

Reduced Growth 1 0 0 0 0 1 

Administrative Impacts 2 1 1 0 0 0 

Increased Paperwork 2 1 1 0 0 0 

Indirect Impacts 11 4 4 0 3 0 

Hurt Independents, especially small 10 3 4 0 3 0 

Hurt Contractors/Service Company 3 3 0 0 0 0 

Reduced Partnering 2 2 0 0 0 0 

Other 1 0 0 0 0 1 

Out of Business 10 0 0 0 3 7 

No Direct Effect/Self-Insured 9 3 3 3 0 0 

Total Responses 54 13 16 4 9 12 
136 

Table 4 .30 

The Effect of Regulations on Gulf Operations 

(continued) 

B. Plug and Abandon Liabilities 

All M. L. 1 . S.I . L.N . S. N. 

Economic Impacts 15 4 4 1 2 4 

Added Costs 10 2 3 0 2 3 

Reduced Profits 3 2 0 0 1 0 

Ties up Money 3 0 1 1 0 1 

Activity Impacts 10 3 2 0 1 4 

Reduced Activity 6 2 0 0 1 3 

Selective About Leases/Wells 3 1 1 0 0 1 

Reduced Competition 1 0 1 0 0 0 

Reduced Growth 1 0 0 0 0 1 

Indirect Impacts 9 3 2 0 3 1 

Hurt Independents, especially small 8 3 1 0 3 1 

Hurts Partnering 4 3 1 0 0 0 

Other 2 0 0 0 0 2 

No Direct Effect 15 3 5 2 4 1 

Total Responses 51 13 13 3 10 12 
137 

Table 4 .30 

The Effect of Regulations on Gulf Operations 

(continued) 

C . Clean Water Act 

All M. 

Economic Impacts 36 11 

Added Capital Costs 32 9 

Reduced Profits 5 2 

Ties Up Money 1 0 

Activity Impacts 23 6 

Premature Abandonment 16 3 

Cut Reserves and Their Recovery 3 1 

Reduce Activity 7 2 

Avoid Marginal Wells 1 0 

Operations Impacts 3 2 

More Unmanned Wells 1 1 

Space Problems 3 2 

More Downtime 1 1 

No Impact Yet 1 0 

Not Sure 2 0 

Total Responses 65 19 

L. 1 . S .I . L.N. S. N . 

10 2 6 7 

9 2 6 6 

1 0 2 0 

0 0 0 1 

7 0 5 5 

6 0 4 3 

1 0 1 0 

0 0 1 4 

1 0 1 0 

0 0 0 1 

0 0 0 0 

0 0 0 1 

0 0 0 0 

0 1 0 0 

0 0 1 1 

17 3 12 15 
138 

Table 4 .30 

The Effect of Regulations on Gulf Operations 

(continued) 

D. Clean Air Act 

All M. L. 1 . S.I . L. N. S. N. 

Economic Impacts 28 7 10 2 4 5 

Added Costs/Capital and Operation 24 6 9 2 4 3 

Reduced Profits 5 1 2 0 2 0 

Ties up Money 1 0 0 0 0 1 

Slows Rate of Return 1 0 0 0 0 1 

Activity Impacts 19 3 8 0 5 3 

Premature Abandonment 7 1 4 0 2 0 

Cut Reserves and Recovery 2 0 1 0 1 0 

Reduce Activity 9 2 2 0 2 3 

Avoid Marginal Wells 6 1 3 0 2 0 

Operations Impacts 3 0 2 0 0 1 

Equipment 2 0 2 0 0 0 

Maintenance 2 0 2 0 0 0 

Personnel 2 0 2 0 0 0 

Slows Permit Process 1 0 0 0 0 1 

Not as Much as CWA 2 2 0 0 0 0 

Gas Platforms not affected 3 1 0 0 0 2 

Not sure yet 6 2 0 0 2 2 

No Impact 3 0 0 1 1 1 

Total Responses 64 15 20 3 12 14 

Note : M. stands for major, L.I . is large integrated, S.I . means small integrated, L.N . represents large non-integrated and S.N . stands for 

small nonintegrated. 

There were no discernable variations by type of company in the comments concerning the 

effects of the increase in lease bonding to cover plug-and-abandon liabilities (see table 4.30) . 

Representatives of all types of companies mentioned economic impacts and officials from all 

five kinds of firms stated that this regulation would have no direct effect on their operations 

in the Gulf. In addition, respondents from both large and small and both integrated and 

nonintegrated businesses discussed effects on activity and indirect consequences . Again, the 

people interviewed were overwhelmingly against this regulation, even when they stated that 

their firm would not be directly affected, and many pointed out that it was unnecessary since 

they already set aside enough money to cover these costs as demonstrated by the following 

comment from a representative of a small nonintegrated firm, "It makes life difficult. We 

have always had a sinking fund, but now MMS has an arbitrary number to cover this . " 
139 

The responses to the potential requirement to reinject produced water (the Clean Water Act 

in the fall of 1994) were similar in that the majority of officials from each type of company 

referred to economic outcomes and a large number of people from both large and small as 

well as integrated and nonintegrated businesses discussed influences on activity (see table 

4.30) . In addition, the text of the comments did not vary by type of company . 

There were similarities in the officials comments concerning the possible extension of 

onshore air quality standards to the offshore Gulf of Mexico (see table 4.30) . Executives 

from every type of company presented economic consequences of the Clean Air Act and 

members of both large and small as well as both integrated and nonintegrated firms referred 

to effects on activity in the Gulf. There were no differences by type of company in the text 

of the responses . 

Differences in the Effects of Regulations by Type of Company. There were some 

differences by type of company in the comments concerning the effects of OPA '90 on 

operations in the Gulf. First, only representatives of major and large integrated corporations 

mentioned administrative impacts . Second, only executives from major corporations 

presented the adverse effects on contractors, service companies, and partnering as impacts of 

this regulation . Third, only officials from integrated companies stated that their firm could 

continue operating in the Gulf because they could self-insure. Fourth, only people from 

nonintegrated businesses declared that their firm would be out-of-business due to the financial 

responsibility provision of $150 million. 

There were few obvious differences by type of company in response to the possibility of 

needing to reinject produced water, which was a potential implication of the Clean Water Act 

in the fall of 1994. The two disparities were: 1) influences on operations were primarily 

mentioned by representatives of major corporations and 2) only executives from small and 

nonintegrated firms felt that their companies would not be affected or were unsure what the 

consequences would be . 

As occurred in the responses to the Clean Water Act, there were very few divergences by 

type of company in the comments concerning the Clean Air Act . First, the discussion of 

influences on operations was almost exclusively from representatives of large integrated 

concerns. Only officers of major corporations responded by remarking that the effects of the 

Clean Air Act would be less than those of the Clean Water Act. In addition, only executives 

from small and nonintegrated types of businesses declared that they had not been affected . 

SUMMARY 

In summary, the results concerning the similarities and differences by type of company in 

business characteristics showed that there were three similarities and seven differences. The 

similarities were: 1) almost all of the enterprises extracted both oil and gas, 2) the vast 

majority of the concerns obtained more gas in 1993 than in 1986 and 3) the largest categories 

of employment were production platform maintenance and operation, exploration, and 
140 

administration. Four of the differences in business characteristics varied by integration. Most 

of the nonintegrated businesses obtained more oil in 1993 than in 1986 while the majority of 

the integrated enterprises extracted less oil . The majority of the other offices established by 

the integrated companies were outside of the Gulf zone while the majority of the other 

offices of the nonintegrated firms were in this area . The integrated businesses tended to close 

offices in the Gulf region, but the nonintegrated enterprises increased their numbers of other 

offices in this area. The integrated companies had more employees than did the nonintegrated 

firms, especially the majors, and the integrated businesses decreased their workforces 

between 1986 and 1994 whereas the nonintegrated endeavors increased the size of their 

staffs . One variation by type of company demonstrated a difference between major and 

independent firms . Most of the major corporations' headquarters were outside the Gulf of 

Mexico region whereas the bulk of the independent endeavors had headquarters in the Gulf 

area. Two differences by type of company could not be explained by any of the three 

dimensions that distinguish the five types of companies. First, the quantities of oil and gas 

extracted in 1993 varied by type of company. Second, the nonintegrated firms and the large 

integrated concerns were more involved in exploring in 1994 than in 1986 while the major 

corporations and small integrated businesses were not . 

The results concerning the business environment can be summarized as follows. There were 

five similarities across the five types of companies . The executives overwhelmingly chose the 

Minerals Management Service as the agency with the greatest influence on their activities and 

they tended to mention the Department of Transportation as the agency with the fourth 

largest impact. Second, almost all of the companies used 3D seismic data . Third, almost all 

of businesses participated in joint ventures in the last year. Fourth, almost all of the 

companies contracted out some activities in 1994, almost all of them increased their use of 

service companies between 1986 and 1994, they contracted out the same types of activities, 

and the ranges of the percentages of their Gulf of Mexico budgets expended on service 

companies were similar across the five categories of firms. 

The differences by the type of company were more numerous than the similarities . Some of 

these variations were due to integration. First, representatives of integrated firms ranked the 

Environmental Protection Agency as the agency with the second largest impact on their 

operations while those from nonintegrated businesses selected the Coast Guard. Second, 

integrated firms ranked the Clean Water Act as the one with the greatest potential impact on 

their operations and the Clean Air Act as second while nonintegrated firms ranked the 

financial responsibility provisions of OPA '90 as the most influential regulation . Third, the 

majority of nonintegrated firms participated in more joint ventures in 1994 than in 1986 

while integrated firms did not and nonintegrated businesses partnered with large and small 

companies while integrated enterprises overwhelmingly partnered with large companies . 

Fourth, officers from nonintegrated concerns reported spending a greater percentage of their 

Gulf operating budgets contracting out activities than did integrated firms . Fifth, 

representatives of integrated concerns were less optimistic about the size of the workforce in 

the Gulf in 1998 than were those of nonintegrated businesses . 
141 

Two variations seemed to be related to both integration and size . Major and large integrated 

corporations (two largest types of firms and both are integrated) ranked the financial 

responsibility provisions of OPA '90 as third. Approximately half of the integrated firms 

were engaged in deep water projects while almost all of the small nonintegrated businesses 

and almost none of the large nonintegrated concerns were currently involved in or currently 

planning to do deep water exploration. One variation depended on size - large companies 

ranked the increase in lease bonding to cover plug-and-abandon costs as fourth . One 

difference varied along the typical dimension used to examine oil and gas companies - major 

corporations vs independent firms . Major corporations were more likely to be engaged in 

subsalt exploration than were independent businesses . Three other differences cannot be 

explained by size, integration or the difference between major and independent corporations . 

These are : 1) major corporations and nonintegrated businesses were the most likely to use 

horizontal drilling, 2) major corporations were the most involved in joint ventures followed 

in descending order by the nonintegrated firms and then the integrated independent 

businesses, and 3) the majority of executives from large integrated and small nonintegrated 

businesses reported spending a greater percentage of their Gulf operating budgets on service 

companies in 1994 than in 1986 while the majority of the other three types of firms did not. 

When business practices were examined, it was found that each of the similarities concerned 

the effect of the environment on operations . The texts of the respondents' answers concerning 

how the current prices of oil and gas reduced activity in the Gulf were comparable, 

regardless of the type of company, as were the texts of the replies about the effects of future 

prices on activity . Moreover, the majority of the executives were in favor of areawide 

leasing and the reduction of the minimum bid. In addition, most of the officers talked 

favorably about the impacts of 3D seismic data and horizontal drilling on the operations in 

the Gulf. Further, all of the representatives were against each of the four regulations studied . 

The differences largely concerned the effect of business characteristics on practices, although 

there were some minor variations in the responses about the impacts of the environment. 

Some of the dissimilarities occurred along the dimension distinguishing the major 

corporations from the independent firms . First, the major corporations extracted more oil and 

gas in 1994 than did the independent businesses . Second, the majority of the independent 

companies were more involved in exploring in 1994 than in 1986 while most of the major 

corporations were not . Third, the bulk of the major corporations did not have their 

headquarters in the Gulf region while the headquarters of the independent enterprises were in 

this area. Fourth, in response to the question concerning how current prices affect 

operations, representatives of major businesses tended to mention cost cutting and the trade 

off between oil and gas while those from independent firms did not. Fifth, when discussing 

the effect of future prices on activities, executives from major corporations mentioned cost 

cutting while those from independent businesses did not . Sixth, people from major firms 

responded favorably to the question concerning how subsalt technology had influenced their 

operations while those from independent companies responded that they were waiting to see 

how subsalt affected others before they would decide to become involved . 
142 

Other variations demonstrated the differences between integrated and nonintegrated 

companies. Most of the nonintegrated businesses extracted more oil in 1993 than in 1986 

while most of the integrated firms did not. Also, the nonintegrated firms had a greater 

proportion of their other offices in the Gulf area and tended to establish more other offices in 

this region between 1986 and 1994 while integrated companies had more other offices outside 

the Gulf zone and tended to close offices in this region . In addition, nonintegrated enterprises 

increased their workforces between 1986 and 1994 while integrated endeavors did not. 

Moreover, the answers concerning some aspects of the business environment differed along 

this dimension. First, respondents from nonintegrated firms often stated that the reduced 

minimum bid allowed them to begin operations in the Gulf while those from integrated 

businesses tended to reply that the reduced minimum bid had no influence on their 

operations . Second, members of nonintegrated companies repeatedly said that they were 

waiting to see how other firms were affected by deep water projects while those from 

integrated corporations were more likely to mention actual impacts of these projects on their 

operations . Third, when responding to the question concerning the effect of the financial 

responsibility provisions of OPA '90 on activities in the Gulf, executives from nonintegrated 

enterprises frequently declared that this regulation would put their firms out-of-business 

whereas those from integrated companies asserted that they could self-insure . 

One difference in business practices occurred along all three dimensions - workforce size . 

Major companies had the largest labor forces in the offshore Gulf followed by large 

integrated, small integrated, large nonintegrated and small nonintegrated firms . Thus, major 

corporations had larger numbers of employees than did independent enterprises, integrated 

businesses had more workers than did nonintegrated firms, and, within integration, larger 

companies had more employees than did smaller firms. 
143 

CHAPTER 5 

THE SHIFT IN THE GULF AND POTENTIAL IMPACTS 

As pointed out in chapter 2, people speak of a shift in activity in the Gulf of Mexico in 

which major corporations are becoming less active, particularly in exploration, while 

independent firms are becoming more active . In addition, operations that used to be 

conducted in-house by major corporations are now being contracted out and some companies 

are being created to do these tasks, sometimes on a specialty basis, such as the firms that do 

31) seismic data and sell the information to oil and gas exploration and production firms . 

These new businesses to which the tasks are contracted out are very useful to large 

companies, like the major oil and gas firms, that are downsizing to maintain their 

competitive edge . This trend toward contracting out some functions is occurring in other 

large industries as well such as the automotive industry . The results found in this study will 

be examined for evidence relevant to the issue of a shift in the oil and gas extraction industry 

in the Gulf. Some of the findings support the notion that a shift is occurring while some 

evidence does not. The outcome in support of the belief in this shift will be presented first, 

the evidence against the idea will be presented second . The final section will be a discussion 

of the potential impacts of the changes in the oil and gas industry in the Gulf. 

DECREASED ACTIVITY BY MAJOR FIRMS AND 

INCREASED ACTIVITY BY INDEPENDENT ONES 

The results to be discussed first in this section support the idea that there has been a change 

in activity levels of the major and independent companies in the Gulf. These findings suggest 

that the major corporations are becoming less active and the independent businesses are 

becoming more vigorous. In addition, the outcome implies that the nonintegrated enterprises 

are becoming the most active players in this region . 

Business Characteristics 

Some of the changes between 1986 and 1994 in the characteristics of the five types of 

companies suggest that the nonintegrated firms may be the most committed to oil and gas 

extraction in the Gulf of Mexico . These differences include the ones concerning : the amount 

of oil extracted, the involvement in exploring, the location of headquarters and other offices, 

and the numbers of employees. First, the changes between 1986 and 1993 in the amount of 

oil extracted suggest that the nonintegrated enterprises are becoming more active . As 

reported earlier, the overwhelming majority of the large and small nonintegrated operators 

were extracting more oil in 1993 than in 1986 while approximately equal numbers of the 

major corporations and small integrated companies were obtaining more oil and less oil and 

the majority of the large integrated firms were deriving less oil. Second, the results 

concerning the difference in exploring from 1986 to 1994 imply that the nonintegrated firms 

are becoming more involved in offshore extraction in the Gulf. Large majorities of both the 

large and small nonintegrated endeavors were doing more exploring in 1994 than in 1986. In 
144 

contrast, about equal numbers of the major corporations were doing more and less exploring 

in 1994 while over half of the large integrated firms were doing more exploring in 1994. 

Third, the location of headquarters and other offices also connotes a greater commitment to 

the Gulf of Mexico on the part of the independent businesses, particularly the nonintegrated 

ones . Most of the major corporations had their headquarters in cities outside the Gulf region 

while most of the independent operators had theirs in this area. In addition, the integrated 

companies had a large number of their other offices outside the Gulf territory, but most of 

the other offices of the nonintegrated firms were in the Gulf region . Further, between 1986 

and 1994, the integrated companies closed some of their offices in the Gulf area while the 

nonintegrated businesses opened some offices in this region . Fourth, the sizes of the 

workforces hint that the nonintegrated endeavors are the most committed to Gulf extraction. 

The pattern of changes in the numbers of employees in the nonintegrated companies 

displayed an increase in workers, especially in the small nonintegrated firms. On the other 

hand, the configuration of differences in the integrated concerns showed overall decreases in 

the number of employees . 

Business Environment 

Some changes in the business environment between 1986 and 1994 intimate that the 

independent companies are becoming more important players in Gulf extraction. These 

changes consist of those concerning : joint ventures, service company use and the companies' 

views of the future of oil and gas extraction in the Gulf. In addition, the answers to the 

questions concerning how the change in leasing policies affected the firms' operations suggest 

that a shift in the players is occurring . 

First, the differences from 1986 to 1994 in participation in joint ventures intimate that the 

nonintegrated independent companies are doing everything they can to increase their activity 

in the Gulf. Majorities of the large and small nonintegrated endeavors increased their 

participation in joint ventures during these eight years. On the contrary, only half of the 

large integrated concerns took part in more joint ventures in 1994 while about equal numbers 

of major corporations did more and did fewer of these in 1994 . 

Second, the changes in the use of service companies hint that the major companies may be 

reducing their presence in the Gulf. Although the bulk of the major corporations (7 of 11) 

hired outside contractors more in 1994, four companies used service companies less in 1994. 

Only five of the firms examined, decreased their use of service companies between 1986 and 

1994 - four major and one large integrated companies. However, the unknown issue is 

whether the four companies are doing more activities themselves or are less involved in the 

Gulf and hence have less need for outside contractors. Also, it is possible that outsourcing on 

the part of the seven major companies that increased their use of service companies is a way 

to reduce their presence in and commitment to extraction in the Gulf. 
145 

Third, the major corporations and large integrated independent firms seem less optimistic 

about the future of operations in the Gulf. First, major and large integrated companies were 

less hopeful about their businesses' involvement in exploration in 1998 . Although the 

majority of all five types of companies reported that their firm would be more engaged in 

exploring, representatives of four major and four large integrated concerns disagreed with the 

majority . In addition, the results were similar concerning the size of the workforce in the 

Gulf in 1998 . Again, the bulk of all five types of firms predicted that the workforce would 

be larger in 1998 . Yet, eight officials disagreed - four from major corporations, three from 

large integrated businesses, and one from a small nonintegrated enterprise who was 

concerned about regulations . The explanations employed exclusively by officers from major 

corporations for their predictions that the workforce would not be larger suggest that the 

major firms may be planning to reduce their presence in the Gulf. These reasons included : 

disposition of properties, reduced exploration and production, and outsourcing . Moreover, 

almost all of the respondents predicted that the independent companies' share of activity in 

the Gulf would be larger in 1998 than in 1994 . Only three officials disagreed with this 

expectation. The reasons given for the anticipation of a greater proportion of the operations 

being conducted by independent operators imply that the major corporations will have a 

reduced presence in the Gulf. These explanations consisted of: the general trend toward a 

smaller presence by the major corporations, the marginal/mature nature of the Gulf which 

precludes "elephant hunting", and the exit from the Gulf by the major corporations . A few 

people qualified their predictions by stating that the independent firms' share of activity on 

the shelf would be greater in 1998, but the major corporations' proportion of operations in 

deepwater would be greater than that of the independent businesses . 

The respondents answers concerning how changes in the two leasing policies - areawide 

leasing and the reduced minimum bid - influenced their companies' operations in the Gulf 

provided the same evidence for the idea that a shift in activity is occurring . This evidence 

can be summarized as follows: 1) the changes allowed independent companies to begin 

activities in the Gulf, 2) the new policies increased competition in the Gulf, and 3) the 

changes in the policies increased activity by independents in the Gulf. 

As demonstrated previously, three nonintegrated companies claimed that the change in one or 

both of these policies allowed their company to enter into Gulf extraction (two respondents 

said this about both and three said this about the reduction of the minimum bid) . One 

executive from a large nonintegrated concern stated, "We have been active in the Gulf only 

since 1990 . However, without areawide leasing, we would not have become active in the 

Gulf at all" and " . . .Without the lower minimum bid, the decision to become active in the 

Gulf would have been more difficult . " An officer from a small nonintegrated company, in 

answer to both questions, said, " . . .it has paved the way for us to enter the Gulf of 

Mexico . . ." . Other similar comments were : "Allowed us to compete, without this we couldn't 

exist" (large nonintegrated firm), "Enormously, this is what put us in business . This drives 

GOM activity" (small nonintegrated enterprise), and "Company began. . . " (small 

nonintegrated firm) . 
146 

In addition, several statements made by the respondents demonstrate that the changes in the 

leasing policies increased competition in the Gulf. At least six people stated either that these 

policies increase overall competition in the Gulf or that their independent firm was more able 

to compete as a result of these policies . For example, two representatives of major 

corporations responded that, "More companies are competing for properties. . . . . . and 

" . . .allowed more independents, thus more competition" . Executives of independent 

businesses made the following statements : "Allowed us to compete on more prospects - more 

competitive" (large integrated firm), " . . . More competitive . . . . .. (large nonintegrated 

business) and "Allowed us to compete, without this we couldn't exist" (large nonintegrated) . 

Moreover, these policies were credited by representatives of many independent companies 

with increasing their firms' activity in the Gulf. As shown earlier in the table about areawide 

leasing, four people from large integrated businesses stated that areawide leasing increased 

their activity, four respondents from large independent firms responded that areawide leasing 

increased their potential for finding oil and gas, and seven executives from independent 

concerns claimed that areawide leasing enabled them to get more leases . Also, as 

demonstrated above, three people from nonintegrated enterprises asserted that the reduced 

minimum bid increased their activity and eleven officials from independent endeavors 

declared that the reduced minimum bid increased their ability to make bids, get leases, and 

obtain more acreage . A member of a small nonintegrated firm stated that areawide leasing, 

"Caused significant growth for us" . Another executive declared that the reduced minimum 

bid, "Increased the number of bids by smaller independent companies" (large integrated 

firm) . Yet another official from a large nonintegrated business asserted that the reduced 

minimum bid, "It began more activity, decreased farmouts and increased our activity" . As 

further support that the changes in the leasing policies assisted independent companies in the 

Gulf, an official from a small integrated concern, in response to both policies said, "Helped 

independents" . 

Additional evidence for a shift from integrated corporations to nonintegrated companies 

comes from the cumulative weight of some of the comments . For example, one large 

integrated company is no longer involved in oil or gas exploration and production in the 

Gulf. Also, a representative of a small integrated business was interviewed, but did not 

answer the questions on the interview instrument . The reason for this was that the company 

no longer was involved in exploration or production in the Gulf, it was only engaged in 

marketing . Thus, the fact that some of the integrated businesses are only doing marketing 

and have foregone exploration and production further supports the idea that there is a shift in 

exploration and production activity away from the integrated firms (including major 

corporations) and toward the nonintegrated businesses . 

MAJOR FIRMS' COMMITMENT TO THE GULF 

Some of the results suggest that the major corporations are firmly committed to extraction in 

the Gulf. Part of this evidence concerns business characteristics and a portion pertains to the 

business environment. 
147 

Business Characteristics 

One factor discussed earlier in the section about business characteristics implies that the 

major corporations are currently committed to resource extraction in the Gulf, particularly 

gas . This finding is the following. Almost all of the major corporations, as well as the 

nonintegrated companies, obtained more gas from the Gulf in 1993 than in 1986 . The 

majority of the large integrated firms derived more gas in 1993, but a third of this group of 

businesses extracted less gas in 1993 . 

Business Environment 

Two issues presented in the section on the business environment hint that the major 

corporations examined in this study plan to stay in the Gulf in the near future : their use of 

new technology and their participation in joint ventures . First, regardless of the type of 

technology (3D seismic, deepwater projects, subsalt exploration, horizontal drilling), the 

majority of the major corporations either were already involved or currently planned to 

become involved with it . This statement could not be made for any of the four types of 

independent companies . The fact that nine of the eleven major companies either engaged in 

or planned to engage in subsalt exploration intimates that at least these nine companies will 

be in the Gulf in the near future . In addition, six of the eleven corporations were either 

involved in or were currently planning deepwater projects. Deepwater projects are a 

significant investment in the Gulf of both time and money and hence implies that these 

corporations have no plans to abandon the Gulf soon. In contrast, the majority of all four 

types of independent companies were not engaged in subsalt exploration, the bulk of the 

large and small integrated and small nonintegrated firms did not do horizontal drilling, and 

the largest number of the large nonintegrated businesses were not involved in or planning 

deepwater projects . 

Second, the major companies were the most involved in joint ventures in terms of both the 

number of these operations and the fact that all of the major corporations were participating 

in these projects . However, this participation in joint ventures might be a way for the major 

corporations to continue operating in the Gulf and reduce their commitment to extraction 

from the Gulf or it might be a way to increase operations in the Gulf. No questions were 

asked to ascertain why the companies took part in joint ventures ; thus the meaning of this 

participation is unknown. 

EVIDENCE THAT NEITHER SUPPORTS NOR IS AGAINST THE SHIFT 

It is impossible from the respondents' comments to predict how the four regulations would 

influence a shift in the players in the Gulf. Although the major corporations and integrated 

companies could continue operating in the Gulf if the financial responsibility provisions of 

OPA '90 were enforced as currently stated and if the increase in lease bonding to cover plugand-abandon liabilities was in effect, these regulations could put some of the nonintegrated 

firms out-of-business . As was discussed earlier, the evidence from this study suggests that 
148 

the shift has been not just from the major corporations to the independent enterprises, but 

from the major and integrated companies to the nonintegrated operators. Thus, these two 

regulations could prevent the shift from continuing or slow its pace. However, these two 

regulations do nothing to keep the major and integrated companies in the Gulf so, instead of 

influencing the shift, the two regulations could result in earlier abandonment of the Gulf on 

the part of all five types of companies. 

In addition, the Clean Water and Air Acts were of greatest concern for the major 

corporations and the large integrated companies. These two acts make the Gulf unattractive 

for all types of companies, but particularly these two . These two kinds of operators are those 

most capable of leaving the Gulf and the effect of these two acts may drive them to abandon 

the Gulf given the number of times that representatives of major and large integrated 

corporations stated that premature abandonment was a possible response to these acts . Thus, 

if all four acts are enforced together, who is left in the Gulf? That is the question implied by 

the overall reaction to these four acts . Therefore, it is impossible to predict, at this time, the 

effect of these four regulations on the shift in the Gulf. 

POTENTIAL IMPACTS OF THE SHIFT IN THE GULF 

The potential impacts to be discussed are due not only to the shift in the operators in the 

Gulf, but also to changes in the prices of oil and gas, the degradation of the pipelines and 

other aspects of the infrastructure, the increases in the costs of drilling, and various other 

factors . Three categories of potential impacts will be presented: 1) working conditions and 

employment, 2) operations and 3) government revenues. 

Working Conditions and Employment 

Changes in the numbers of injuries and fatalities are possible impacts of the shift in the Gulf. 

In chapter 2, table 2.5 demonstrated that, between 1986 and 1990, the independent firms 

reported twice as many fatalities and injuries as the major corporations, although the 

independent companies reported about half as many mishaps as the major corporations . In 

addition, table 2 .3 showed that the number of operators in the Gulf has been increasing since 

1983 . The present study found that 10 of the 12 companies that are probably new operators 

in the offshore Gulf were nonintegrated independent firms and one was an integrated 

independent business. Thus, as most of these new operators in the offshore Gulf are 

independent businesses, not major corporations, it is logical to expect that the number of 

injuries and fatalities, particularly injuries, will increase as the major corporations become 

less active in the Gulf and the independent enterprises become more active . However, to 

more accurately predict accidents, injuries and fatalities, it would be necessary to account for 

other factors such as the age of the equipment, the educational requirements of workers, and 

the amount of activity of the businesses . Independent firms often get properties started years 

ago by major corporations and thus they inherit older rigs and equipment which is more 

prone to accidents, injuries and fatalities than the new equipment being created in new 

properties of the major businesses, such as the new deepwater rigs . In addition, major firms 
149 

have higher educational requirements - i .e ., requiring a high school degree (Seydlitz et al . 

1995) . Collecting data on these factors to calculate projections of accidents, injuries and 

fatalities was beyond the scope of this study . 

Employment may also be influenced by the shift in the operators in the Gulf. Small 

percentage decreases in the numbers of employees by the major firms may not be offset by 

large percentage increases by the independent businesses, especially the nonintegrated 

companies which have the smallest numbers of employees . (Note, the present study found 

that integrated firms, not just major corporations, were becoming less committed to oil and 

gas exploration and production in the Gulf. The shift in activity was from integrated firms to 

nonintegrated ones .) A comparison of the statistics concerning the total numbers of 

employees in each of the five types of enterprises demonstrates this point. The mean number 

of workers employed by major operators was almost three times larger than that for the 

largest mean of the independent firms - the large integrated ones . This mean also was 14.5 

times that of the large nonintegrated companies and was 27 times larger than the mean for 

the smallest employers - the small nonintegrated ones (see table 4 .11). The largest major 

corporation employed almost four times more people than did the largest independent firm, 

23 .6 times more workers than the largest nonintegrated independent, and 32 times more 

workers than did the largest small nonintegrated company. In addition, the smallest major 

firm had almost as many people as did the largest small nonintegrated business . Thus, the 

increase in number of operators does not mean that there will be an increase in employees in 

the offshore Gulf. Moreover, the jobs themselves may vary in their benefits such as 

retirement, their working conditions, their salaries and educational requirements . Thus, 

reductions in the number of employees in major corporations could mean the loss of better 

positions for more qualified workers; therefore, such reductions cannot be offset by an 

increase in hiring by independent firms. 

It is also possible that, although there is a change in the companies operating in the Gulf, 

there may be less of a change in the actual people working in exploration and production in 

the offshore Gulf. It is feasible that people who were laid off by major corporations have 

started their own exploration and production firms or service businesses or have obtained 

employment in independent exploration and production companies and existing service firms. 

Operations 

Operations in the Gulf might also be influenced by the shift in the companies involved in 

offshore extraction. Although the major corporations' share of production in the Gulf did not 

decline much between 1987 and 1991 (Dodson and LeBlanc 1993), there is no guarantee that 

there will not be a decline in overall production in the future . Major corporations have 

become less involved in exploration and development as compared to independent firms as 

shown by the decrease in their portion of the exploratory wells (40 percent in 1987 to 21 

percent in 1991) and the developmental wells (63 percent in 1987 to 49 percent in 1991) . As 

occurred with employment, a small percentage decrease in production by major corporations 

might not be offset by a large percentage increase by independent firms, especially not 
150 

nonintegrated ones which are the group of firms that the current study found to be more 

aggressively involved in the Gulf. The results of the present study showed that the major 

company that extracted the most oil extracted 277 times more oil than did the independent 

business that got the most oil in 1993 and 318 times more than the nonintegrated independent 

enterprise that derived the most oil . In addition, the major corporation that extracted the most 

gas obtained 5 .5 times more gas than did the independent firm that extracted the most gas, 

6 .5 times more gas than the nonintegrated independent company that collected the most gas, 

and 18.2 times more gas than the small nonintegrated business that derived the most gas . 

Further, the major business that obtained the least gas still extracted 1 .11 times more gas 

than did the small nonintegrated firm that obtained the most gas . Therefore, a small 

percentage decrease in production by the major corporations may not be offset by a large 

percentage increase in production by independent companies, especially not nonintegrated 

ones . The decrease in the major corporations' share of the exploratory and developmental 

wells presented above may begin to be evident in an overall reduction in production from the 

Gulf, especially since the number of executives from major corporations interviewed in the 

present study that stated that their companies had decreased exploration activities was equal 

to those that declared that their firms had increased these activities . 

If major corporations are at least the catalysts, if not the developers, of new technology in 

the Gulf, then a decline in interest in the Gulf by major companies could result in a decrease 

in new technology or an elongation in the time between technological developments . A 

comparison of the number of people involved in research and development in the Gulf 

demonstrates this point. In 1994, only major corporations and large integrated independents 

had any employees assigned to research and development in the offshore Gulf of Mexico . 

Moreover, five representatives from major corporations reported that the number of 

employees in research and development in the Gulf had decreased since 1986 and five stated 

that the number had remained the same. In addition, most of the firms in each of the four 

categories of independent companies had no research and development funds for the Gulf in 

1993 whereas most of the major businesses did have some money in these funds . The 

medians of research and development dollars for each of the four types of independent 

enterprises were 0 while the median for the major corporations was $237,500. The major 

corporation with the largest research and development fund had a fund that was over two 

times larger than that of the independent firm with the largest such fund - a large 

nonintegrated business . None of the small nonintegrated companies had any dollars assigned 

for research and development in the Gulf. Therefore, the impact on resources for research 

and development in the Gulf due to reduced interest in the Gulf on the part of the major 

businesses cannot be offset by an increase in involvement by independent businesses . 

Government Revenues 

If there is an overall decline in exploration and production in the offshore Gulf, despite an 

increase in such operations by nonintegrated firms, then government revenues might also 

decline. The Gulf of Mexico is the main site of OCS extraction of oil in the United States 

and the world . More than 90 percent of the petroleum extracted from the OCS comes from 
151 

the Gulf of Mexico (Brewer et al . 1992) . A proportionally small reduction in activity in the 

Gulf may not be offset by a proportionally large increase in activity elsewhere on the OCS of 

the United States and this could have a significant impact on government revenues because, 

between 1979 and 1984, the money collected through the Minerals Management Service from 

the offshore petroleum and gas industry was second only to the Internal Revenue Service as 

an official source of revenue for the federal government (Louisiana Department of Natural 

Resources 1991 ; Simmons 1993) . 
153 

GLOSSARY 

This set of definitions contains at least two distinct subsets : strict or legal and operational or 

functional. The source for the former includes various legislative acts, court cases, and/or 

administrative regulations . The source for the latter includes practice and is derived in part 

from Williams and Meyers (1991) . However, there will be times when a term is either 

ambiguous or its meaning is still evolving. In such a case it will be necessary to include 

definitions from many sources. The purpose of these definitions is provide a basic set of 

commonly used terms that will be necessary to understand the various writings, whether that 

be legal and trade journals or Congressional Acts, associated with the oil and gas industry . 

Act of God means an "unanticipated grave natural disaster or other natural phenomenon of 

exceptional, inevitable, and irresistible character the effects of which could not have been 

prevented or avoided by the exercise of due care or foresight" (33 United States Code 

Annotated 2701 .1) . 

Barrel means "42 United States gallons at 60 degrees fahrenheit" (33 United States Code 

Annotated 2701 .2) . 

Blow out means "a sudden, violent expulsion of oil, gas and mud (and sometimes water) 

from a drilling well, followed by an uncontrolled flow from the well" (Williams and Meyers 

1991, p.111) . 

Bonus refers to the cash consideration paid by the lessee for the execution of an oil and gas 

lease by a landowner, in this case the United States administered by Minerals Management 

Service, and is usually figured on a per acre basis . "Lease bonuses are rights to payment 

unrelated to production or the extraction of oil; they do not qualify for depletions ; they are 

not an economic interest in property for purposes of federal income tax law" (723 F. Supp at 

375) . 

Deenwater activity is a relative term that may refer to drilling that takes place in water 

greater than 600 feet . According to Times-Picayune Energy Editor Mary Judice (1994a) it is 

drilling that occurs in water deeper than 1000 feet . 

Discharge means "any emission (other than natural seepage), intentional or unintentional, and 

includes, but is not limited to, spilling, leaking, pumping, pouring, emitting, emptying, or 

dumping" (33 United States Code Annotated 2701 .7) . 

Facility means "any structure, group of structures, equipment, or device (other than a vessel) 

which is used for one or more of the following purposes: exploring for, drilling for, 

producing, storing, handling, transferring, processing, or transporting oil . " This term 

includes any motor vehicle, rolling stock, or pipeline used for one or more of these purposes 

(33 United States Code Annotated 2701 .9) . 
154 

Horizontal drilling means any "experimental natural gas production process whereby a well is 

drilled horizontally, rather than vertically, to penetrate a gas bearing formation" (Williams 

and Meyers 1991, p.567) . A topical report by the Gas Research Institute goes into much 

depth about horizontal drilling . 

Independent oil companies may be easy to identify by simply juxtaposing them with the 

majors . Or, an independent can be seen as "a company that is relatively small and 

unintegrated" (Williams and Meyers 1991, p. 589) . But, such a distinction does not give the 

precision needed to better analyze those operators in the Gulf of Mexico (GOM). 

Joint adventure (or venture) means "an association of persons for the prosecution of a single 

venture" (Williams and Meyers 1991, p.619) . 

Major oil company is that type of company integrated to a substantial degree . For a 

company to be integrated, it must be engaged in all phases of the oil industry . In Saturn Oil 

& Gas Co . v . Federal Power Comm'n, 250 F.2d 61, those phases were outlined as 

"exploration, production, transportation, manufacturing and refining, and retailing ." Many 

of the journalistic expose works generally limit the number of majors to the following: 

Exxon, Shell, BP, Gulf, Texaco, Mobil, and Chevron (Yergin 1991) . However, a recent 

survey and analysis of the industry by Salomon Brothers put the number closer to twenty 

than seven. This was based on level of exploration and production expenditures, number of 

employees, and the amount of reserves and assets . 

Mobile offshore drilling means "a vessel (other than a self-elevating lift vessel) capable 

of use as an offshore facility" (33 United States Code Annotated 2701 .18) . 

National Continizency Plan means "the [Plan] prepared and published and as amended by [the 

Oil Pollution Act of 1990], or revised under section 105 of the Comprehensive 

Environmental Response, Compensation, and Liability Act, also known as 'Superfund"' (42 

U.S .C . 9605) . 

Natural was means "hydrocarbons which at atmospheric conditions of temperature and 

pressure are in a gaseous phase" (Williams and Meyers 1991, p.745) . 

Natural resources includes "land, fish, wildlife, biota, air, water, ground water, drinking 

water supplies, and other such resources belonging to, managed by, held in trust by, 

appertaining to, or otherwise controlled by the United States (including the resources of the 

exclusive economic zone), any State or local government or Indian tribe, or any foreign 

government" (33 United States Code Annotated 2701 .20) . 

Navigable waters means "the waters of the United States, including the territorial sea" (33 

United States Code Annotated 2701 .21) . 
155 

Offshore facility means "any facility of any kind in, in, on, or under any of the navigable 

waters of the United States, and any facility of any kind which is subject to the jurisdiction 

of the United States and is located in, on, or under any other waters, other than a vessel or a 

public vessel" (33 United States Code Annotated 2701 .22) . 

Oil means "oil of any kind or in any form, including, but not limited to, petroleum, fuel oil, 

sludge, oil refuse, and oil mixed with wastes other than dredged spoil" (33 United States 

Code Annotated 2701 .23) . For tax purposes, oil may sometimes include natural gas as 

established by the Oil Taxation Act 1975 . Oil does not include "petroleum, including crude 

oil or fraction thereof, which is specifically listed or designed as a hazardous substance under 

subparagraphs (A) through (F) of section 101(14) of the Comprehensive Environmental 

Response, Compensation, and Liability Act" (42 United States Code Annotated 9601 et 

sqq.) . 

Operation means "the activity leading to the production of oil and gas" (Williams and Meyers 

1991, p.841) . In Amoco Production Co. v . Sea Robin Pipeline Co . the court concluded that 

"operation," as used in the Outer Continental Shelf Lands Act, refers to the doing of some 

physical act (844 F.2d 1202 at 1207). 

Outer Continental Shelf facility means "an offshore facility which is located, in whole or in 

part, on the Outer Continental Shelf (OCS) and is or was used for one or more of the 

following purposes: exploring for, drilling for, producing, storing, handling, transferring, 

processing, or transporting oil produced from the OCS" (33 United States Code Annotated 

2701 .25) . 

Owner or operator means "(a) in the case of a vessel, any person owning, operating, or 

chartering by demise, the vessel, and (b) in the case of an offshore facility, any person 

owning or operating such a facility, and (c) in the case of any abandoned offshore facility, 

the person who owned or operated such facility immediately prior to such abandonment" (33 

United States Code Annotated 2701 .26). 

Person means "any individual, corporation, partnership, association, State, municipality, 

commission, or political subdivision of a State, or any interstate body" (33 United States 

Code Annotated 2701 .27) . 

Plug and abandon (or P & A) is the "placing of a plug in a dry hole, then abandoning the 

well" (Williams and Meyers 1991, p .871) . Plugging was defined in a jury instruction in 

Salmon Corp. v. Forest Oil Corp . as "closing a wellbore in such a manner as to prevent the 

migration of oil, gas, salt water, or other substance, from one stratum to another" (536 P.2d 

909 at 911) . Mary Judice (1994c) Energy Editor for the Times-Picayune discusses the 

growing business of removing platforms and other P & A costs . 

Removal costs means "the costs of removal that are incurred after a discharge of oil has 

occurred or, in any case in which there is a substantial threat of a discharge of oil, the costs 
156 

to prevent, minimize, or mitigate oil pollution from such an incident" (33 United States Code 

Annotated 2701 .31) . 

Rent is "the yearly amount paid to hold a lease when no production has occurred" (Simmons 

1993, p.4). 

Royal1X means "the landowner's share of production, free of expenses of production, 

although it is subject to costs incurred after production, such as transportation costs" 

(Williams and Meyers 1991, pp . 1087-8) . The federal courts in U.S. v. 525 Co. said that 

"royalty" does not include oil payments (342 F.2d 759) . The royalties, rents, and bonuses 

are the three types of OCS revenues collected by MMS and during the high production years 

(1979-1984) were the second largest source, after Federal taxes, of income to the Federal 

government (Simmons 1993, p.4). 

Subsalt refers to a relatively new play on the OCS where oil is trapped between a rock and 

salt formation. Through the use of high powered computers and 3-D seismic technology, 

which collects a series of sound waves, sub-salt has become the focus of much attention in 

the GOM as reported by Times-Picayune Energy Editor Mary Judice (1993) . For a more 

detailed analysis of sub-salt plays, 3-D, and leasing trends on the GOM see Tipple and Koen 

(1994) . 
157 

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159 

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160 

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and Schuster . 
163 

APPENDIX A 

SUMMARY OF FINDINGS FROM EXPLORATORY INTERVIEWS 

Bergman & Hammer, Ltd., April 5, 1994 

Bergman & Hammer conducted eighteen interviews with industry participants in Houston, 

New Orleans, Lafayette and Washington. The persons contacted were representatives of 

major oil companies, independent companies, oil service companies and industry 

associations . The interviews were open-ended in nature and were not designed to provide a 

scientific sample of opinions and company characteristics . 

NATURE OF THE INDUSTRY 

The overall history of the Gulf OCS oil and gas industry is widely familiar . Exploration and 

production (E&P) activity in the Gulf was traditionally dominated by major oil companies . 

Independent companies gained a foothold during the boom of the 1970s and then began to 

displace the majors during the 1980s. The net shift of activity from majors to independents 

accelerated after the price collapse of 1986, which initiated a general decline in exploration 

effort and total employment (while production held fairly constant) . By the early 1990s, 

independent companies were dominating offshore exploration and threatening to take the lead 

in production . Ongoing sales of assets by the majors suggested that they were pulling out of 

the Gulf, presumably because of better opportunities in other parts of the world . 

These events can be misinterpreted without a recognition that the restructuring of the Gulf oil 

and gas industry involved much more than transfers of activity between majors and 

independents . The entire industry was forcibly streamlined to survive an era of low oil and 

gas prices . For the majors, the adjustment involved asset rationalization and internal 

reorganization; for the independents it involved a selection process based on financial 

strength, technical competence and entrepreneurial skill. The outcome was a much more 

efficient industry with many different kinds of companies occupying many different niches . 

The majors emerged with a reduced presence but a firm hold on their core areas of activity . 

Their share of the offshore industry may decline further if price rises are insufficient to 

support large-scale replacement of reserves, but the majors as a group remain committed to 

the Gulf. 

The distinction between major and independent companies fails to capture many aspects of 

the present industry structure . A further categorization is probably needed (although none is 

offered here). The primary gainers in the offshore industry have been companies that one 

observer describes as "a whole new breed of big independents." These companies resemble 

majors in terms of capability but independents in terms of organization and staffing . Their 

existence illustrates the need for a multidimensional industry categorization . The important 

variables include not only production, reserves and downstream integration but also in-house 

staff capabilities, E&P strategies, sources of capital and operating versus nonoperating status . 
164 

The present mix of independent companies in the Gulf OCS can be viewed from two 

perspectives . On one hand, the great bulk of E&P activity involves companies of substantial 

size, i.e ., organizations that invest tens or hundreds of millions of dollars per year. On the 

other hand, even the smallest companies play an essential role because they establish and 

recover reserves that otherwise might not contribute to the nation's energy supply . 

Many of the most important trends in the Gulf OCS have involved oil service companies . 

(Here "service companies" include contractors of all kinds plus suppliers of oilfield 

equipment and materials.) The emergence of independent oil producers in the Gulf was 

generally positive for the oil service sector because independents were more likely than 

majors to rely on contract services. By the mid-1980s, the oil service sector accounted for 

about two-thirds of all direct offshore employment, or roughly 100,000 jobs . The largest 

categories were contract labor, field services, air and water transportation, development 

drilling, exploratory drilling and platform fabrication. There were diverse and often highly 

specialized companies in geological, geophysical and engineering fields ; in the supply of 

equipment and materials like drilling muds and bits ; in construction-related areas such as 

diving and pipeline installation ; and in oilfield specialties like well logging, completion and 

workover. 

The oil price collapse of 1986 created a wrenching period of transition and consolidation in 

the service sector . The employment losses, bankruptcies and financial repercussions of the 

price decline involved service companies to a greater extent than exploration and production 

companies . The present service sector is more efficient than its predecessor and better able 

to supply services on a coordinated basis, but may be less than optimally competitive due to 

over-concentration in some areas. 

REPOSITIONING OF MAJOR OIL COMPANIES 

All of the major oil company representatives contacted for this review emphasized that the 

Gulf of Mexico OCS was still strategic for their companies . Pulling entirely out of the Gulf 

was not an option for most majors (although Tenneco did so) . Instead, the majors have tried 

to increase their return on investment in the Gulf through three general types of adjustment: 

1) asset rationalization; 2) corporate restructuring ; and 3) streamlining and destaffing of 

operations . Many of their efforts resemble cost-cutting programs in other sectors of the U.S . 

economy . 

Asset Rationalization 

Major oil companies in the Gulf have sought to reposition themselves by divesting 

nonstrategic properties and focusing upon core areas of activity . This process is called asset 

rationalization or portfolio management. Divestments tend to involve properties at both ends 

of the production life cycle, i .e ., undeveloped properties that are unpromising or more 

valuable to somebody else, and producing properties that are declining or in need of 

workover. Emphasis is often placed on clustering properties geographically to attain an 
165 

efficient scale of operation. Infrastructure is sometimes a key factor in determining which 

properties are strategic. Asset rationalization includes acquisition as well as divestment of 

properties, although the latter effect has tended to predominate . Most of the properties 

acquired are undeveloped tracts . Some acquisitions have been achieved by exchanges of 

interest between companies . While asset rationalization has generally worked to reduce the 

presence of the majors in the Gulf, the overall effect of this process may be stimulative. For 

example, one major company has divested half of its Gulf OCS properties since 1991, yet 

has maintained 98 percent of its Gulf production . In all likelihood, the divestment has 

shifted properties to companies with more interest in developing them quickly. 

Corporate Restructuring 

Major oil companies have attempted to improve efficiency and accountability by changes in 

management structure, reporting relationships and geographic positioning. The corporate 

divisions responsible for E&P in specific basins such as the Gulf of Mexico OCS have 

always had considerable autonomy. Recent changes have tended to increase divisional 

autonomy through mechanisms such as the creation of profit centers . In at least one case, 

regional entities have been spun off as separate corporations . Meanwhile there have been 

efforts to consolidate management and technical functions within divisions (as discussed 

later) . The objective is often to arrive at fewer divisions with greater centralization of 

personnel and more power to make and implement decisions . 

Streamlining and Destaffing of Operations 

Observers of the Gulf offshore industry tend to describe the major oil companies collectively 

as high-cost producers with excess staff. This condition developed through corporate inertia 

and the up-and-down history of petroleum prices . In the words of one company 

representative, "the industry got staffed for $75 oil, then $25 oil, then $18 oil - but now 

we're selling it at $14 . " Boosting productivity and reducing staff have thus become ongoing 

priorities . Many companies have initiated formal programs that involve review of all 

activities and adoption of management approaches from other industries (e.g ., synchronous 

production and Deming methods). Some majors are even benchmarking their operations 

against independent companies . Streamlining programs are barely underway in some 

companies and more or less completed in others . 

The major oil companies have traditionally been called "elephant hunters. " That is, they 

sought to discover and develop large fields and were uninterested in small finds. (One of the 

majors reportedly had a threshhold of 50 million BOE and would divest fields with reserves 

below this level .) Some of the recent restructuring and streamlining efforts have been 

intended to reduce the size of reservoirs that companies can recover economically. The 

ability of at least some majors to address small fields has been increased through general 

cost-cutting measures, technical innovations and improved project planning . For example, 

companies now utilize advances in drilling, well completion and platform operation to 

combine reserves and spread the cost of facilities . One major claims to have eliminated any 
166 

lower limit on reservoir size . Still, the majors clearly have a stronger overall orientation 

than the independents toward large fields and high-volume production . 

A significant question involving corporate structure is the linkage between operations in the 

Gulf of Mexico and operations overseas . A common perception is that the majors reduced 

their presence in the Gulf after 1986 because better opportunities emerged in other parts of 

the world. This would imply that oil companies allocate investment funds in a competitive, 

either/or fashion. It is true that the operating divisions of most companies must vie with one 

another for capital even when they have great autonomy in other respects. However, the 

competition is not zero-sum, so the trade-offs should not be exaggerated. The majors 

retrenched in the Gulf primarily because their returns on investment there were low. The 

costs and uncertainties of environmental regulation were negative for the Gulf, but other 

circumstances were negative elsewhere (such as the fact that payments to foreign 

governments could take away much of a project's upside) . Decisions probably turned less 

upon comparisons of such factors than upon absolute levels of profitability . Thus, a return 

to positive expectations in the Gulf would probably stimulate activity there regardless of 

opportunities in the rest of the world . 

CHARACTERISTICS OF INDEPENDENTS 

As a group, the independent oil and gas companies operating in the Gulf of Mexico OCS are 

lean, efficient and opportunistic. Their investments in offshore projects can well exceed $1 

million per year per employee . One company that ranks among the top 25 gas producers in 

the Gulf employs only 35 people . The independents maintain technical staffs to support 

decision-making, but tend to contract out activities that require large numbers of people . 

Their employment depends upon the relative use of in-house personnel for data 

interpretation, geological/geophysical work, process supervision and facility design . Some of 

the larger companies manage all processes internally and feel they have all the capabilities 

the majors do. 

The independents vary greatly in scale and orientation. The largest are capable of handling 

all but the biggest projects (such as billion-dollar deepwater ventures), while the smallest 

operate in very limited arenas . Specialization of activity is encouraged by the nature of the 

E&P life cycle and the variation in environments and resources confronted . Many 

independents concentrate on acquiring, rehabilitating and operating mature properties . 

Others emphasize the front end of the E&P process, and a few try to establish and sell 

reserves without involvement in production . (The last option is currently minor but may 

increase in response to environmental regulations .) There are also plug-and-abandon 

companies that gain access to reserves by taking on responsibility for well abandonment. A 

company's orientation is likely to be shaped by size, capabilities, experience and other 

factors like capital access . For example, access to trust fund and pension fund capital may 

encourage an emphasis on farm-outs because institutional investors favor producing 

properties. 
167 

The future prospects of the Gulf offshore industry cannot be assessed without an 

understanding of how and why the independent companies came to assume such an important 

role . A common view is simply that the majors shifted their attention elsewhere and the 

independents moved in to fill the resulting vacuum. As already suggested, this view is 

somewhat misleading because the majors were driven as much by low profitability in the 

Gulf as by new opportunities in other countries. Also, the majors would not have divested 

Gulf assets so readily if the independents had not wanted to buy them. A key part of the 

explanation is that conditions emerged in which the majors could not operate as profitably as 

other types of companies. 

The normal pattern for a hydrocarbon-producing basin is a progressive decline in the size of 

fields discovered. The Gulf of Mexico OCS has generally followed this pattern. The fields 

discovered in 1980 through 1989 had average reserves only about one-tenth as great as the 

average for fields discovered before 1960 (although the number of new fields increased 

substantially) . The relatively short lives of offshore wells meant that the production rates of 

many wells were declining as the Gulf basin entered maturity . The major oil companies 

were organized and staffed for large finds and high-volume production. Hence there was 

room for companies that could address small reserves economically . After the independents 

became established, some expanded their capabilities and became competitive with the majors 

across a wide range of activity . 

Three factors abetted the entry of independent companies into the offshore industry . First, 

the independents gained increasing access to first-line technology, which had been largely 

monopolized by the majors prior to 1980. The spread of technology was linked in part to the 

evolution of the contracting sector and its recruitment of experts from major companies. 

Second, the independents benefitted from the progressive development of offshore 

infrastructure (e .g ., the pipeline network), which reduced the cost of establishing production 

facilities . And third, exploration activity by the independents was greatly encouraged by 

changes in MMS leasing policies, namely the shift from nominated leasing to areawide 

leasing in 1983 and the reduction of the minimum bid to $25 per acre in 1987 . These 

changes allowed companies to pursue opportunities with a reasonable assurance that tracts of 

interest could be secured at a moderate cost. 

The trend toward smaller finds and declining production from existing wells may continue to 

promote transfers of Gulf activity from majors to independents . This outcome is uncertain 

because the majors may be able to develop large fields in frontier areas. As discussed 

below, technical advances can modify the trend of discoveries in the Gulf if product prices 

are high enough to support expensive, high-risk exploration and development. In any case, it 

seems unlikely that assets and activity will shift from majors to independents as rapidly in the 

future as in the recent past . The pattern over the past ten years was shaped by factors that 

were essentially one-time events, namely the repositioning of majors and the removal of 

limitations on the role of independents . Future changes are likely to be evolutionary rather 

than revolutionary in the absence of new destabilizing forces . 
168 

A net shift of activity away from independent companies is possible . This outcome could be 

produced by either of two circumstances : a return to nominated leasing in the Gulf, which 

would reduce offshore exploration by independents ; and an unmodified application of the 

OPA 90 financial responsibility provisions, which would prevent many independents from 

operating offshore facilities . The result in either case would be an overall contraction of the 

industry rather than a displacement of independents by majors. 

PRESENT AND FUTURE DIFFERENCES BETWEEN 

MAJORS AND INDEPENDENTS 

Reports of restructuring and cost-cutting by the majors would suggest that the majors and 

independents are becoming more alike. The following comments address the present degree 

of similarity and the prospects for an eventual convergence of characteristics. 

With regard to cost, representatives of independent companies feel that "there's still a big 

difference" between majors and independents . One of the persons interviewed gave some 

evidence from his company's experience as both an operating and nonoperating gas producer. 

The average lift cost for the company's operating properties was 20 cents per tcf. The 

average for properties operated by others - primarily majors - was 40 cents per tcf. A 

representative of another independent cited a benchmarking study by an accounting firm. His 

company was judged to be compatible in terms of operating cost with one of the smaller 

majors, yet the major had about fifty people performing functions that his company 

accomplished with fifteen. These comparisons may overstate the general level of variation 

(since they involve two of the most efficient independents), but are nevertheless striking. 

Representatives of independent companies tend to feel that the overall cost difference 

involves contracting as well as internal staffing . The majors are still considered less costconscious than independents in the design and execution of drilling programs and the 

procurement of supplies . 

The majors may or may not be moving toward the independents in the use of contractors . 

Both groups of companies have been exploring new types of contractor relationships - such 

as turnkey arrangements, business alliances and lead contractors - to gain efficiency and 

control. Possibly the majors are increasing their overall reliance on contractors somewhat . 

However, the interview responses did not stress this trend or reveal instances in which major 

companies had outsourced whole functions (as done by many big firms in other industries) . 

One major was reportedly pulling more activities in-house rather than the reverse . Thus, the 

majors' tendency to rely less on contracting than independents seems to be a persistent 

difference . 

The independents feel that they are more nimble and flexible than the majors in making 

decisions and implementing projects. All accounts suggest that this difference remains 

significant, although its magnitude may be exaggerated . Part of the explanation is simply 

corporate size . One observer at an independent company compared the majors' decisionmaking with "turning a battleship," because so many people and procedures were involved . 
169 

He cited a case in which a major required fifteen months to lay off workers in response to 

low gas prices, by which time prices had doubled. Another independent company executive 

linked the majors' inflexibility to corporate pride, which retarded various kinds of 

adjustments (for example, causing the majors to "stick with in-house models for too long") . 

The managers of independent companies must be considered credible observers because many 

of them once worked for the majors . On the other hand, some of their observations may be 

losing relevance as the majors move forward with restructuring programs . 

The majors and independents seem to be converging in some aspects of asset management 

and resource orientation. Attempts by majors to rationalize their holdings may have raised 

their interest in acquiring producing properties (although the majors remain less likely than 

independents to carry properties through the late stages of production) . As noted above, 

some majors are becoming more willing to develop relatively small fields . Meanwhile, the 

larger independents are gradually approaching the majors in ability to undertake high cost, 

high-risk projects . In the past the majors were responsible for nearly all E&P in water 

depths exceeding 1,200 feet, but some independents are now entering deepwater ventures . 

One of these companies expects deepwater E&P to account for 25 percent of its future 

offshore spending . Independents have also become involved in subsalt exploration. 

Typically, independents undertake new types of E&P in partnership with majors, then gain 

more and more ability to pursue ventures on their own. 

The majors have some persistent financial advantages over the independents that offset at 

least part of the variation in operating cost. Downstream integration is a stabilizing factor 

because the profitability of oil and gas refining bears an inverse relationship with returns 

from E&P. (Low petroleum prices reduce the cost of refinery feedstock more than the 

market value of refinery products .) This still gives the majors an advantage over 

nonintegrated independents despite losses of refining capacity due to obsolescence and 

environmental regulations . The majors also retain an edge in access to capital. The stronger 

independents can fund most types of E&P projects but lack the majors' financial capability 

for long-term investments and massive ventures . 

The interviews for this survey have failed to support the hypothesis that shifts of Gulf 

offshore activity from majors to independents have been linked to different attitudes toward 

risk . The hypothesis is that mergers and rising indebtedness during the 1980s made the 

major oil companies risk-averse and short-term in orientation (characteristics that have been 

attributed to U.S . corporations generally) . While far from conclusive, the interview findings 

suggest that risk-taking behavior does not vary systematically between majors and 

independents, or between the majors now and the majors of old. The oil and gas business is 

a game of chance, and its players at all levels routinely address risks that would create 

general panic in other industries . 

A reasonable hypothesis for the future is that the majors and independents in the Gulf OCS 

will continue to draw closer in operating characteristics, but will stay significantly different. 

Most of the majors will remain elephant-hunters by virtue of their scale and operating style . 
170 

They are not likely to change in ways that could undermine this role. Although their ability 

to pursue a variety of targets will become increasingly important, the critical issues for the 

majors will remain the supply of large fields and the returns obtainable from developing 

them . 

CAUSES OF EMPLOYMENT DECLINES 

Net employment losses occurred throughout the U.S. petroleum industry after the oil price 

collapse of 1986 . The decline from the mid-1980s to 1994 was nearly half a million jobs . 

The Gulf of Mexico OCS participated in this trend, although to a lesser extent than many 

onshore regions . 

A distinction should be drawn between job losses due to decreases in E&P activity and job 

losses due to gains in operating efficiency. In the Gulf OCS, efficiency gains may have been 

as important as activity reductions to the overall employment decline. Reductions in 

exploration and development activity were clearly the dominant influence in the immediate 

aftermath of the 1986 price drop, but became less important in later years. Meanwhile the 

offshore industry was achieving dramatic gains in efficiency . These gains resulted partly 

from technological changes and partly from corporate adjustments to low oil and gas prices . 

Based on the industry interviews, the following factors have been the primary negative 

influences on offshore-related employment over the past five years . 

1) Downsizing and restructuring efforts by major oil companies. As already noted, the cost 

differences between majors and independents largely involve staffing . Recent cost-cutting 

efforts by the majors have yielded employment reductions on the Gulf coast through buyouts, 

layoffs and redeployments of personnel. Some of these efforts are far advanced and some 

are relatively new, with the majors generally lagging behind other industry participants in 

this regard . ("They're facing now what we went through eight years ago," said one oil 

service company representative .) Streamlining efforts by the majors may currently be the 

largest single negative influence on OCS employment. 

2) Shifts of activity from majors to independents. Greater use of contracting accounts for 

only part of the overall difference between majors and independents in staffing relative to 

production. Consequently, shifts of productive assets from majors to independents tend to 

reduce industry employment even if activity levels are unchanged . This factor is still 

contributing to Gulf coast trends, but may not be as important numerically as it was several 

years ago. 

3) Restructuring of the oil service sector . A majority of the upstream workers who lost their 

jobs after the price crash were employees of oil service companies (including oilfield supply) . 

Many of the smaller service companies and most of the "Mom and Pop" operations went out 

of business . Other companies went through mergers, acquisitions, selloffs and other 

convolutions . The result was an extremely rapid and pronounced industry consolidation, 

continuing well into the 1990s. The oil service sector is now dominated by broad-spectrum 
171 

drilling, construction and equipment companies that are undoubtedly more efficient and less 

labor-intensive than their predecessors . 

4) Technological change in ploration and development. The expected pattern in a mature 

hydrocarbon-producing region is a progressive increase in the exploration effort required for 

each incremental reserve addition . Some data sources show such a pattern for the Gulf of 

Mexico .' Other sources suggest, however, that this pattern has been offset by technological 

advances . An API study claims that the cost of offshore drilling in dollars per BOE 

decreased by 12% per year during 1985-90 (for exploratory plus development drilling), due 

largely to sharp increases in the average reserve addition per foot of successful drilling .2 

This cost decline would largely predate the positive influence of 3D seismic evaluation on 

success and recovery rates . Whatever the absolute magnitudes, technological change has 

clearly reduced drilling employment relative to what would otherwise be required for any 

given reserve additions. 

5) Technological change in production . Innovations in platform operation and other aspects 

of OCS production have had large negative effects on employment. As an example, remote 

operation of platforms has progressed to the point at which some companies maintain 

personnel on a minority - as few as 10 percent - of the platforms that they operate . 

These influences on offshore-related employment are expected to continue rather than 

reverse . Some observers have described the offshore industry prior to 1986 as "fat ." There 

is no reason to expect a return to this condition unless oil and gas prices escalate very 

rapidly . The general level of competition among oil and gas companies is probably 

increasing due to the rising presence and capability of the larger independents . Pressures to 

increase efficiency will therefore continue. Over-concentration may inhibit competition in 

some areas of the oil service sector, but this should not have a major bearing on 

employment. Thus, future changes in OCS-related employment should generally track 

changes in activity levels, except that there will be ongoing deductions due to productivity 

gains and perhaps further transfers of activity to independents . 

GEOGRAPHIC SHIFTS IN OFFSHORE-RELATED EMPLOYMENT 

The contraction in the Gulf oil and gas industry since 1986 has involved a net shift of OCSrelated activity from coastal areas to Houston. The smaller oil-dependent communities along 

the Gulf coast have been hardest hit, but the shift has also affected metropolitan areas like 

' Lore, G. 1992. Exploration and discoveries, 1947-1989 : An historical perspective, 

Gulf of Mexico OCS. OCS Report MMS 91-0078. U.S . Dept. of the Interior, Minerals 

Mgmt. Service, Gulf of Mexico OCS Region, New Orleans, LA. 87pp . 

z Porter, E.D . 1992. U.S . Petroleum Supply : History, Prospects and Policy 

Implications . American Petroleum Institute (Research Study #064), August. 
172 

New Orleans and Lafayette. A significant question is whether a rebound of Gulf E&P 

activity or some other set of circumstances might create a net transfer of jobs back toward 

the coast . The following paragraphs address this question by describing the factors 

responsible for the past geographic trend, based on the interviews with industry participants . 

The subject is the geographic realignment occurring over and above the general contraction 

in OCS-related employment. 

During the past ten years there has been a general trend toward centralization of oil company 

operations . This trend has strongly favored Houston because it is the focus of the world oil 

and gas industry and the predominant location of industry support services. Centralization 

has been encouraged by improvements in communication that allow oilfields to be operated 

from greater distances. Another factor is the escalating complexity of E&P technology, 

which has increased the advantages of pooling specialized talent at central locations . Shifts 

of personnel have often been accompanied by new working arrangements such as more 

horizontal management structure and greater reliance on team problem-solving approaches. 

The centralization trend has been moderated for major oil companies by the fact that their 

scale can support the continued operation of regional offices . This means that consolidation 

and downsizing of functions can often be achieved without leaving the Gulf coast . (For 

example, one major recently combined three coastal offices into one without reducing total 

employment substantially.) The oil and gas companies most likely to shift OCS-related 

employment to Houston have been the larger independents that operate in onshore areas 

and/or foreign countries . For such companies, Houston tends strongly to be the most logical 

point for consolidating technical and management functions. 

Oil company consolidation has been almost uniformly negative for communities smaller than 

metropolitan areas. For New Orleans and perhaps a few other sizeable communities, there 

have been offsets in that some locally based independents have brought functions from 

elsewhere due to acquisition and reorganization programs . This was the case for a majority 

of the larger independents interviewed in New Orleans. (Oil and gas companies have 

reduced their overall technical and administrative presence in New Orleans, but this trend has 

primarily involved onshore rather than offshore E&P. Observers report that New Orleans 

now serves just as an offshore base rather than a center for both onshore and offshore 

activity . Efficiency considerations and the rapid decline in nearby onshore reserves have 

caused several majors and perhaps some independents to shift onshore-related staff to 

Houston.) 

Consolidation within the oil service sector has also had strong geographic implications . The 

relatively large companies that now dominate the sector tend to be engaged in many kinds of 

activity at many U.S . or worldwide locations . A Houston base is much more important for 

such companies than for the smaller firms which they supplanted . Many of the coastal firms 

that went out of existence were acquired - or their assets acquired - by companies already 

headquartered in Houston. (A good example was the recent sale and breakup of ODECO. 

This was a New Orleans-based drilling company that got into E&P in the 1970s. Murphy 
173 

Oil, a part owner and close working partner of ODECO, took over the company in order to 

acquire its reserves and E&P capability . The ODECO drilling operations were sold to 

Diamond M Offshore in Houston. Diamond M absorbed the management and technical 

functions in Houston and consolidated all yard operations at New Iberia . The outcome was a 

vacant yard at Morgan City and a vacant 15-story office building on Canal Street .) 

Technological change has also encouraged the concentration of oil services in Houston. The 

increasing complexity of oil and gas exploration has led to the emergence of highly 

specialized companies, such as firms specializing in analysis of 3D seismic data . These 

firms need to locate at the industry center in order to attract and serve a broad clientele . By 

substituting for functions that oil companies once provided internally at Gulf coast sites, these 

firms have created a net shift of jobs to Houston . 

Thus the geographic redistribution has not been achieved by simple relocations of activity 

from hinterland areas to Houston . The process has involved transformations of activity, i .e ., 

changes in work content, working relationships and/or management structure. Nothing is 

likely to undo these transformations in the future . Hence, other locations on the Gulf coast 

probably cannot increase their share of total offshore-related employment at Houston's 

expense. 

There are three conceivable trends that might work against this conclusion . First, the 

industry might expand rapidly in response to oil and gas price increases, and Houston might 

come to be regarded as a high-cost area. Second, an eastward shift in offshore operations 

might occur due to greatly increased activity along the Norphlet Trend. (This would 

essentially require a change in government policies toward E&P in the Eastern Gulf.) Third, 

an expanding industry combined with a lack of responsiveness by existing oil service 

companies might create opportunities for new service firms outside Houston. All three of 

these outcomes have low probabilities and expected magnitudes. Hence, the best guess is 

that Houston will retain its present dominance of offshore-related activity . 

FUTURE OPPORTUNITIES IN THE GULF BASIN 

The prospects for future hydrocarbon production in the Gulf of Mexico OCS depend upon a 

highly complex array of geological and technological factors . This review relies primarily 

on the opinions of industry participants rather than evidence from the technical literature 

(which would require a major effort to synthesize) . The prevailing opinions place varying 

emphasis on positive and negative factors, but agree in many respects . 

The Gulf offshore province is strongly gas-prone . Exploration prior to the late 1970s 

focused primarily on the discovery of oil fields, but significant gas reserves were developed 

as a byproduct. Declining oil finds and decontrol of gas prices then led to an increasing 

orientation toward gas . By 1991, gas accounted for over 70 percent of the energy content 

and over 55 percent of the wellhead value of Gulf offshore production (excluding 
174 

condensate) . The gas share of value exceeded 70 percent in early 1994. Recent price trends 

have strengthened the alignment of both major and independent companies toward gas . 

Industry observers call the Gulf OCS a mature province due to the decline in average size of 

fields discovered . This description is clearly accurate for the continental shelf waters of the 

Central and Western Gulf. (The following references to the "shelf" exclude deepwater areas, 

which are technically off the shelf, and subsalt deposits, which have just become a factor .) 

The shelf in the Central and Western Gulf is also mature in terms of production. Due to 

prevailing reservoir characteristics, Gulf offshore wells tend to have short lives - 10 to 15 

years as compared with 25 to 30 years for onshore wells. The yields from many existing 

wells are declining . Some of the most prolific gas reservoirs are "reaching the critical 

breakover point on the decline curve, " according to one observer. Thus, maintaining 

production on the shelf may become increasingly difficult. 

Opinions about future E&P activity on the shelf are somewhat varied . Optimists point out 

that new oil and gas fields are still being discovered . They feel that substantial new 

opportunities remain for both majors and independents in water depths of 300 to 1,200 feet . 

(One executive of an independent company described the Gulf as a "fairly immature" 

province relative to nearby onshore areas .) Pessimists note the declining number of large 

finds and the increasing risks associated with exploration. In general, industry opinions seem 

to be correlated with ability to make money from small and/or declining fields . The 

companies that can address small reserves effectively are most apt to be optimistic about 

future E&P in the areas where activity is now concentrated . 

The general weight of opinion suggests that oil and gas production in shelf waters of the 

Central and Western Gulf will soon start to decline . If so, the chances for sustaining overall 

Gulf E&P will depend upon three new areas of development. These are: 1) deepwater; 2) 

subsalt; and 3) the eastern Norphlet Trend . The following paragraphs comment on these 

prospects . 

Deepwater 

Oil and gas production in Gulf waters exceeding 1,200 feet is very recent . The deepest fixed 

platform is a facility at about 1,350 feet . Another company has four current projects in still 

deeper waters . Two involve subsea gas wellheads at 1,500 and 2,000 feet, tied to platforms 

10 and 25 miles away . The other two are the billion-dollar Augur and Mars projects 

utilizing tension-leg platforms . The Augur platform is located in 2,860 feet of water and is 

scheduled to start production in the spring of 1994 . Total reserves are estimated at 220 

million BOE for Augur and 500 to 700 million BOE for Mars . The planned production from 

these two facilities alone would raise the oil and gas output from the entire Gulf OCS by 

about 5 percent (relative to recent levels) . 

Some representatives are outspoken about the vast potential of deepwater E&P. They feel 

that recoverable deepwater reserves may be as great as 15 billion barrels, which would equal 
175 

the entire recent production of the Gulf OCS for more than a dozen years . One executive 

describes the deepwater potential as "between one and two Prudhoe Bays. " He envisions as 

many as ten deepwater projects on the scale of Augur and Mars. Experience suggests that 

tension-leg platforms may be feasible in waters as deep as 7,000 feet . 

All of the people interviewed for this survey were asked their opinions about deepwater 

prospects . There was general agreement that deepwater E&P could be very important, but 

disagreement on the likely volume of activity within the next five years. The question was 

whether oil and gas prices would be high enough to support the cost of deepwater ventures. 

Bullish and bearish views on prices (discussed later) yielded correspondingly bullish and 

bearish views on deepwater impacts . The Augur and Mars projects looked good when oil 

was $18 and could survive with $14 oil; but some observers expressed doubt that these 

projects would have proceeded if recent price trends had been known. (Augur and Mars are 

expected to produce more oil than gas. The overall deepwater mix may be about fifty-fifty .) 

Many deepwater projects could require $25 oil . One of the independent company 

representatives was optimistic about deepwater activity for non-price-related reasons. He 

saw the possibility of smaller deepwater ventures that did not require billion-dollar 

investments, and felt that independent companies could find niches in deepwater E&P. 

Subsalt 

Many areas of the Gulf of Mexico are underlain by huge salt deposits . Oil and gas have 

long been extracted from strata above the salt, but little attention was paid to the possibility 

of further reserves underneath. This possibility emerged very recently due to improved 

collection, processing and interpretation of 3D seismic data. Subsalt hydrocarbon reservoirs 

are now known to exist. Their number may or may not be large, and their pursuit may or 

may not be economically justified at current product prices . Nobody is sure yet. 

As of February, 1994, the record of Gulf subsalt exploration included one successful well 

and five unsuccessful wells. The successful one required three months to drill . Subsalt 

exploration was both expensive (over $10 million per well) and risky. Subsalt prospects 

were nevertheless receiving a great deal of attention. Lease transactions were reportedly 

slow because the majors were holding properties for reevaluation . One observer said that the 

upcoming MMS lease sale would reveal a heightened level of interest in pursuing subsalt 

reserves . 

When pressed for opinions about the importance of subsalt activity, most of the industry 

participants were agnostic . One felt that subsalt prospects were "getting overblown." Some 

others were skeptical, and some declined to comment. However, four representatives of 

independent companies felt that subsalt E&P would probably be important . One person 

expected the discovery of large subsalt structures in the 100 million BOE range, but would 

not speculate about their numbers . He pointed out that the cost and risk of subsalt 

exploration were offset by the location of subsalt reservoirs on the shelf in shallow water, 

often near existing infrastructure . Another felt that subsalt potentials would do more than 
176 

deepwater exploration to keep the majors in the Gulf. Still another said that there was "a lot 

hanging on subsalt" and could see reserve additions of around 2 billion BOE from this 

source, primarily involving fields of 15 to 50 million BOE. The last said it was "probable 

that subsalt is going to be a really big play ." 

Eastern Norphlet Trend 

The geologic formation known as the Norphlet Trend is located fairly close to the Gulf 

shoreline from Mississippi to the Florida panhandle. The western portion of the Norphlet 

Trend became a target of exploration during the 1980s . The question mark for the future is 

the development of the eastern portion, which occupies the Eastern Gulf region . The eastern 

portion plays a prominent role in plans by one major company and one of the independents 

contacted for this review . A company has drilled two exploratory wells in the waters south 

of Pensacola and has obtained permits for a third. Their holdings could yield three trillion 

cubic feet of natural gas (about 500 million BOE) from dry gas wells . Production facilities 

in this area could utilize onshore infrastructure in Alabama or Mississippi. E&P activity off 

the Florida panhandle is theoretically possible under existing federal policies, but there are 

serious regulatory barriers. The acquisition of all necessary approvals for one exploratory 

well took three years . The question is whether opposition to E&P activity in the Eastern 

Gulf will nullify the eastern Norphlet Trend as a source of new reserves . 

TECHNOLOGY AND INNOVATION 

The development of the Gulf OCS oil and gas industry has been strongly shaped by 

technological advances. Ongoing technical change may be critical to the viability of the 

industry given the rising difficulty of establishing new reserves . The major oil companies 

were the primary source of innovations in the past since they conducted most R&D spending 

and were better equipped than the independents to test new procedures. Thus, a relevant 

question is whether shifts of activity from majors to independents can hurt the industry by 

slowing its technological progress . 

The persons interviewed were unanimous in citing the influence of technology on recent 

industry trends . Primary emphasis was placed on the use of 3D seismic data, which has 

yielded a quantum improvement in ability to locate and understand oil and gas reservoirs . 

The complexity and massive computational requirements of 3D data interpretation have 

caused a restructuring of G&G activity by forcing greater use of outside contractors. There 

may also be greater reliance on outside companies for collection of seismic data (which some 

vendors now collect and market on a speculative basis) . Property transactions have 

reportedly been affected because the major companies are holding onto tracts that in earlier 

years might have been sold. 

Some respondents mentioned the importance of horizontal drilling (or more generally, 

directional drilling) . So far, horizontal drilling has apparently had less impact in the Gulf 

OCS than in many onshore oilfields, but its acceptance and use in the Gulf have steadily 
177 

increased . Observers also cite technological changes in connection with enhanced recovery, 

automated production systems and environmental protection. 

The lean operating characteristics of most independent oil companies have traditionally ruled 

out much spending on R&D. However, the involvement of independents may be increasing 

due to changes in the overall pattern of R&D activity . As described by the literature, R&D 

is becoming more applications-oriented, with greater emphasis on short-term economic 

returns .' This shift is accompanied by greater reliance upon out-of-house capabilities and 

joint funding arrangements . Opportunities are thus created for independent companies to 

participate in collaborative ventures of immediate benefit. Some of the ventures involve 

universities and national laboratories . Two of the persons interviewed in the present survey -

representing an independent oil company and a marine construction firm - said that their 

companies were involved in collaborative R&D efforts . 

None of the persons interviewed felt that the Gulf offshore industry was threatened by a 

slowdown in the advance of technology . A possible reason was that they expected most 

innovations in the next few years to come from technology dissemination and refinement, 

i .e ., the process of building upon breakthroughs that have already occurred . This process 

will involve many different actors and thus may not be critically dependent upon the major 

oil companies. Another factor may be a conviction that the majors will continue to conduct 

R&D regardless of their presence in the Gulf of Mexico . New technology has always flowed 

from the Gulf to the rest of the world, and reverse flows should occur when and if the focus 

of activity shifts elsewhere . 

CAPITAL ACCESS AND TAXATION 

The interviews dealt briefly with capital availability and tax treatment as possible influences 

on the behavior of major and independent oil companies. The findings were only suggestive . 

Over and above the scale-related advantages possessed by the majors, capital availability did 

not emerge as a key point of difference between the majors and the larger independents . 

Both types of companies financed investments largely or entirely out of cash flow. Both had 

access to equity markets, but used new stock issues sparingly if at all. In contrast, the 

smaller independent companies were likely to obtain capital through investment partnerships 

and loans . A significant difference among the smaller independents was whether or not they 

3 Oil and Gas Journal ; July 5, 1993 ; page 14. The above article provided data on R&D 

expenditures by 17 oil companies for the years 1981 through 1992. The total ranged 

between $1 .9 billion and $2.43 billion for all years after 1982. In real terms, there was a 

decline of about 25% from 1984 to 1992 . Expenditures were generally correlated with oil 

prices, suggesting that a rebound may occur if prices improve . A worldwide diminution in 

offshore activity is not expected ; hence future R&D should remain relevant to the Gulf of 

Mexico. 
178 

had access to institutional sources such as pension funds and trust funds . (A representative 

of one company with institutional connections said that there was "more money than deals" 

in early 1994, while other companies were apparently facing a scarcity of funds .) The extent 

to which a company relied on internal capital versus other funding sources might have 

important implications for E&P activity, but no such relationships were established by the 

interviews . 

The tax question was whether the preferential treatment of independent companies gave them 

significant advantages relative to the majors . The relevant features of the tax code were : 

Section 29 tax credits for special fuels; the Alternative Minimum Tax; the oil depletion 

allowance; and the treatment of intangible drilling costs . The interviews indicated that the 

first two items were unimportant for the Gulf OCS. No products from the offshore Gulf 

were eligible for Section 29 credits, and the Alternative Minimum Tax mainly affected the 

ability of major companies to benefit from Section 29 . 

The oil depletion allowance was eliminated for major oil companies in the mid-1970s . (It 

was so important prior to that time that it sometimes accounted for a company's entire 

profitability .) The depletion allowance still exists for small volumes of oil produced by 

independent companies. The maximum allowance is 15 percent of revenue for 1000 barrels 

per day . At early 1994 prices, the maximum works out to roughly $750,000 per year (on 

annual revenues of about $5 million) . This can be an important factor for small companies, 

but is minor for the larger firms that supply the bulk of independent production. 

Intangible drilling costs (IDCs) include chemicals, rig leases, contractor payments and 

practically all other drilling expenses besides well casings. Independent oil companies can 

expense 100 percent of IDCs for tax purposes, but major companies can only expense 70 

percent (while capitalizing the rest). This difference is clearly an advantage for the 

independents. However, observers express few opinions about the importance of this factor 

and the depletion allowance to recent industry trends . A reasonable guess is that taxation has 

played at most a minor role in shifting Gulf OCS activity from majors to independents. 

CONDITION AND PROSPECTS OF THE OIL SERVICE SECTOR 

The shift of E&P activity from majors to independents has yielded a general increase in the 

role of the oil service sector (still referring to supply companies as well as contractors) . 

Both the majors and independents have attempted to improve their usage of contractors 

through such measures as: 

* planning contractor activities in greater detail ; 

* involving contractors up-front in the design of projects (as opposed to soliciting 

bids for jobs already defined) ; 

* improving the coordination of contractors through "supply chain management" 

and/or designation of a lead contractor; 

* improving efficiency by pooling staff capabilities ; 
179 

* forming long-term "strategic alliances" or "aligned interest" relationships. with 

contractors ; and 

* utilizing turnkey contracts or other arrangements that involve a sharing of risk. 

The business environment remains relatively harsh for most service companies. J he 

independent oil companies have long been aggressive in attempting to beat down service 

company prices, and the majors are much more cost-conscious than formerly. In some areas 

there are still relatively few jobs to bid into, yielding "excessive competition" in the words of 

one observer. Long-term relationships with oil companies often require substantial discounts . 

Risk-sharing arrangements are problematic for many service companies. 

The oil service sector is both stronger and weaker than it was ten years ago . One 

improvement is that service companies have obtained greater access to first-line technology, 

as already mentioned . Another is that the consolidation process has yielded financially 

sounder companies with stronger asset bases. A third is the ability of integrated service 

companies to provide "one-stop shopping" (for example, G&G services through all aspects of 

reservoir modeling to the point of drilling) . Many observers feel that service companies 

have become generally better able to meet their clients' needs . 

The weaknesses of the oil service sector involve its ability to support an expansion of the 

offshore industry - or even a continuation of present activity levels -- in the future . The 

three main problems are overconcentration, losses of personnel and equipment shortages. 

While many oil service markets remain intensely competitive, there has been so much 

concentration in others that one or two companies are now dominant . Several of the 

interview respondents felt that this situation was potentially serious. One said that a problem 

already existed for certain kinds of oilfield supplies . A single company had almost cornered 

the market and was "getting top dollar . " Another executive said that the concentration of 

some technical services was a growing concern and would become serious if it proceeded any 

further . He could envision future situations in which a firm might buy up rival software 

simply to make it unavailable. 

The past restructuring of oil services involved tremendous losses of personnel . Large 

numbers of salaried professionals and skilled field workers left the oil industry permanently . 

As a result, some components of oil services were left with very little excess capacity . As 

described by one observer, the capacity of the downsized service sector was first tested in the 

second half of 1993 when higher gas prices created some increases in demand. Signs such as 

green rig crews suggested that the industry was soon "near the limits of the workforce." 

Shortages of trained personnel could become serious in the future for both service firms and 

oil and gas companies . Employees will continue to be lost through attrition, and as one 

observer has noted, there may be "nobody in the pipeline" to replace them. Universities are 

now turning out relatively few petroleum engineers, geological engineers and geophysical 

experts . An equivalent situation may hold for skilled field workers . Long lead times are 
180 

always required to recruit people for knowledge-intensive jobs, and the time lags may be 

particularly long for the petroleum industry due to widespread skepticism about job security . 

Equipment shortages were mentioned in a number of interviews as a problem for the oil 

service sector . One observer cited a recent shortage of specialty tools; another noted that 

boats had become scarce . The primary focus of concern, however, was the prospective 

shortage of drilling rigs . Some limits on rig availability were occurring by early 1994, and 

industry participants feared that serious shortages would develop if there were any further 

increases in demand . A drilling company representative gave the following reasons for this 

trend . 

A wide disparity has emerged between the lease rates obtainable for rigs and the revenues 

needed to justify their replacement. As part of the industry restructuring, drilling companies 

have improved their debt positions and written down the value of their equipment. "Nobody 

is carrying rigs on their books at replacement value," according to the drilling company 

executive. Consequently, there is no provision for rig replacement. The economics of the 

industry now dictate that : "you can work your rigs until you wear them out; then you're out 

of business ." This is not a remote prospect for some companies, given the age of their 

equipment. The executive described his own company's rigs as "relatively new" because 

most dated back only 12 to 15 years. 

A specific rig was cited as an example. It was built about 15 years ago at a cost of $26 to 

$28 million. In 1980 it leased for $46,000 per day (with a crew of 50-plus people) . Its 

lease rates during the recent slump dropped as low as $8,000 per day, barely enough to keep 

the crew together . Now it is working in Venezuela at $26,000 per day, roughly the same as 

what it would earn in the Gulf of Mexico . (Present Gulf rates for such rigs are in the "mid 

to upper twenties .") Drilling companies use a rule of thumb that each $1,000 per day in 

lease revenue justifies an expenditure of $1 million for rig replacement . The rig in question 

would now cost at least $50 million to reproduce . Thus, lease rates will have to double 

before its replacement becomes economically rational . 

Given these circumstances, the only long-term solution is an escalation of lease rates to levels 

that allow reinvestment in capital stock. The problem is reportedly worldwide, hence cannot 

be solved in the Gulf of Mexico by importing rigs from elsewhere. A worldwide escalation 

in drilling costs should ultimately be reflected in oil prices, which would lessen the net 

impact on producers; but the adjustment would still work to the disadvantage of explorationintensive basins such as the Gulf. Drilling economics may thus cast a shadow - if only a 

long-term shadow - on the Gulf offshore industry . 

ENVIRONMENTAL REGULATIONS 

Most of the persons interviewed were vocal about environmental regulations. There was a 

strong feeling that existing regulations were burdensome and that prospective regulations 

could have profound impacts on the offshore industry . In general, the persons at independent 
181 

companies were more concerned than representatives of the majors . The milder views of the 

latter might be explained by the greater ability of the majors to absorb environmental costs 

(due to their greater operating margins) and the majors' lack of exposure to lease bonding 

and financial responsibility requirements. 

The impacts of environmental regulations on the offshore industry can be divided 

conceptually into cumulative effects and threshhold effects. Cumulative effects were 

summarized by one observer as follows. "Oil people are resourceful . Usually they won't 

say that a new regulation will kill them. But cumulatively, environmental regulations can 

make resources uneconomic. " Most representatives of independent companies felt that 

regulations were already having cumulative effects on Gulf E&P and were threatening to 

exert more serious impacts in the future . 

Cumulative effects are difficult to discuss in general terms . For this reason, the interview 

questions focused primarily on threshhold effects - namely, cases in which specific 

environmental regulations could yield direct consequences such as abandonment of projects . 

The subjects were the following areas of regulation: 1) the financial responsibility provisions 

of OPA 90 ; 2) the increases in lease bonding to cover plug-and-abandon liabilities ; 3) the 

possibility of water quality standards that require reinjection of produced water ; and 4) air 

emission controls resulting from a possible extension of onshore standards to the offshore 

Gulf. These are discussed below in descending order of expected impact . 

Financial Responsibility Under OPA 90 

The requirement that all operators of offshore facilities must demonstrate financial 

responsibility of $150 million was described as a "killer" by representatives of independent 

companies . One person estimated that this provision would shut down 100 of the 139 

companies operating in the Gulf OCS. Another said that only 12 or 15 firms would remain. 

Still another felt that independent companies of medium size and up could possibly pay for 

the requisite amounts of liability insurance, but no insurance products were available . The 

chief barriers for insurers were the unlimited liability for removal costs and the right of 

direct action by any claimant against guarantors . One person produced a letter from 

associates of one prestigious law firm saying that they definitely would not insure risks under 

OPA 90 . (Even before the full implementation of the Act, underwriters were including 

clauses saying that their policies did not constitute evidence of financial responsibility under 

OPA 90 .) The interview respondents asserted that the withdrawal and bankruptcy of 

companies due to OPA 90 would produce a legal and financial nightmare ; that the oil 

produced by these companies was unlikely to be recovered by others ; and that the resulting 

rise in oil importation would increase tanker shipments and the overall likelihood of oil 

spills . The comments revealed a general assumption that OPA 90 would affect Gulf oil and 

gas producers regardless of their relative orientation toward gas . (An exemption is expected 

for natural gas if its production yields minimal amounts of condensate; but Gulf offshore 

wells tend to produce condensate, and there would be no advance guarantee that any given 

well would be exempt.) 
182 

Water Quality Standards 

The interview respondents were asked what would happen if standards for salinity or oil & 

grease were tightened to the point at which produced water had to be reinjected . 

(Reinjection is already common in state waters .) There were a number of strong opinions . 

One person said that a reinjection requirement would instantly shut down 15 percent of his 

company's production and ultimately sink half of its projects . Another said that "a good part 

of his production would be lost . " A third agreed that reinjection would "put a lot of projects 

under. " A fourth pointed out that water determined the economic limit of offshore wells, so 

tougher disposal policies would tend to shorten well lives across the board. Some other 

observers felt that reinjection costs would vary greatly with site and facility characteristics . 

A few persons were not highly concerned about the possibility of reinjection. Over and 

above financial impact, there was a general feeling that water quality regulations were 

unnecessarily stringent . One respondent said that there had never been a demonstrated 

problem with disposal of produced water; another asserted that regulations (existing or 

proposed) would prevent the disposal of New Orleans tapwater . 

Bonding of Leases 

Lease bonding requirements are currently being increased tenfold, from $300,000 to $3 

million for an areawide bond on producing properties. There was agreement among the 

persons interviewed that this change would primarily affect the smaller independent 

companies. Two representatives of medium-sized independents said that some increase in 

bonding requirements was needed (although one added that the change should be reasonable) . 

Another emphasized that the small independents could find cover by forming joint 

arrangements with larger companies. In contrast, three executives at small companies felt 

that the new bonding requirements were burdensome and wasteful . They said companies 

would have no way to buy a $3 million bond without putting up the entire $3 million from 

their own sources . Reportedly, the reluctance of insurers to post bonds and charge premiums 

in a conventional fashion was due to the perpetual nature of bonding, i .e ., the fact that the 

MMS was reluctant ever to release bonds once posted . The bonding requirement thus tied 

up large amounts of capital that could otherwise be used for constructive purposes . One 

respondent said that the program should be changed to give companies credit for reserves and 

future income streams (for example, by letting companies build up bond amounts through 

production, in a fashion resembling some of the existing agreements between companies 

involved in lease assignments) . Another person suggested making the bonds annual or 

subject to some other fixed term, which would allow normal underwriting of risk . 

Companies would only have to put up cash if unable to renew their bonding in the market. 

Air Emission Controls 

The interviews addressed the possibility that onshore standards for air quality and air 

emissions would be extended to the Gulf OCS (like other offshore areas) . The responses 

reflected uncertainty about what this would mean in terms of regulation. Three of the milder 
183 

opinions were : that prospective air regulations would be "just a nuisance, not devastating;" 

that they would be "not so much a problem" as water regulations; and that they would "not 

be intolerable" unless they yielded a California-type situation in which producers had to buy 

pollution allowances from other companies . There were remarks about the potentially high 

cost of air-related retrofits to platforms, which "could affect some investment decisions." 

The strongest opinion (which may have applied to onshore as well as offshore regulation) 

was that air quality controls were a major factor driving activity overseas, and that the U.S . 

was "out of line with the rest of the world" on this issue . 

The interviews fished for remarks on other environmental issues with few notable results . 

Requirements for disposal of NORM (naturally occurring radioactive material) were 

generally considered silly and wasteful . The most significant outcome according to one 

observer was that pipes would not be extracted from wells before plugging, which would 

create an economic loss and rule out the reuse of old wells. There were no spontaneous 

comments from respondents about conflicts involving oyster leases . Environmental 

regulations were not considered a threat to the pipeline system, although producers had 

worried about a pipeline safety bill in the early 1990s that would have required digging up 

abandoned pipelines. 

A general question of concern was whether the shift from major to independent companies 

could have adverse environmental or safety consequences (i .e ., whether the independents 

were less able to manage the industry). The interviews yielded little direct evidence on this 

question, but suggested that the issue was not critical for the following reasons . 

The small independents occupy niches in the industry that would be available regardless of 

the presence of the majors. The shifts of E&P activity between majors and independents 

primarily involve the large independents . Most of the interview findings indicate that the 

majors and large independents comply similarly with environmental and safety regulations 

and experience similar regulatory impacts. Thus, the industry transition - if it continues -

should not change the effects of offshore oil and gas production on the surrounding physical 

environment. 

Three isolated comments in the interviews might suggest a need to modify this conclusion. 

Two were remarks by representatives of major companies, and the third came from an 

independent. The first was that independent companies have greater difficulty with 

environmental regulations than majors and often spend less for compliance because of their 

thinner operating margins . (This pattern would presumably apply to both large and small 

independents . It would arise from the types of reserves targeted, hence would be attributable 

to the maturing of the Gulf basin rather than the shift of participants her se .) The second 

comment was that independents might have less ability to deal with infrequent crisis 

situations than majors because of their shorter experience in the Gulf. The third comment 

was that some independent companies were lax in reporting problems to the responsible 

federal agencies. As many as half of all oil spills (usually very small spills) were said to go 
184 

unreported. The commenter attributed this to deficient practices on the part of a minority of 

independents . 

Returning to the subject of OPA 90, there is good reason to doubt that Congress intended the 

more perverse consequences of the Act or that all of its provisions will be implemented in 

their present form . The question is how to change the Act while preserving its objectives 

and saving various legislative faces . A possible course of action has been proposed by one 

executive. The following paragraphs outline the approach as a way of indicating the problems 

with OPA 90 as well as their possible solution. 

A technical corrections bill - a device used by Congress to correct unintended results of 

legislation - should be passed rather than a direct overhaul of OPA 90. The technical 

corrections bill would make three changes . The first would be a redefinition of "offshore 

facility . " OPA 90 uses this term to cover "any facility of any kind located in, on or under 

any of the navigable waters of the United States ." The reference to "navigable waters" 

extends the definition to all facilities on inland waters, even small marinas and pipeline 

crossings . The proposed approach would not attempt to change this reference, but would 

simply restrict "facilities" to those located offshore of the U.S . coastline. 

The second change would limit legal liability in some fashion to make offshore facilities 

insurable (and would override state laws that impose unlimited liability) . It would also create 

a sliding scale to establish levels of financial responsibility . OPA 90 now requires the same 

$150 million responsibility for an offshore facility whether its spill potential is three barrels 

or three million barrels . The proposed approach looks to the scale established by OPA 90 

for oil tankers. The liability of tank vessel operators for oil removal is limited to $1,200 per 

gross ton of capacity, with minimums of $2 million for vessels under 3,000 tons and $10 

million for larger vessels. The $1,200 per ton works out to $67 .50 per barrel of oil . At this 

valuation, the typical oil platform operated by an independent company would have to release 

its full output to the Gulf for many weeks just to reach the $2 million minimum for vessels . 

An important consideration is that oil platforms include very little storage . (The maximum 

for a Gulf offshore platform is around 5,000 barrels, a $337,500 liability according to the 

above valuation .) Congress should instruct the MMS to create a liability scale for offshore 

facilities bearing some equivalence to the tanker scale. This would require judgments about: 

1) the time period over which an oil platform's uncontrolled output should be summed when 

equating it to a tanker's cargo (acknowledging that tankers are compartmentalized and may 

release only part of their oil in a spill) ; 2) the relative probabilities of tanker spills versus 

platform spills ; and 3) the possible influence of spill locations, cleanup difficulties and so 

forth. The proposed plan would leave the details to MMS, in the knowledge that any 

approach to parity with the tanker scale - even an approach within an order of magnitude -

would yield responsibility levels vastly lower than $150 million for most platforms operated 

by independents . 

The third change would require all operators of offshore facilities to purchase insurance 

covering their maximum liabilities . Companies would no longer be allowed to establish 
185 

responsibility on the basis of net financial worth. The arguments for this change are that 

audited net worth may not convey an oil company's true value, and that requiring universal 

insurance coverage would provide added protection to taxpayers . 

PRICE EXPECTATIONS 

The final sections of this text give some additional perspectives on the future of the offshore 

industry . To a large extent, future trends in Gulf E&P activity will be driven by oil and gas 

prices . Opinions about the industry's growth or decline are therefore linked strongly to 

expectations about prices . These expectations disagree substantially, which is understandable 

given the political influences on oil prices and the complex forces that determine gas prices . 

The views of industry participants are colored by recent events . Wellhead prices for oil 

fluctuated between $16 and $19 per barrel from mid-1991 through mid-1993, then declined 

to the $12-$14 range by early 1994. Natural gas prices were depressed by the gas supply 

"bubble" during 1986-91 and went below $1 .00 per thousand cubic feet in early 1992 . Then 

gas rebounded to prices as high as $2.60 per thousand cubic feet in the winter of 1994. 

These trends have left industry participants "excited about gas, scared about oil," in the 

words of one observer . This phrase probably summarizes prevailing views toward the short 

term. 

For the longer term, industry participants agree only that the gas "bubble" is gone and that 

the new supply-demand balance for gas will exert upward pressure on prices, all else being 

equal . Some observers place significance on the fact that gas is now traded as a commodity. 

(One observer pointed to the gas scarcity after Hurricane Andrew - when prices briefly went 

up to $3 per tcf - as an indicator that a new era had arrived.) Opinions diverge on the future 

trend in worldwide oil prices and the extent to which gas prices will be limited by fuelswitching between gas and oil. 

The interviews suggested that opinions about price levels over the next several years could be 

divided into four categories, as follows : 1) an expectation of moderate price gains for both 

oil and gas ; 2) a generally bearish view; 3) a generally bullish view ; and 4) a bullish view of 

gas and a bearish view of oil. About half the industry representatives held opinions in the 

first category, with the remainder divided equally between more positive and more negative 

views . There was some reluctance to quantify "moderate" price increases, but the 

predominant expectation seemed to be roughly as follows. Oil might return to $15 or $16 

per barrel within a year, then increase by 4 to 8 percent annually . Natural gas might decline 

by 10 or 20 percent from the seasonal and weather-related highs of early 1994, then advance 

at the same rate as oil or slightly faster . 

The bearish view rests on a premise that worldwide oil production will rise at least as fast as 

demand. This premise is supported by such factors as the increasing E&P activity in the 

Pacific Rim, the prospective return of Iraqi oil, the opportunities available in the former 

Soviet Union, and the access of Western oil companies to other areas where they formerly 
186 

were not welcome. The outcome according to one observer is that $13 to $16 oil is "the best 

we can hope for" over the next several years . Gas prices are coupled with oil prices because 

many utility and industrial users can switch fuels. For this reason, the bearish view holds 

that gas prices have little upside so long as oil prices remain flat . The early-1994 price 

relationship - with oil per barrel only five times as high as gas per tcf - is viewed as a 

temporary anomaly . Fuel-switching will occur if this relationship persists, with the result 

that average gas prices will stay in the $2 .00-$2 .30 range for some time . 

The bullish view expects worldwide oil production to lag demand for several years. While 

acknowledging recent gains in estimated global petroleum resources, this view focuses on the 

drawdown of reserves in existing production areas (outside the Middle East) . "Everybody 

has been producing flat-out" in these areas and their production rates have been declining, 

while low prices have discouraged new oilfield development . The world market will be 

affected by political pressures because several oil-producing countries face economic crises at 

current price levels . The bulls also note the cyclical nature of oil prices . Some discern a 

Biblical cycle of seven fat years (when prices rise) followed by seven lean years . 

Technological change may now have shortened the cycle, but in any case gas has entered the 

rising phase and oil is expected to be next . This view considers $20 oil a likelihood within 

two or three years . 

The bullish bearish position was expressed by only one industry representative, but was 

based on a detailed analysis and therefore deserves mention. The premise in this case is that 

gas prices will become decoupled from oil prices due to limits on fuel-switching . According 

to the analysis, no more than 10% of natural gas users have the ability to switch fuels. 

Many of these cannot switch to oil because of air quality regulations . The changeover 

requires time and expense, and there are disadvantages involving taxation and transportation 

of oil . The expectation is that nearly all opportunities for fuel-switching will be exhausted 

within a year. A pause in gas prices may occur during this period, but then there is potential 

for strong gains in gas prices even if oil prices remain stagnant . 

The industry sources generally viewed gas as the "fuel of the future" and were aware of 

downstream investment trends that would increase the nation's commitment to gas. 

However, only one emphasized the possibility of support from government policies favoring 

gas dependence . Others tended to view the federal role as negative based on the 

government's restriction of E&P activity in Eastern Gulf and Atlantic coastal waters . The 

respondents also failed to emphasize gas importation from Canada as a market factor . The 

general feeling was that Canada (and ultimately Mexico) would fulfill U.S . demands to the 

extent that the domestic industry was prevented from doing so . 
187 

FUTURE SCENARIOS 

The persons interviewed were asked about probable trends in E&P activity for their own 

companies and for the Gulf offshore industry as a whole. Nearly all the responses came 

from representatives of independent companies . The answers did not cover the possible 

effects of financial responsibility requirements under OPA 90 - either because the 

respondents believed the Act would be changed or because they found its consequences 

unthinkable . 

Two of the independent companies were expected to increase their presence in the Gulf OCS 

over the next several years . The spokesmen for a third company said it would expand but 

possibly not in the OCS. The other representatives of independents either said or implied 

that their companies' E&P activities would probably remain stable . Views on the Gulf 

offshore industry as whole were somewhat less optimistic because of doubts about reserve 

replacement by the majors. Opinions were divided about equally between three propositions : 

that total E&P activity in the OCS would expand; that it would stay roughly the same; and 

that it would contract . The overall balance of opinion was slightly on the negative side . 

The independent companies in an expansion mode were reportedly willing to add employees . 

Personnel reductions were not mentioned as a possibility by any of the independent company 

representatives. However, many felt that employment declines would occur at the majors 

due to further corporate streamlining . Productivity gains would also have a downward 

influence on employment throughout the industry . Significantly, a spokesman for one of the 

majors said his company would expand its E&P activity in the Gulf OCS if conditions were 

favorable, but probably would not staff up unless oil reached $25 per barrel . 

(One independent company executive felt that the majors were actually understaffed in key 

areas, which could limit their responses if conditions turned favorable. Early retirement 

programs and other downsizing measures had yielded a "purging of the mentors" in 

exploration groups.) 

Table A-1 presents three alternative future scenarios for the Gulf OCS oil and gas industry . 

These scenarios provide a rough, tentative description of future prospects based on the 

interview findings to date . The three scenarios pertain to calendar year 1998 and reflect the 

pessimistic, intermediate and optimistic viewpoints observed in the industry . Each is 

associated with specific oil and gas prices . The descriptions of activity and employment 

consist of verbal comparisons between 1998 levels and early 1994 levels . 

The scenarios suggest that there are only modest prospects for an upturn in offshore-related 

employment. In the intermediate scenario, the total volume of E&P activity would remain 

close to the early 1994 level, but productivity gains and shifts of activity toward independents 

would yield slightly fewer total jobs in 1998 than at present . The opinions of industry 

observers suggest that $20 oil will be required to yield a significant gain in overall 
188 

employment. As noted earlier, future job changes are likely to be distributed more or less 

proportionally around the Gulf coast, without any major geographic realignment. 

Table A-1 

Alternative Scenarios for Calendar Year 1998 

Annual Average Wellhead Price 

Oil (/bbl) 

Natural Gas (/tcf) 

E&P Relative to 1994 

Exploration 

Production 

Independents' Share of Activity 

Employment Relative to 1994 

Majors 

Independents 

Oil Service/Supply Co. 

Total 

Pessimistic Intermediate Optimistic 

15 .00 18.50 22 .00 

2.20 2.60 3 .00 

Lower Slightly higher Higher 

Lower Slightly higher Higher 

Higher Slightly higher Same as '94 

Much lower Lower Same 

Slightly lower Same Higher 

Lower Same or Higher 

Slightly lower 

Lower Slightly lower Somewhat 

higher 

POSTSCRIPT 

This document is many ways an outside view of the Gulf offshore industry, even though it is 

based upon the opinions of industry representatives . At one point during the field work, the 

interviewer made a casual reference to the industry as "healthy ." The person being 

interviewed - a senior vice president of a leading independent - asked sharply how an 

industry that had lost 450,000 jobs could be called healthy . Perhaps the word was poorly 

chosen, but the sentiment still stands . The oil and gas industry in the Gulf OCS has shown a 

remarkable capacity to adjust . Most of its participants have achieved major gains in 

efficiency and productivity . There is now a diverse array of companies addressing every 

resource niche and technical specialty . The industry makes investment decisions effectively 

under conditions of extreme risk . Its competitive atmosphere generally produces constructive 

responses that benefit the consumer. No industry in the U.S. has moved faster to eliminate 

waste, and no industry has shown greater readiness to accept and implement new 

technologies . The offshore industry has been sorely tested, but it is healthy in the same way 

that Job in the Old Testament must have been healthy; otherwise it would not have survived . 

Many of the issues now facing the industry and its government overseers do not have easy 

answers, but there should be no doubt that this is an industry worth saving . 
NT Op The Department of the Interior Mission 

a" p As the Nation's principal conservation agency, the Department of the Interior has responsibility for 

a most of our nationally owned public lands and natural resources. This includes fostering sound use 

of our land and water resources; protecting our fish, wildlife, and biological diversity; preserving the 

a~ 

4 9 

environmental and cultural values of our national parks and historical places ; and providing for the 

ACH 9 ~ enjoyment of life through outdoor recreation . The Department assesses our energy and mineral 

resources and works to ensure that their development is in the best interests of all our people by 

encouraging stewardship and citizen participation in their care. The Department also has a major 

responsibility for American Indian reservation communities and for people who live in island territories 

under U.S. administration . 

The Minerals Management Service Mission 

As a bureau of the Department of the Interior, the Minerals Management Service's (MMS) primary 

responsibilities are to manage the mineral resources located on the Nation's Outer Continental Shelf 

. i (OCS), collect revenue from the Federal OCS and onshore Federal and Indian lands, and distribute 

those revenues. 

,r ~E,~~ Moreover, in working to meet its responsibilities, the Offshore Minerals Management Program 

administers the OCS competitive leasing program and oversees the safe and environmentally sound 

exploration and production of our Nation's offshore natural gas, oil and other mineral resources. The 

MMS Royalty Management Program meets its responsibilities by ensuring the efficient, timely and 

accurate collection and disbursement of revenue from mineral leasing and production due to Indian 

tribes and allottees, States and the U.S . Treasury . 

The MMS strives to fulfill its responsibilities through the general guiding principles of : (1) being 

responsive to the public's concerns and interests by maintaining a dialogue with all potentially affected 

parties and (2) carrying out its programs with an emphasis on working to enhance the quality of life for 

all Americans by lending MMS assistance and expertise to economic development and environmental 

protection.