513 



June 30, 1983 

 -2- 



This estimate is also "conditional" in the sense that the 

 estimate is valid only assuming that oil or gas is present. 



Resource estimates should thus be viewed as contained in the 

 following context: 



"If there is oil and gas present in an area, then on average 

 we can expect there to be X amount of oil and Y amount of gas. 

 There may be more or less than the average, or there may be none 

 at all." 



Statistics like resource estimates tend to be subject to two 

 interpretations. Either they are ignored because of the 

 conditions attached to them, or the conditions are ignored and 

 the numbers are treated as if they were written in stone. Both 

 approaches are equally mistaken. 



The method of estimating potential hydrocarbon resources is 

 well developed, and widely accepted in geology. The limitations 

 on the estimates are in the quantity of data and skill of the 

 data analysts. If you seek to assess the validity of the 

 government's resource estimates, these are the areas where 

 concentration should be focused. But the fundamental nature of 

 the estimates as "best guesses based on past experience" should 

 be fully appreciated. 



2. Seperate Exploratory and Production Leasing. This issue 

 was extensively discussed during the OCS Lands Act Amendments 

 debate. Those Amendments did clearly seperate permitting between 

 exploration and development, with specific state roles assigned 

 at each stage. (The Coastal Zone Management Act also assigns 

 state roles at each step.) 



The problem with seperate leasing is that the American OCS 

 leasing system is based on auctions for the leases. This is a 

 unique system in the world, and has numerous economic advantages 

 which are well known. The system is based on the willingness of 

 the private sector to pay the government often large sums of 

 money for the right to drill. This accomplishes the public's 

 need to have OCS exploration at lowest cos^t to the public. But 

 there must be some assurance to the industry that if it finds 

 resources, it will have the right to produce and sell those 

 resources. Otherwise there is no incentive to begin any 

 exploration. 



