and approximately $ 1 billion was actually spent in 

 competitive bidding to acquire exploratory leases. 



The total cost of wildcat drilling during this 

 period was about $280 milUon. The largest 

 number of exploratory holes drilled (144) was in 

 the year immediately following the largest lease 

 sale (Figure 7); such extreme surges of drilling 

 activity add to the cost of offshore exploration 

 througli tile resulting inefficiencies in scheduling 

 gjant mobile rigs, as well as the supporting 

 equipment, facilities and personnel. The total 

 exploration expenditure during this 1 5-year period 

 was tlius about $1.6 billion, the largest part of 

 which (65 per cent) was lease purchases. The total 

 past and projected development costs are $4.7 

 billion, giving a total investment of $6.3 billion. 



Barrow estimated that ultimate production 

 from fields discovered between 1951 and 1965 

 would amount to 3.6 billion barrels of oil and 49 

 trillion cubic feet of natural gas. The eventual 

 actual profit that can be expected after return of 

 investment and payment of taxes will thus be $5.6 

 billion, for a profit to investment ratio of 0.9. 



However, Barrow notes that since some of the 

 initial investments were made as early as 1944 and 

 some of the eventual income will not be received 

 until the year 2000, "the Investor's Interest Rate, 

 or the discounted cash flow rate of return for this 

 industry investment will be only seven per cent." 

 An important further point is that a long develop- 

 ment period is required after a successful discovery 

 before production can reach any significant vol- 

 ume. 



These figures are for the industry as a whole, 

 but Barrow emphasizes that the results for indi- 

 vidual companies vary greatly (Figure 8). The 

 company which spent the most money in acquir- 

 ing competitive leases had production in mid-1966 

 on those leases of 66,000 equivalent barrels of oil 

 per day, but the second largest lease purchaser had 

 obtained only negUgible production. One company 

 had spent about $50 miUion on bonuses during 

 this period and had found no production. This 

 clearly indicates the large economic risks involved 

 in this type of exploration. Barrow further pointed 

 out that for each milUon acres nominated in a 



WELLS DRILLED 



1951 



1955 



1960 



1965 



Figure 7. Industry wildcat drilling activity 1951 through 1965 offshore Louisiana. Source: 

 T.D. Barrow, "Economics of Offshore Development," in Exploration and Economics of the 

 Petroleum Industry (Houston: Gulf Publishing Co., 1967). 



VII-209 



