The panel takes no specific position on these 

 complex issues. The panel simply notes that the 

 problems of adjusting oil production from domes- 

 tic sources, both onshore and offshore, to some 

 level that is optimal from the standpoint of 

 National security, economic growth, and the well 

 being of the country and the petroleum industry 

 have not been fully answered to date. In addition, 

 there may well be some conflict among these 

 desirable objectives. Since the offshore oil poten- 

 tial on Federally owned lands constitutes a major 

 proportion of the remaining reserves under direct 

 control of the United States, it is essential that 

 these interrelated objectives and the complex 

 decisions required to adjust industry-govermnenf 

 policies to achieve them be analyzed in far greater 

 detail than this Commission was able to undertake. 

 In particular, the Nation needs to know the 

 alternative means of assuring that National secu- 

 rity requirements can be met with respect to 

 petroleum and the costs to the economy of achiev- 

 ing that security under each alternative. 



It is mandatory that the security issue be 

 defined in specific terms and that the Nation 

 adopt policies to assure that it be resolved at the 

 lowest cost and with a minimal detrimental effect 

 on the normal business activities of the petroleum 

 industry. 



V. LEGAL AND ADMINISTRATIVE FRAME- 

 WORK 



Offshore petroleum development is administer- 

 ed, wdth few exceptions, exactly as it is on land 

 and largely by the same governmental agencies. 

 The principal differences are that all exploration 

 and production is on Federal or State leases (there 

 are no private mineral rights offshore) and oil and 

 gas leases can be acquired only by competitive 

 bidding. Offshore petroleum production has now 

 been established on Federal and State leases off 

 CaUfornia, Louisiana, and Texas, and in State 

 waters off Alaska. 



An important problem in the orderly develop- 

 ment of marine petroleum resources in the past 

 has been the controversy between Federal and 

 State governments concerning royalties, bonuses, 

 and jurisdiction of these areas. The first suit 

 between these governments was filed in 1945 and 

 others followed in 1948. A start was made in 

 resolving these disputes by passage of the Sub- 



merged Lands Act in 1953. The major dispute in 

 Cahfornia waters was resolved only recently by a 

 Supreme Court decision and the problem in the 

 Gulf of Mexico has only partly been solved. In the 

 second Louisiana case, the Supreme Court held 

 that Louisiana, Mississippi, and Alabama were 

 entitled to boundaries three miles from their 

 coasts, with islands to be treated separately. The 

 issue to determine the base line along the coast of 

 Louisiana is now before the Supreme Court. 



A. State Regulation 



The only production to date on the West Coast 

 of the United States is in California and Alaska. 

 However, exploration is presently underway and 

 leases have been issued off Oregon and Washington 

 as well. In CaUfornia, the State Lands Commission 

 is responsible for administration of all state lands, 

 but the State Lands Division of the Department of 

 Finance acts as the operating and administrative 

 agency for the State Lands Commission. Permits 

 are required to conduct any geophysical surveys 

 using explosives and for all core drilling opera- 

 tions. The California Department of Natural Re- 

 sources, through the Division of Oil and Gas, 

 supervises drilling, producing, and abandoning 

 operations to prevent waste or damage; collects 

 statistical records and reports; conducts field 

 inspections of blowout prevention equipment, 

 cementing and plugging operations, and water 

 shut-off operations. The State Game and Fish 

 Commission also issues permits for geophysical 

 surveys which require explosives and an inspector 

 must be present during all operations. The State 

 has industrial safety inspectors who must approve 

 all oil or gas operations, and regulations and 

 policing of all possible sources of pollution are 

 State-controlled. 



In Alaska, the State Department of Natural 

 Resources, through the Division of Lands and the 

 Division of Mines and Minerals, handles all oil and 

 gas matters. Leases are awarded by sealed bonus 

 bids. As an incentive to exploration, Alaska has 

 allowed a reduction in state royalty from the usual 

 12-1/2 per cent to 5 per cent for the first 10 years 

 of production for any lease on which a new-field 

 discovery is made. In view of the large reserves 

 now estabUshed in the upper Cook Inlet, the 

 discovery royalty no longer appHes in this area. 



VlI-214 



