Energy Policy Moves Into Rough Water

What does it mean that a sudden and major political ruckus over offshore oil drilling is being met with an indifferent silence in the oil industry? It's like the dog that did not bark in the Sherlock Holmes story "Silver Blaze." Just as the dog's silence gave Holmes a clue, the industry's silence says a lot about the changing world of oil and energy--and about the American people today.

The political action is noisy as the House of Representatives, reacting to recent oil spills in Alaska and on the East Coast, last week passed a bill banning drilling or work leading to drilling for at least a year along the entire California coast, parts of the East Coast including Florida, and stretches of Alaska. The Senate is prepared to do likewise.

That caused the Bush Administration to send up a howl of protest Tuesday in a speech by Interior Secretary Manuel Lujan, who said Congress was "burying its head in the sand" and ignoring the dangers of future energy dependency.

But the oil industry has been silent. The stock prices of oil drilling and service companies, such as Baker-Hughes, Halliburton, Cameron Iron Works and Dresser Industries, haven't declined since the House approved a hold on their business.

Growing Share of Revenues

Why not? The answer is global. The companies are less dependent on U.S. business than they used to be because oil exploration is moving overseas, says analyst Fred Z. Mills, of the Texas brokerage firm Lovett, Mitchell, Webb & Garrison. U.S. oil companies are drilling in Britain's North Sea, in Asian waters off Indonesia and the South China Sea, and off the West Coast of Africa--not to mention the coasts of Latin America.

As a consequence, U.S. drilling and service companies now get a growing share of revenue from foreign operations. Halliburton, for instance, gets 31% of its revenue from abroad, Baker-Hughes gets 45%, Cameron Iron Works 53%, and so on.

So in one sense, all is well. U.S. companies sell services abroad and help reduce the trade deficit.

But the move abroad has its ominous side too. It results first of all from slim pickings at home. With the exception of Alaska--where drilling may be banned--there are few big oil prospects left in a country where the average well now produces only 14 barrels a day. The Gulf of Mexico--not affected by the ban--is maintaining production, but Alaskan production peaked last year and has begun a long decline.