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Offshore oil drilling moves into Florida's neighborhood

By ROBERT TRIGAUX, Times Business Columnist

© St. Petersburg Times, published March 3, 2002

One of the biggest development efforts in a decade is about to start not too far from the Tampa Bay area. This will be an extremely exclusive neighborhood.

One of the biggest development efforts in a decade is about to start not too far from the Tampa Bay area. This will be an extremely exclusive neighborhood.

I'm not talking about just another of our high-brow gated communities with some smug name like Mine's Bigger, Never Enough or We're Here, You're Not. In this place, every site is waterfront and owned by billionaires.

This new neighborhood is a straight shot about 300 miles west of Tampa Bay. It's called Area 181 in the federal waters of the Gulf of Mexico. And some behemoth energy exploration companies have just spent more than $340-million to claim a stake there and start drilling for oil and gas soon.

Eleven months ago, Interior Secretary Gale Norton told Florida Gov. Jeb Bush, who opposes Gulf drilling near Florida, that the federal government planned to auction 6-million acres of offshore oil and gas sites. She said the L-shape Area 181 that started only 30 miles south of Pensacola, first approved by the Clinton administration, had so much oil and gas that it "can play an important role in our national energy strategy."

Seven months ago, Norton agreed after Florida protests to sharply reduce the auction area in size. She picked a 1.5-million-acre rectangle (one-quarter the size of the full Area 181) that is farthest from Florida. How far away? Just far enough so people standing on the state's beaches would not be able to see any oil or gas rigs.

Three months ago in New Orleans, 17 energy companies (mostly from Houston) bid aggressively in a federal auction for leases and drilling rights in the smaller-size Area 181.

Florida and its beach-dependent tourist industry welcome nearby drilling -- and the potential pollution of oil spills -- about as much as an anthrax attack. But the trend is clear. December's lease sale was the first since 1988 in the eastern Gulf, but more are on the way.

With renewed pressure to find domestic oil and gas sources, drillers in the crowded western side of the Gulf of Mexico want more undersea opportunities in the less-congested eastern portion of the Gulf -- near Florida.

So in the spirit of our local Welcome Wagon, let's meet five of our biggest new neighbors!

1. Shell Offshore, part of Shell Oil in Houston (which is part of the giant Royal Dutch/Shell Group), was the top bidder in December, offering 28 winning bids worth $109.6-million. For Shell, the Gulf of Mexico is ground zero when it comes to oil and gas drilling. Shell pushed the industry into drilling in ever-deeper Gulf waters and has participated in more than 41 commercial discoveries in water depths greater than 1,500 feet, by far the most in the industry. Shell has interests in more than 17 producing properties in the deepwater Gulf.

2. Anadarko Petroleum Corp. was No. 2 in terms of winning bids, with 26 high bids worth $136-million. The Houston company is the nation's largest independent oil and gas exploration company. And it is the hungriest to penetrate Gulf waters close to Florida. Anadarko chairman Robert J. Allison Jr. summed it up best after bidding in Area 181: "We've been peering over the fence for the past 13 years, and at last we're being allowed inside."

It so happens that Anadarko is also a big backer of President Bush and Vice President Cheney, both alumni of the Texas oil business. Shortly after Cheney launched a task force on energy policy last year, he met with two top industry executives: one from Shell and Allison from Anadarko. In an hour-long meeting with Cheney on Feb. 8, 2001, the two pressed the new administration to stick to a long-standing plan to open a huge tract in the eastern Gulf of Mexico to oil and gas exploration.

Well, the two got most of what they asked for. They bid eagerly in December to make sure their companies had multiple drilling sites in Area 181. But in January, Anadarko suffered its own bit of Enronitis. When accountants used the wrong figures to calculate the worth of some of the company's U.S. energy properties, Anadarko had to restate its third-quarter results by writing off more than $1-billion.

3. Kerr-McGee Oil & Gas, with 16 bids worth $34.7-million, has focused on the Gulf of Mexico since 1947, when the company made the world's first commercial oil well that was out of sight of land. Now the Oklahoma City company holds interest in more than 500 leases in the Gulf. More than 300 are in deep water.

4. Marathon Oil (of Houston, yet again), which offered 14 high bids valued at $28.3-million, has some competitive ground to make up. The company recently spun off U.S. Steel, returning Marathon to a pure oil and gas business. But Marathon lost more than $1-billion in the fourth quarter of 2001. And analysts complain that Marathon has not disclosed enough details about its oil and gas production forecasts. In January, and again last week, Marathon said it had failed to find oil or gas at three separate exploratory Gulf sites. (None of them is in Area 181.)

5. Amerada Hess of New York, after winning eight high bids worth $6.8-million, said in December that it would take up to $75-million in charges to cover several unusual items: its exposure to the Enron bankruptcy, and severance expenses that are part of a cost-reduction plan. Another possible curve ball: industry rumors that Amerada Hess could be a takeover target of French oil company Total Fina Elf.

Are more lease sales in the Gulf ahead? None is scheduled, but there are some ominous signs.

Bush and Cheney are starting to build up serious steam for their new energy policy plan that strongly emphasizes increased domestic production of oil and gas.

The threat of terrorism and a destabilizing Middle East only increase the national call to become less dependent on foreign oil.

Pro-environment groups are more focused on protecting the clearly defined Arctic National Wildlife Refuge from energy exploration than on preserving portions of the Gulf near Florida. With drilling already prominent off the shores of Texas, Louisiana, Mississippi and Alabama, Florida over time could look like a prima donna for holding out.

Why, pro-drillers might ask in the future, should all these other Gulf states pitch in to find more oil and gas, but not Florida?

Even in the NIMBY (Not In My Back Yard) wars, Florida may be outclassed by California. Last month, federal legislation was proposed that would permanently halt new oil and natural gas drilling off California's coastline.

How? By a deal to swap 40 undeveloped offshore California tracts for drilling on similar blocks in the western and central Gulf of Mexico.

As energy companies find existing Gulf sites more competitive, the eastern Gulf grows ever more attractive.

To slow the approach, environmental and tourism groups are combining forces to stall actual drilling in Area 181.

Drilling opponents say they will tie up required permits in administrative hearings on oil company safety practices and environmental records. They also plan to sue the 17 oil companies involved under the Endangered Species Act, arguing that sperm whales in the Gulf would be threatened.

Good luck. In the never-ending energy consumption-conservation wars, consumption currently has the upper hand.

Start getting to know your new neighbors.

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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