OFFSHORE SETTLEMENT SHOWS LEASING ILLS

When the U.S. Interior Department reached a $198 million legal settlement last week with companies not allowed to drill on oil and gas leases off Florida and Alaska, President Bill Clinton had this to say: "This settlement is good for the environment, good for taxpayers, good for the economy, and fair to the oil companies."

The president's four-point assessment of the settlement neatly summarizes attitudes toward offshore oil and gas work that have prevailed in the U.S. capital for the past decade. The attitudes are important: They shape legislation and regulation. Clinton's four points thus are crucial to the upstream oil and gas industry. And on each and every one of them, the president's judgments are wrong.

FOUR POINTS

Good for the environment. Drilling prohibitions benefit the environment only to the extent that drilling constitutes a significant threat, which it does not. The U.S. industry has demonstrated its ability to drill onshore and off with minimum environmental risk. That pretenses to the contrary continue to motivate official thought and behavior is astonishing in view of the record and at odds with underlying environmental ideals.

Drilling prohibitions mean oil not produced domestically, which means oil imported by tanker. A government that prefers tanker traffic to offshore drilling doesn't assess relative risks very well. A government does further violence to its credibility when it makes natural gas the environmental touchstone of its energy strategy yet opposes drilling on environmental grounds.

Good for taxpayers. In a perverse way, this can be made to seem true. When leaseholders sued the Interior Department in 1992, they claimed to have spent $600 million on the disputed leases-23 in Alaska's Bristol Ba and 73 off southwestern Florida-most of which went to the federal treasury as bonuses and other payments. So the government can claim to be settling the case for 300 on each oil company dollar and had free use of the money since the early 1980s, when it sold most of the leases. That's good business for anyone able to get away with it.

But a notional gain of perhaps half a billion dollars means little to a government that spends $1.5 trillion/year. And the way it came about means the government cannot collect income taxes from the companies and people that would have worked on the affected leases or earn royalties from production that might have resulted. In fiscal 1994, offshore federal mineral revenues alone totaled $3.1 billion. Taxpayers gain more from a leasing process that leads to real economic activity than they do from one that produces only litigation.

Good for the economy. Here's the story: The U.S. government sold leases dear, gutted their values by annulling the conveyed rights, then bought them back cheap. Moral of the story: Doing business with the U.S. government can be very risky.

Anyone who considers this good for the U.S. economy should study geographic investment patterns of the U.S.-based oil and gas industry since the late 1980s.

Fair to the oil companies. It is in the nature of bad business partners to expect people to believe preposterous utterances.

POLITICAL RISK

From here the settlement looks bad for the environment, taxpayers, and the economy and partial solatium to companies whose enthusiasms have come to lie elsewhere. It arises from a cramped but widely held view of resource, environmental, and economic relationships. It's a view that must change. Popular wrongheadedness is a serious political risk. And political risk can sabotage economies.