A Price in the North Sea

For more than 18 months, the 23 groups of international oil companies drilling for natural gas in sandstone off the English coast have been caught between a devil and the deep blue sea. The treacherous North Sea and its gales have sunk two of their big drilling rigs, interrupted operations and increased production costs. The devil, as far as they are concerned, is Britain's Gas

Council, which, as sole purchaser of any gas found under British waters, has been stubbornly holding out for the lowest possible price. The oil consortia, led by Shell and Esso, demanded at least 3.25 cents per therm (the amount of heat generated by 100 cu. ft. of North Sea gas). The Gas Council insisted on paying no more than 2.1 cents per therm, arguing for a price pegged to production costs rather than to the higher market value of the fuel.

Last week the Gas Council, with an obvious advantage in the bargaining, won its point. The council signed its first major sales agreement with a consortium headed by Phillips Petroleum of the U.S. and including Petrofina of Belgium, Italy's state-owned oil company AGIP, and a string of individual British investors. In 1969, the Phillips group will begin pumping natural gas ashore from its field at Hewett Bank, 20 miles off the East Anglican coast, under a 25-year contract that calls for a buildup to 350,000,000 cu. ft. daily by the seventh year of the agreement. The price: 2.87-c- a therm.

Phillips decided to break the united front of oil companies for several reasons. One is that Phillips' holding is the closest to shore and the expense of pumping gas out of the field and into an expanding British pipeline system will be less than the cost to some other combines. Another is that, unlike Shell, Esso and others, Phillips has no large oil market in the United Kingdom and thus does not have to worry about upsetting domestic prices for its other fuels by pumping in cheap natural gas. Listening to the angry outbursts from other oilmen, Phillips U.K. Managing Director Paul Tucker explained: "If somebody else had done this before us, we'd be screaming too. It's just a matter of keeping your bargaining position." Phillips, with an estimated $60 million out lay to develop the Hewett Bank field and with anticipated income over 25 years of $600 million, should make a tidy 900% profit in spite of its low selling price.

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