The objective of this study is twofold. The first is to present the composition of the offshore petroleum industry in terms of lease bonuses and the value of hydrocarbons produced from federal offshore tracts. The second is to present costs of producing petroleum (oil and condensate) in the Gulf of Mexico with a financial analysis of an offshore operation. A model was derived to show the costs necessary to explore, acquire, develop, produce, and abandon a 5,000- acre block and the estimated income from the sale of the hydrocarbons produced. A group of seven oilfields in the Gulf of Mexico ranging from 7 to 75 miles from shore and in water 20 to 130 feet deep was selected for study. A net profit or loss statement was prepared for each field and a discounted cash flow rate of return was calculated. Discounted cash flow rates of return for the seven fields range from 1.1 to 19.5 percent. Under the two specified conditions set up for the model (a 20-year and a 30-year oil depletion model), the rates of return are 17.2 and 13.7 percent, respectively. To January 1, 1969, the top four operators in the federal offshore areas had paid approximately 40 percent of the amount spent on all lease bonuses and produced about 56 percent of the total hydrocarbons.