THE REAGAN ADMINISTRATION came to town determined to lease large new expanses of the outer continental shelf to private industry for oil exploration. Its ambitious plans and the manner of their presentation by the president's first interior secretary, James Watt, created an enormous stir on all the coasts. In the case of California, off whose shore may be the largest U.S. energy fields still unexplored, Congress responded for the administration's first five years with a leasing ban. Last year, in part because it seemed the various sides were finally trying to negotiate a settlement, the ban was dropped. Now the negotiations have broken down, and Californians are seeking to have the ban reimposed.

A lot of people would be happy never to have another well drilled off the Pacific Coast. They like the view, they want to protect the environment, they want to avoid further industrialization ashore and, if they are politicians, they want to avoid giving offense. But a ban is not a viable policy, any more than unrestricted drilling of the kind that Mr. Watt espoused -- and some in the industry would prefer -- would be. A compromise is possible to serve both energy and environmental interests. Last year we favored reimposition of the moratorium on grounds that it would force the industry and administration to seek such a compromise. We think that it still would.

The oil companies must want to resolve this issue, and to do so under this administration, which is sympathetic to their cause. But the competing interests are such that the companies should be required to start small -- smaller than Interior would agree to in the negotiations that broke down -- and to feel their way. With the world oil market weak as it is, the companies aren't likely to want to do much more than this anyway -- though they might like to sew up rights to certain parcels at low prices. In past lease sales in this administration, the department has offered up much larger areas than the companies have turned out to want. In that sense the controversies were exaggerated; control of the tracts and leasing process was at stake as much as oil. That may also be the case here.

Congress cannot decide which tracts to lease and which not to. Its goal instead should be to create a situation in which all sides have about an equal interest in settling this protracted dispute. Our judgment is that a one-year ban, as is due to come before the House Appropriations Committee today, would help more than hurt. The department and industry currently have too little incentive to give ground.