DOE signs SPR oil contracts with three majors

The U.S. Department of Energy has signed the first contracts to add U.S. federal royalty oil to the Strategic Petroleum Reserve, opening the way for oil to begin moving into the reserve by early May.

Energy Sec. Bill Richardson said DOE and the Interior Department completed arrangements with three of the largest producers in the central Gulf of Mexico-Texaco Inc., Shell Oil Co., and BP Amoco plc-to begin transferring 38,600 b/d of royalty oil to the SPR.

During the 3-month terms of the contracts, the companies will deliver nearly 3.5 million bbl of crude oil to the Bayou Choctaw SPR site in Louisiana. The oil represents an adjusted amount provided as payment of royalties due on oil produced from leases on the federally owned Outer Continental Shelf. Shell and Texaco were represented in the negotiations by Equiva Trading Co.

DOE goals

DOE said the transfer is the initial phase of a program Richardson an- nounced in February (OGJ, Feb., 22, 1999, p. 24) to take 28 million bbl of crude royalties paid in-kind to help fill the SPR. He said, "We wanted to get the royalty oil initiative off to a fast start-both for the American taxpayer and for our nation's energy security. By moving quickly with these first contracts, we can get oil flowing into our reserve and show other producers that this is a high-priority program that can succeed."

In this first phase of the initiative, the DOE/DOI team negotiated with some of the largest companies to arrange for the most oil in the shortest time.

The second phase, due to begin in May, will use a competitive bidding process for deliveries planned to begin on Aug. 1. It will be expanded to take the maximum feasible volume from potentially all of the 140 companies holding federal leases in the gulf.

DOE said the 3.5 million bbl from the three firms represents an adjusted amount negotiated with the companies to account for location or transportation expenses from the federal lease and for crude-quality differences. The companies will deliver a higher-quality crude to the SPR than the oil actually produced from the offshore tracts.

The SPR currently holds 561 million bbl in underground sites on the Gulf Coast.