Contracts awarded to help fill SPR

Aug. 18, 2003
The Interior Department's Minerals Management Service has awarded royalty-in-kind (RIK) contracts to Shell Trading, ChevronTexaco Corp. and ExxonMobil Corp. for crude oil exchanges from federal offshore leases in the Gulf of Mexico.

By OGJ editors

HOUSTON, Aug. 18 -- The Interior Department's Minerals Management Service (MMS) has awarded royalty-in-kind (RIK) contracts to Shell Trading, ChevronTexaco Corp. and ExxonMobil Corp. for crude oil exchanges from federal offshore leases in the Gulf of Mexico.

The contracts, involving more than 53,000 b/d of Gulf of Mexico royalty oil from 19 offshore meters, support the US Strategic Petroleum Reserve (SPR) fill initiative that President George W. Bush unveiled in November 2001.

Under Outer Continental Shelf Lands Act oil and gas lease terms, royalty payments can be collected either in cash or in-kind, i.e., in oil or natural gas volumes (OGJ Online, Mar. 21, 2003).

With these latest contracts, MMS will take its oil royalties in oil, rather than in cash, from offshore federal lease operators and deliver it to onshore oil market centers where the Department of Energy will take custody of the oil. DOE, in turn, will exchange the RIK oil for oil of suitable quality that can be delivered to SPR storage sites located in Texas and Louisiana.

The current SPR solicitation is a reoffering of royalty oil exchange packages, awarded in April, that are due to expire Sept. 30. In addition to these new contracts, there are ongoing exchange contracts and direct crude oil movement to support the SPR initiative for additional volumes of up to 77,000 b/d.

MMS manages US oil, natural gas, and other mineral resources on the Outer Continental Shelf in Federal offshore waters, collecting and disbursing mineral revenues. The initiative to fill the nearly 107-million-bbl remaining SPR capacity is a joint MMS-DOE effort.