DOE to continue RIK fill program for SPR

The US DOE on Oct. 10 solicited contracts to exchange as much as 13 million bbl of oil from federal Gulf of Mexico leases for crude that meets SPR specifications.

Nick Snow
Washington Correspondent

WASHINGTON, DC, Oct. 11 -- The US Department of Energy on Oct. 10 solicited contracts to exchange as much as 13 million bbl of crude oil from federal Gulf of Mexico leases for crude that meets Strategic Petroleum Reserve specifications. Bids are due by Nov. 6.

DOE said the solicitation follows provisions of the 2005 Energy Policy Act, which directs that the SPR be filled to its authorized 1 billion bbl capacity. The reserve's current capacity is 727 million bbl. It currently holds 693 million bbl of inventory.

The solicitation calls for about 70,000 b/d to be added over 6 months. DOE said the royalty in-kind (RIK) contracts would begin in January 2008, with deliveries to begin on or around Feb. 1 and completed by July 31.

Under the federal RIK program, federal lessees deliver crude in lieu of royalties to the US Minerals Management Service, which then resells it on the open market. MMS has said the program is more efficient and saves the government money.

House Natural Resources Committee Chairman Nick J. Rahall (D-W.Va.) has been critical of the RIK program's operation, however, and the energy bill that cleared the committee earlier this year contained a provision limiting future oil royalties in-kind to SPR refills. It was not part of a later energy bill that the full House approved, a committee spokeswoman told OGJ.

DOE said that in such purchases, lessees deliver the royalty crude to market centers along the Gulf Coast, and ownership is transferred to DOE from the Department of the Interior. Contractors are required to take the full contracted amount from the market centers and deliver exchange oil to the SPR. Actual volumes delivered to the reserve reflect account adjustments for quality differences and transportation costs, DOE said.

Contact Nick Snow at nsnow@cox.net.

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