CHEVRON FAULTS DOE'S ELK HILLS FIELD OPERATION

Chevron U.S.A. Production Co. has criticized the Department of Energy's operation of Elk Hills field in California. Elk Hills, seventh largest producing oil field in the U.S., is part of the Naval Petroleum Reserve system. Chevron owns 22% of the field, which DOE operates through a contractor. The Clinton administration has proposed to spin off Elk Hills and the other NPR fields to a privately operated federal corporation, which then would sell the government's interest in the fields.

April 10, 1995

2 min read

Chevron U.S.A. Production Co. has criticized the Department of Energy's operation of Elk Hills field in California.

Elk Hills, seventh largest producing oil field in the U.S., is part of the Naval Petroleum Reserve system. Chevron owns 22% of the field, which DOE operates through a contractor.

The Clinton administration has proposed to spin off Elk Hills and the other NPR fields to a privately operated federal corporation, which then would sell the government's interest in the fields.

The General Accounting Office recently issued a report critical of the operation of Elk Hills (OGJ, Mar. 13, p. 105).

CHEVRON'S ANALYSIS

Greg Matiuk, a Chevron vice-president, told a House national security subcommittee hearing, "Over the past 22 months alone, the lack of commercially competitive practices at Elk Hills has resulted in over $45 million of excessive expenditures. This wasteful spending will continue to increase by over $1 million for every week that dramatic change does not occur."

Matiuk said in May 1993 Chevron proposed that DOE allow it to operate Elk Hills and identified cost savings opportunities of $37-77 million/year from reduced staffing and other efficiencies.

Chevron offered to operate the field without a fee, saving the government $7 million/year it pays the current contract operator. DOE did not accept those proposals.

Matiuk pointed out that DOE's fiscal 1996 budget proposes $78.8 million for Elk Hills, a 50% cut. He said that would reduce the field's revenues $230-320 million during the next 4 years, leading to a net loss for the federal government and Chevron of $150-260 million.

He said "Chevron strongly opposes the option of forming a government corporation to manage and operate Elk Hills. No accurate, up to date cost/benefit or economic analysis exists to support this option."

Matiuk also said, "The best and perhaps only way to achieve a commercial operation is through a sale of the government's share of Elk Hills. With continued government ownership, however, the best choice is to have Chevron as owner/operator."

Rep. Bill Thomas (R-Calif.) said at the least the government should run the field in a way that makes use of assets.

He said when DOE personnel recommended building a cogeneration plant in the field that proposed a rate of return exceeding 35%, they had to wait 5 years for approval. "This delay cost the government about $40 million in lost revenue."