GAO SEES WAYS TO HIKE REVENUES FROM NPR OIL

The U.S. General Accounting Office has suggested several ways the Department of Energy could increase its revenues from the Elk Hills Naval Petroleum Reserve in California. Selling the oil on the Gulf Coast or in the Midcontinent, as some have suggested, is not one of them. DOE produces 41,000 b/d from the Stevens zone of Elk Hills field, selling most of it to California refiners through competitive bids. Sales were $327 million in 1992.

June 13, 1994

3 min read

The U.S. General Accounting Office has suggested several ways the Department of Energy could increase its revenues from the Elk Hills Naval Petroleum Reserve in California.

Selling the oil on the Gulf Coast or in the Midcontinent, as some have suggested, is not one of them.

DOE produces 41,000 b/d from the Stevens zone of Elk Hills field, selling most of it to California refiners through competitive bids. Sales were $327 million in 1992.

Rep. Phil Sharp (D Ind.), House energy and power subcommittee chairman, asked GAO to study whether selling the oil to Gulf Coast or Midcontinent refiners would enhance revenues and result in higher prices for the remaining NPR oil sold in California.

GAO reported that quality differences and the cost of shipping the crude would cut profits on crude sold out of state, and the lost revenue would offset any gains from the increased price for the remaining crude.

INCREASING REVENUES

GAO said there are several other ways DOE could increase revenues from NPR oil sales.

When DOE makes monthly price adjustments in its oil sale contracts, it bases the changes on a California oil price index derived from a relatively small number of transactions and price quotes.

GAO said, "Replacing this index with a price indicator based on a larger number of transactions and price quotes could result in slightly higher bids to the extent that bidders could more easily predict future movements of the price index."

It suggested DOE use an index based on transactions for West Texas intermediate crude.

GAO said DOE may be losing money by preferring to sell 25% of NPR production to small refiners those with less than 75,000 b/d of capacity - as allowed under the NPR production act.

"DOE may be invoking this preference unnecessarily in some cases because it does not first analyze, as required by statute, whether these refiners have adequate alternative supplies of oil before it makes the second part of the determination, that selling the NPR od to small refiners under the preference is in the public's best interest."

GAO said DOE has still other opportunities to improve revenues. It noted DOE bills its customers weekly rather than monthly as private oil producers do, "which likely results in buyers making lower bids to compensate for their additional administrative costs.

"In addition, DOE does not market its oil as aggressively as private producers do, possibly resulting in fewer and less informed bidders and lower winning bids."