DOE Recommends Transfer of Naval Oil Shale Reserves and Buena Vista Oil Reserve to Interior Department

Could Open 145,000 Acres to Commercial Leasing

The Department of Energy (DOE) is recommending the transfer of its three Naval Oil Shale Reserves -- two in Colorado, the third in Utah -- to the Department of the Interior, an action that would make up to 145,000 acres of public land available for future commercial leasing while preserving public access to certain scenic wilderness areas.

In a report sent to Congress, DOE also recommends transferring to the Interior Department the Buena Vista Hills Naval Petroleum Reserve No. 2, a small oil field adjacent to the giant Elk Hills field near Bakersfield, California. Existing mineral leasing agreements would remain intact, and a small number of unleased town lots in Ford City would be sold.

DOE also recommends that it continue producing the Teapot Dome Naval Petroleum Reserve No. 3 in Wyoming until the small stripper-well field is economically depleted, probably by 2003. The agency would then sell or dispose of the government's interest in the reserve.

The report responds to the 1996 National Defense Authorization Act which directed the Secretary of Energy to retain an independent consultant to study specific options for maximizing the value to the United States of the reserve properties other than the Elk Hills field. DOE contracted with John Gustavson and Associates to carry out the independent consultant study. DOE is proceeding separately with an initiative to offer its interests in the Elk Hills field for sale.

The Naval Petroleum and Oil Shale Reserves were established in the early 1900s when the government began setting aside large sections of public lands with geologies favorable for hydrocarbon production. Although originally intended as a source of petroleum for the nation's military, the Naval Petroleum Reserves are now produced primarily for commercial purposes while the Naval Oil Shale Reserves have remained largely undeveloped because of the uneconomic costs of shale oil.

The Naval Oil Shale Reserves No. 1 and No. 3, both near Rifle, CO, are in a region where natural gas is being produced commercially from nearby tracts. Since 1985 DOE has drilled several gas wells near the boundaries of the Naval Oil Shale Reserve No. 3 to protect government-owned gas resources from being drained by adjacent private operations.

The Naval Oil Shale Reserve No. 2, in a remote area of Utah southwest of Vernal, also has shown geologic potential for oil and gas production, although the acreage is still considered exploratory.

In its report to DOE, Gustavson estimated that the total value of the leasing option was about the same as the sale option, but noted that, under the Mineral Leasing Act, the States in which Federal land is located would receive 50 percent of the revenues from the leases. In estimating the properties' value to the Nation under the leasing option, Gustavson therefore subtracted revenues that would go to Utah and Colorado and concluded that selling the properties would produce the highest value to the Federal Government.

DOE recommendations, however, considered the full value of both Federal and State revenues in the leasing option, reasoning that Congress had found public value in assigning 50 percent interest in Federal royalties to the States when it included that provision in the Mineral Leasing Act. In addition, DOE concluded that transferring the properties to the Interior Department's leasing program would allow undeveloped acreage to be explored while still under federal ownership, providing a more accurate evaluation of the properties' future mineral value.

DOE also concluded that certain areas of the reserves had considerable non-economic value. The wilderness areas of the Naval Oil Shale Reserve No. 2 and its cultural significance to Native American tribes outweighed any near-term financial gain that a sale might produce, DOE said.

DOE also estimated that the costs of conducting a sale of the Buena Vista Hills Naval Petroleum Reserve in California, a "checker boarded" array of 50 government-owned tracts, would likely reduce any financial return to perhaps as low as $500,000. This small monetary gain would not offset the potential lessening of environmental protection for several endangered or threatened animals and plants present on the federal property that likely would occur if the property was sold.

DOE agreed with its consultant's recommendation that the department continue to maintain the Teapot Dome field. Now producing less than 1800 barrels of oil per day, the field is nearing the end of its productive life. DOE also has set up the Rocky Mountain Oil Field Test Center at the site which is being used to test new oil field products and services. DOE said it will ask Congress for authority to sell or otherwise dispose of the property in a manner that would maximize its value when the field is depleted.

-End of TechLine-

For more information, contact:
Robert C. Porter, Office of Fossil Energy, 202/586-6503 e-mail: robert.porter@hq.doe.gov