DOE - Fossil Energy Techline - Issued on:  October 6, 1997

Government To Sell Elk Hills to  Occidental Petroleum for $3.65 Billion

Largest Privatization in History of U.S. Government

The Department of Energy has executed agreements preparing for the sale of the United States' interest in the Naval Petroleum Reserve No. 1 (Elk Hills) to Occidental Petroleum Corp. The sales price will be $3.65 billion in cash, making it the largest privatization in the history of the United States Government.

"We're getting maximum value for this asset, and we're turning one of the nation's premier oil and gas fields over to the private sector -- to a respected and experienced U.S. oil and gas producer," said DOE Assistant Secretary Patricia Fry Godley, who has been overseeing the sales process. "The Navy no longer needs Elk Hills, and this sale helps get the government out of the oil and gas business."

The Elk Hills field is located near Bakersfield, Calif. The property encompasses more than 47,000 acres and includes significant oil and gas reserves, more than 1,000 producing wells, a 47-megawatt electricity-generating facility and two large gas plants. Current daily production from the field is approximately 60,000 barrels of oil and almost 400 million cubic feet of natural gas.

The sale to Occidental will complete a two-year privatization process mandated by Congress in the 1996 National Defense Authorization Act. Closing of the transaction is subject to a Justice Department antitrust review, completion of the environmental impact assessment process under the National Environmental Policy Act and a 31-day Congressional review period. Closing is expected to occur prior to the statutorily-mandated deadline of Feb.10, 1998.

The Energy Department offered to sell Elk Hills in two types of segments: one "operatorship" segment consisting of 74 percent of the United States interest in Elk Hills and 13 non-operating segments each consisting of 2 percent of the U.S. interest. Potential purchasers could bid on one, some, or all of the segments. Under the Energy Department's offering guidelines, if a single purchaser wanted to buy all of the Government's interest, its bid would have to exceed the total of highest bids for all of the individual segments.

"The sales strategy was designed to maximize competition and to allow all qualified bidders to compete on an equitable basis," Godley said. "I am pleased to report that the process worked."

The Energy Department's offer solicitation process involved contacts with more than 200 companies from the United States and abroad, 46 of which attended the Department of Energy's technical data presentations in Bakersfield, Calif., and Houston, Texas. The Energy Department received a total of 22 bona fide offers from 15 parties acting alone or in concert.

"Our bidder group was diverse and included major oil companies, independent oil companies, independent oil refiner interests and financial parties," Godley noted.

In the transaction announced today, Occidental will acquire 100 percent of the United States interest and will become the new operator at Elk Hills. "The proposed sales price satisfies the statutory requirements that we maximize proceeds to the Government," Godley said. "It also exceeds the minimum acceptable price established under the provisions of the sales statute."

Elk Hills is one of the 11 largest oil and natural gas fields in the lower 48 States. Originally set aside in the early 1900s to ensure a future source of crude oil for the U.S. Navy, the field no longer serves a national security purpose. (The country's emergency oil supplies are now held in the Strategic Petroleum Reserve.)

Elk Hills has been in commercial production since Congress authorized its development in 1976. It reached peak production of 181,000 barrels of oil per day in 1981. President Clinton included the sale of the Elk Hills Naval Petroleum Reserve in his 1996 budget proposal as part of an effort to remove the Federal government from non-Federal functions.

The Energy Department's advisors in the sale were investment bankers Petrie Parkman & Co. and Credit Suisse First Boston and the law firm O'Melveny & Myers, LLP.

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