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Techlines provide updates of specific interest to the fossil fuel community. Some Techlines may be issued by the Department of Energy Office of Public Affairs as agency news announcements.
Issued on:  October 3, 1996

DOE Unveils Plan to Sell Elk Hills Naval Petroleum Reserve in Segments

Approach Most Likely to Ensure Competition and Highest Value to Taxpayers

Washington, DC - Taking the next step in one of the largest U.S. government divestitures ever, Secretary of Energy Hazel R. O'Leary today announced the Department of Energy's (DOE) strategy to sell the government's portion of the Elk Hills Naval Petroleum Reserve.

Rather than marketing the field as a single asset, DOE will offer it in segments. Bids will be solicited for an "operating working interest," where the buyer will become the field's operator, and for multiple, "non-operating working interests," where purchasers will bid for smaller interests in the field.

The Elk Hills field, near Bakersfield, CA, is the 11th largest oil field and 10th largest operating gas field in the lower 48 States.

"By offering multiple interests in Elk Hills, the Department can broaden the universe of potential buyers and increase competition. This will help ensure that U.S. taxpayers receive the highest market value," said Secretary O'Leary. "In 1995 the Clinton Administration decided to get the government out of the business of running a commercial oil field. Today's announcement moves us closer to that goal."

DOE also announced that it will begin outlining the key components of the strategy for prospective bidders at two public meetings next week, in Houston, TX, and Bakersfield, CA.

DOE plans to offer an "operatorship interest" made up of a significant portion of the government's approximate 78 percent share of the field. Currently, ownership of the field is divided between DOE and Chevron USA Production Company, and the field is operated on a unitized basis. The buyer of the operatorship interest would take over operations of the field.

In addition, DOE will offer undivided, non-operating working interests to allow smaller companies, alone or in consortia, the opportunity to obtain interests in the field. DOE might also consider selling some of the field's surface facilities separately to attract companies that specialize in natural gas processing or power generation.

The strategy was developed from recommendations of CS First Boston and Petrie Parkman & Co., the team serving as investment advisors to the agency.

"We developed this strategy to meet three guiding principles," said Patricia Fry Godley, DOE's Assistant Secretary for Fossil Energy, who is overseeing the Elk Hills sale. "First we want to maximize the value of the asset. Second, we want all qualified bidders to compete on an equitable basis. Third, we want a sales process that does not preclude small and mid-sized independent producers and refiners from bidding."

"Our approach will create a fair and highly competitive sales environment," Godley said. "If a single purchaser wants to buy the entire operation, its bid will have to exceed the highest bids for all of the individual segments. This is likely to attract a higher value for the field than selling it as a single asset."

The strategy is expected to appeal to many smaller, independent producers and refiners in California who use the lighter crude oil from Elk Hills for blending with heavier oil from surrounding fields, making the heavier oil easier to transport and refine. Having direct access to the lighter crude oil is important to these smaller companies.

The two public meetings with prospective bidders and other interested parties will take place on October 15 in Houston, TX, and October 16 in Bakersfield, CA. Assistant Secretary Godley and members of the CS First Boston/Petrie Parkman team will outline the key components of the sales approach to prospective buyers. The Houston meeting will be held at the Hyatt Regency (downtown Houston) at 1200 Louisiana Street. The Bakersfield meeting will be at the Red Lion Inn, 3100 Camino Del Rio Court. Both will begin at 2 p.m. and are open to the public.

Congress set a deadline of February 1998 to sell the field if sufficiently high bids are received. DOE has said it would sell its share of Elk Hills field only if it receives bids that are higher than the value of the asset to the government. Last July, the Department released a new schedule for the divestiture that calls for a solicitation to be issued in April 1997. Target dates, including dates for opening data rooms to prospective bidders, will be discussed at the public meetings.

- End of TechLine -

Contact for additional information:
Robert C. Porter, Office of Fossil Energy, (202) 586-6503
e-mail: robert.porter@hq.doe.gov

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Page updated on: March 30, 2004 

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