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Parachute Creek Shale Oil Project's Economic and Operational Outlook

RCED-87-126: Published: Jun 18, 1987. Publicly Released: Jun 18, 1987.

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In response to a congressional request, GAO assessed the economic and technical viability of the Parachute Creek shale oil project.

GAO found that: (1) the project's economic viability is difficult to forecast, since it will depend upon the oil prices that prevail after price supports are exhausted; (2) using recent oil price projections, the project's after-tax cash flow from 1995 through 2005 could be negative by as much as $286 million; (3) total federal assistance over the life of the project could be from $968 million to $1.5 billion, including production tax credits and price guarantees; (4) under the terms of the assistance agreement, $500 million in price and loan guarantees is contingent on the feasibility of installing a fluidized-bed combustor; and (5) because of current operational problems and the difficulties likely to be encountered, the project's technical viability with or without the combustor is uncertain.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: Treasury deobligated $500 million due to project cancellation by the project sponsor.

    Recommendation: In view of the economic and technical issues facing the combustor's installation, the Secretary of the Treasury should rescind the additional $500 million in assistance if the terms of the agreement are not met. If the terms are met and the contractor elects to proceed with the combustor, the Secretary should use the analysis in this report to critically evaluate the contractor's proposal and explore the government's options for minimizing additional outlays on this project.

    Agency Affected: Department of the Treasury


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