Naval Petroleum Reserve No. 1:

Examination of DOE's Report on Divestiture

RCED-88-151: Published: Aug 25, 1988. Publicly Released: Sep 30, 1988.

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In response to a congressional request, GAO examined: (1) the Department of Energy's (DOE) report on the proposed divestiture of Naval Petroleum Reserve 1 (NPR-1); and (2) whether DOE could lease the reserve instead of selling it.

GAO found that the report did not justify the sale of NPR-1 assets, since it: (1) lacked a comprehensive study of all producing pools at NPR-1 to estimate the reserve's value, but relied instead on 1987 long-range-production data; (2) estimated the reserve's value from an industry perspective but did not provide adequate information on the government's ownership interest in NPR-1; (3) covered such issues as defense requirements, foreign ownership, and state claims to certain NPR-1 lands, but discounted the Department of Defense's need for access to an oil reserve for national security reasons; and (4) did not consider leasing as an alternative to either selling or keeping NPR-1. GAO also found that the report's: (1) marketing plan would not sufficiently promote competition or maximize sales revenue because it provided an undue advantage to the firm that had joint ownership of the reserve; and (2) proposed sales date of September 30, 1989, would not allow sufficient time to complete a new study, negotiate an agreement with the joint owner, and complete the sales process. GAO believes that DOE should study leasing NPR-1 as a way to protect government interests.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: In the event that Congress elects to authorize an NPR-1 sale, the Secretary of Energy should ascertain the validity of small and independent refiners' claims that they would be excluded from bidding on a portion of NPR-1, and, if the claims are valid, determine: (1) how that fact might affect the competitive bid process envisioned; and (2) alternate means of ensuring supplies of light oil to these users.

    Agency Affected: Department of Energy

    Status: Closed - Not Implemented

    Comments: DOE has dropped its plan to sell NPR-1 and has proposed that Congress allow it to competitively lease NPR-1. By taking this action, DOE has eliminated the need to clear up several uncertainties about a sale that were identified in the report.

    Recommendation: In the event that Congress elects to authorize an NPR-1 sale, the Secretary of Energy should ensure that the maximum amount of data DOE has on NPR-1 is available to all potential bidders so as to minimize any advantages that Chevron may have over other bidders in the sales process.

    Agency Affected: Department of Energy

    Status: Closed - Not Implemented

    Comments: DOE has dropped its plan to sell NPR-1 and has proposed that Congress allow it to competitively lease NPR-1. By taking this action, DOE has eliminated the need to clear up several uncertainties about a sale that were identified in the report.

    Recommendation: To provide better information on whether an NPR-1 sale is in the public interest and on whether a divestiture determination by Congress could be formulated, the Secretary of Energy should prepare an analysis of the feasibility and the potential benefits to the government of leasing NPR-1 and determine what actions would be required to enter a leasing program.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: In its fiscal year 1992 budget, DOE proposes to competitively lease NPR-1. H.R. 701 was introduced on January 29, 1991 to obtain the authorization needed to lease the reserve.

    Recommendation: To provide better information on whether an NPR-1 sale is in the public interest and on whether a divestiture determination by Congress could be formulated, the Secretary of Energy should assess where the private sector's assumptions concerning the valuation factors would likely differ and then: (1) develop sensitivity analyses to show the magnitude of these differences on the NPR-1 net present value; and (2) identify the advantages of private versus government ownership.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: DOE has dropped its plan to sell NPR-1 and has proposed that Congress allow it to competitively lease NPR-1. By taking this action, DOE has eliminated: (1) the need to clear up several uncertainties about a sale that were identified in the report; and (2) a payment of a 10 percent contingency fee to the contractor.

    Recommendation: To provide better information on whether an NPR-1 sale is in the public interest and on whether a divestiture determination by Congress could be formulated, the Secretary of Energy should revise the June 30, 1987, report to Congress by assessing the value to the government of retaining and producing NPR-1, using revised estimates for reserve data, production schedules and operating costs from the comprehensive reserve study, government-generated oil and gas price forecasts, and a discount rate based on the government's borrowing costs.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: DOE has dropped its plan to sell NPR-1 and has proposed that Congress allow it to competitively lease NPR-1. By taking this action, DOE has eliminated: (1) the need to clear up several uncertainties about a sale that were identified in the report; and (2) a payment of a 10 percent contingency fee to the contractor.

    Recommendation: In the event that Congress elects to authorize an NPR-1 sale, the Secretary of Energy should examine the impact of the possibility that a single large company could buy all or most of NPR-1, determine what Department of Justice involvement in the sale might do to the timely nature envisioned for completing the sale and, if necessary, assess the impact on the sale of restricting any one bidder to a certain maximum share of NPR-1.

    Agency Affected: Department of Energy

    Status: Closed - Not Implemented

    Comments: DOE believes that an antitrust review provision by the Department of Justice, in any proposed legislation, would address this problem. Congress has shown no inclination to authorize the sale of NPR-1 reserves, and DOE has dropped its proposal.

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