[House Document 107-272]
[From the U.S. Government Publishing Office]
107th Congress, 2nd Session - - - - - - - - - - - - House Document 107-272
CONTINUED PRODUCTION OF THE NAVAL PETROLEUM RESERVES
__________
MESSAGE
from
THE PRESIDENT OF THE UNITED STATES
transmitting
NOTIFICATION OF HIS DECISION TO EXTEND THE PERIOD OF PRODUCTION OF THE
NAVAL PETROLEUM RESERVES FOR A PERIOD OF THREE YEARS FROM APRIL 5,
2003, THE EXPIRATION DATE OF THE CURRENTLY AUTHORIZED PERIOD OF
PRODUCTION, PURSUANT TO 10 U.S.C. 7422(c)(2)(B)
October 10, 2002.--Message and accompanying papers referred to the
Committee on Armed Services and ordered to be printed
To the Congress of the United States:
In accordance with section 201(3) of the Naval Petroleum
Reserves Production Act of 1976 (10 U.S.C. 7422(c)(2)), I am
informing you of my decision to extend the period of production
of the Naval Petroleum Reserves for a period of 3 years from
April 5, 2003, the expiration date of the currently authorized
period of production.
Enclosed is a copy of the report investigating the
necessity of continued production of the reserves as required
by section 201(3)(c)(2)(B) of the Naval Petroleum Reserves
Production Act of 1976. In light of the findings contained in
the report, I certify that continued production from the Naval
Petroleum Reserves is in the national interest.
George W. Bush.
The White House, October 9, 2002.
Continued Production of the Naval Petroleum Reserves Beyond April 5,
2003
BACKGROUND
The Naval Petroleum Reserves Production Act of 1976 (Pub.
L. 94-258) directed that what were then three Naval Petroleum
Reserves be developed and produced, at their maximum efficient
rates (MER), for an initial 6-year period beginning in April
1976. Pub. L. 94-258 authorizes the President to extend
production in increments of up to three years each provided the
President submits to the Congress a report of an investigation
that determines the necessity for continued production, along
with a Presidential certification that continued production is
in the national interest. President Reagan exercised his
authority to continue production on three occasions. President
Bush exercised his authority once, and President Clinton three
times. As a result, production from the Reserves has been
continuously authorized since 1976 and is currently authorized
through April 5, 2003.
Under Pub. L. 94-258 the President may:
Continue production at the maximum efficient rate
for up to three years beyond April 5, 2003, or
Shut in production at a level that would protect
the reservoirs from ultimately losing oil reserves, perhaps
indefinitely or until national defense emergency required
activation of the Reserves.
The National Defense Authorization Act for Fiscal Year 1996
(Pub. L. 104-106) required the Department of Energy (DOE) to
sell the Government's interest in the Naval Petroleum Reserve
No. 1 (NPR-1, or Elk Hills), located in Kern County,
California. To comply with this requirement, DOE conducted a
competitive bidding process, and in February 1998, sold all of
its interest in Elk Hills to Occidental Petroleum Corporation
for $3.65 billion.
This report addresses the continuation of production
operations at one of the two remaining Reserves, Naval
Petroleum Reserve No. 3 (NPR-3, also known as Teapot Dome), a
small, mature stripper field located near Casper, Wyoming.
Continued production from Naval Petroleum Reserve No. 2 (NPR-2,
Beuna Vista Hills, in Kern County, California) is not analyzed
in this report because that Reserve is not covered by the
relevant provision of Pub. L. 94-258 (10 U.S.C. 7422(c)), and
the Government's productive acreage on NPR-2 has been leased
since the 1920s. Production at NPR-2 is expected to continue
under the terms of the applicable leases as long as it is
commercially viable.
The Strom Thurmond National Defense Authorization Act for
Fiscal Year 1999 (Pub. L. 105-261) authorizes DOE to dispose of
NPR-3 by sale, lease, or transfer to another Federal agency,
after oil and gas operations are abandoned in accordance with
commercial operating practices. That statute also authorizes
DOE to dispose of NPR-2.
CONTINUED PRODUCTION OF NPR-3
Ecomomic impacts
NPR-3 is a mature crude oil stripper field (i.e.,
production averages under 10 barrels per day per well) nearing
the end of its economic life (the time during which revenues
from the sale of produced oil exceed the costs of production
and yield a positive net cash flow). During the first three
quarters of FY 2002, total production from all wells averaged
650 barrels of oil per day. Revenues from the sale of the
produced oil are expected to yield a net positive cash flow to
the Federal Government of approximately $2 million in FY 2002.
NPR-3 should continue to yield a positive net cash flow through
FY 2006 based on assumptions which include: (1) an estimated
sales price of $26-$29 per barrel of oil; (2) implementation of
a few capital investments (i.e., total cost between $500,000
and $1 million) to maintain the annual decline rate in oil
production at 10-12 percent; and (3) continued emphasis on
reducing operating and overhead costs.
In addition to continuing routine production operations at
NPR-3 for the next three years, DOE also will continued a
phased abandonment and reclamation of the facility. Included in
this project, which began in 1998, are the sale of surplus
equipment no longer needed for production operations and the
use of equipment and staff for both ongoing production
operations and reclamation to minimize the cost of each
activity.
While the net revenues from production operations at NPR-3
and the salvage of surplus equipment, which are deposited in
the U.S. Treasury, are not significant in the context of the
overall Federal budget, they nonetheless help to offset
abandonment and reclamation costs, which are estimated at $10-
$15 million for the entire field plus an additional $1-3
million in annual overhead expenses. Discontinuing production
at NPR-3 at this time would result in the loss of the net
revenue stream and the acceleration of work and costs for
abandonment and restoration of the field to comply with State
regulations.
Given the nature of its underground crude oil reservoirs,
NPR-3 almost certainly could not be reopened economically if it
were shut down. Once closed, it would remain closed, and
several million barrels of oil that could be recovered under
continuing production operations would likely be lost as
unrecoverable.
Co-located at NPR-3, and utilizing the same production and
processing facilities, is the Rocky Mountain Oilfield Testing
Center (RMOTC), a program initiated by DOE in 1994. Conducted
largely in cooperation with private industry and academic
institutions through cost-shared projects, RMOTC provides for
the development and demonstration of enhanced oil recovery
techniques, production tools and processes, and environmental
compliance technologies.
Emergency preparedness
NPR-3 production rates are so small that there is no
defense value or other national benefit in conserving the oil
field for future use. Although daily production from NPR-3 is
less than 0.005 percent of daily consumption of crude oil in
the U.S. and would have no measurable effect on mitigating oil
supply interruptions, it is important in the local, State and
regional context.
CONCLUSION
Given the small but positive net cash flow to the U.S.
Treasury, which would help offset the costs of abandoning and
reclaiming the facility, continued production of NPR-3 is in
the national interest.