Sale of Oil Lands Would Be a Giveaway : Elk Hills Is a Public Resource Too Valuable to Sell to Private Interests

Under the amiable but ineffectual Administration of Warren G. Harding, the naval petroleum reserves of Elk Hills in Kern County and Teapot Dome in Wyoming were quietly “privatized.” Sweetheart leases resulted in the siphoning off of millions of dollars into the private fortunes of Interior Secretary Albert Fall’s friends and cronies. Now, more than 60 years later, the Reagan Administration wants to sell these same petroleum reserves, oil-rich areas currently producing at the rate of about $1.3 billion a year.

When the Office of Management and Budget first proposed selling the reserves, it estimated a possible return of $3.6 billion. But selling at that price would not ultimately reduce the federal deficit, as the Administration contends.

If, as the Department of Energy has estimated, Elk Hills alone is worth $4.4 billion, and if the reserve continues, as expected, to produce throughout this century in relatively large amounts, the sale would result in a short-term gain but a long-term loss.

Since those early estimates, the price of crude oil has dropped by nearly 50%. One can only speculate what the reserve will bring today given long-term energy needs and long-term crude oil price averages. The government might make a quick buck by selling low. It might also lose big in the long term, as proved to be the case with the sale of coal leases on federal lands several years ago.

About the only certainty is that this sale will satisfy the wrong-headed and persistent Administration drive for privatization--the transfer of federal lands and assets into the hands of others, regardless of the cost.

In 1982 President Reagan called for a review of federal land holdings throughout the nation with a view toward their eventual disposal. Included were millions of acres of national forest and public lands throughout the West. When the ultimate effects of this program became known, there was a universal uproar. Conservationists, fishermen and hunters were not the only ones concerned about the effects of closing off vast areas of land. Ranchers and cattlemen realized that their access to open ranges was in danger. As Idaho’s governor said at the time, “I think most people fear that once this land goes on the block, it is not going to go to Idahoans, it’s going to go to speculators and suitcase farmers who will just drive up prices and fence the land off.”

Even that staunch defender of conservation values, James A. Watt, quietly pulled the Department of Interior out of the privatization program, viewing it as a political mistake and a liability to the President.

The Administration’s drive to dispose of the people’s assets has not been limited to petroleum reserves and public lands. Responsible economists have estimated that such sweeping offshore oil leasing policies have resulted in fire sales, costing the American people billions of dollars in future revenues.

In light of the falling oil market, the proposed Elk Hills sale could be a financial disaster of similar or greater dimensions. The OMB proposal appears to be based on prices of about $25 a barrel. Lately, sales have fallen to the $10-$12 range, and the end is not in sight. If the President proceeds with the plan to sell the reserves, the price may be even lower than originally estimated. In that case, it will not be the federal treasury that is enriched. It will be those in the oil industry who still have cash to spend and can afford to wait for the inevitable upturn in crude oil prices.

If, as a recent Harvard study suggests, oil prices rise substantially again in the late 1980s, the lucky buyers will reap a real windfall at taxpayers’ expense.

In calling for further study of the proposal to sell Elk Hills, which is in his district, Rep. William M. Thomas (R-Bakersfield) observed: “You can shear a sheep every year, but you can only skin it once.”

There is an alternative to private sale that is in the public interest. Elk Hills is the largest producing oil field in the United States outside Alaska. It is a fully developed reserve, operated efficiently by private contractors under federal supervision.

Assuming, as the President does, that a naval petroleum reserve at Elk Hills is no longer necessary, Congress should revoke its status as a reserve rather than authorizing its sale. The lands would then revert to the public domain. Operations would continue. The only difference would be that management could be merged into the existing onshore oil and gas program operated by the Department of Interior. Rather than a one-time fire sale return of about $3 billion, Elk Hills would continue to produce a highly desirable annual income, which California would share under the Mineral Leasing Act.

Moreover, this solution would permit the state to recover two sections of school lands within the reserve, part of the public land grant made in 1853 but as yet unconsummated, to aid in its support of the public schools.

With the return of Elk Hills to the public domain, the rights of the people in a valuable public resource would be assured. The last Administration effort to “privatize” the naval reserves resulted in the Teapot Dome scandal. Sound economics and good public policy, as well as memory of times past, compel a different approach today.