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Questions About Elk Hills

Strange things are going on at the Department of Energy’s Elk Hills oil field in Kern County. At the very least, the department should account for some very unbusinesslike management--even for a bureaucracy--of a valuable national resource.

First, the 1987 Reagan Administration budget proposed selling the Elk Hills and Teapot Dome Naval Petroleum Reserves at possible bargain-basement prices.

Then we hear from two senators last week that the Administration had been over-drilling and over-pumping Elk Hills with the possible risk of wasting or losing 130 million barrels of crude.

And now, we are told that Congressional investigators have discovered that Elk Hills oil has been sold to private buyers for as little as $6.30 a barrel at the same time the government is paying $12.60 a barrel for oil to pump into the Strategic Petroleum Reserve. Cut-rate sales of Elk Hills oil under existing contracts will continue at least until October, said Rep. Phil Sharp (D-Ind.), on the basis of information from the General Accounting Office.

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Last week, Sens. Lloyd Bentsen (D-Tex.) and Albert Gore Jr. (D-Tenn.) claimed that Energy Department officials warned as far back as 1983 that Elk Hills was being overproduced. If such inefficient production rates continued, the internal audit said, the government risked losing between 90 million and 130 million barrels over the life of the field at a cost of $1.6 billion or more.

Why would the department overproduce when it could conserve this domestic supply and take advantage of the world oil glut by buying imported oil at rock-bottom prices? Gore accused the Administration of pumping as much as it could to help put a dent in the budget deficit. Elk Hills oil is expected to bring about $1.2 billion into the Treasury this year.

Elk Hills was established as a federal reserve in 1912. It was opened to commercial production in 1976 with the federal government, which owns 78% of the reserve, selling its oil to private industry--supposedly to the highest bidder. Chevron owns the other 22%. Both the Department of Energy and Chevron claimed the Bentsen-Gore allegations were based on incomplete and disputed information.

The Administration proposed this year to sell Elk Hills and Teapot Dome, in Wyoming, to private industry for $3.6 billion although there is at least one estimate that Elk Hills alone is worth $4.4 billion, depending on the price of oil at the time.

It would be folly to peddle Elk Hills and its estimated 700 billion barrels of reserves now, given depressed oil prices. Congress should prohibit the Department of Energy from issuing any new oil sale contracts until it has a chance to determine whether the oil is being pumped at a wasteful rate or sold at less-than-market prices.

And someone might even ask how much of the California coast would be put at risk through offshore oil exploration and drilling for the equivalent of 700 million barrels.


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