Administration Proposes Sale of Elk Hills Oil Field

The Energy Department sent to Congress draft legislation Friday to sell almost all of two government-owned oil fields in California and Wyoming.

Proceeds would be used to fill the Strategic Petroleum Reserve.

The two fields are the Elk Hills field near Bakersfield, which produces more than 110,000 barrels a day, and the nearly depleted Teapot Dome field near Casper, Wyo., famous as the subject of a 1920s scandal that saw an interior secretary go to prison. The government owns 78% of Elk Hills and the field operator, Chevron Corp., owns the rest.

The two fields should bring about $4 billion, the department estimated. At current prices, that would buy 220 million barrels of oil--about the difference between the 540 million barrels now in storage in the strategic reserve and the 750 million barrels planned.

The Administration has proposed selling the oil fields in its last two budgets, but this is the first time it has proposed the necessary legislation.

Could Aid Deficit Reduction

Spokesman Bob Porter said the department hoped its proposal could be used to meet part of the deficit reduction goals of the budget agreement the Administration reached with Congress that calls for the raising of $8.5 billion through the sale of assets.

He said the House and Senate conference committees on the major spending bill should be able to consider counting sale of the oil fields if enabling legislation is pending.

The legislation calls for earmarking sale proceeds for the Treasury account used to buy oil for the strategic reserve in salt domes on the Texas and Louisiana Gulf coasts.

The Administration agreed earlier this year to support filling that reserve at 100,000 barrels a day, roughly three times the rate it had previously wanted and about half again as much as Congress recently had been requiring, if a source of financing could be found.

The legislation also calls for establishing a 10-million-barrel supply in the Strategic Petroleum Reserve under the control of the Defense Department. “This is the amount they asked for,” said Porter.

Because the California petroleum market is dominated by a few large companies, the government’s financial adviser, Shearon Lehman Bros., in July recommended selling the government’s Elk Hills interest in three different forms aimed at diversifying ownership: 30% to 40% to one company that would operate the field as a whole; a roughly equal share in small pieces, with the smallest about 2%; and a somewhat smaller share in the form of a royalty trust that could have a large number of owners.

The legislation would require only a sale by “competitive process to the maximum extent practicable,” but Porter said the three-slice operation was “still our preferred method.”