Fight Over Elk Hills Oil Reserve Ends

The federal and state governments have settled a long-standing dispute over ownership of one of California’s richest oil fields, paving the way for a sale of the property that could add $135 million or more to the state teachers retirement fund.

That sum would be 9% of the $1.5-billion minimum amount that the planned sale of Elk Hills Naval Petroleum Reserve in Kern County is expected to fetch at auction. Teachers are entitled to the money by virtue of a 1984 state law that envisioned a settlement.

Numerous oil companies, including Chevron Corp. and Atlantic Richfield Co., have expressed interest in making bids for Elk Hills. The government hopes to complete the sale by early 1998.

President Clinton signed a bill in February authorizing the sale of Elk Hills, part of an ongoing privatization of certain strategic oil reserves. But had the state’s claim on the property gone unresolved, it could have depressed its value, said a spokesman for Lt. Gov. Gray Davis, who as state controller filed suit in the state’s interest in 1987.

The state has long contended that it owned the property by virtue of statehood. As an incentive for states to join the union, the federal government customarily offered land for educational purposes, and the Kern County property was so earmarked.

But Elk Hills was never formally transferred, and when oil was discovered in the early 1900s, two presidential orders declared the land and its oil the property of the Navy. Chevron later purchased a 20% interest in the property and exclusive rights to develop oil.

The federal government’s privatization policy and the rising use of nuclear power on Navy ships made the Elk Hills property expendable in the federal government’s eyes.

Chevron now produces 63,000 barrels of oil daily at the 47,409-acre site, which has proven reserves of about 280 million barrels of crude. That makes it one of California’s largest inland oil fields, according to Robert Hight, executive director of the State Lands Commission.

Thursday’s agreement calls for payments to California in five annual installments beginning in the 1999 federal fiscal year.