[House Document 109-59]
[From the U.S. Government Publishing Office]
109th Congress, 1st Session - - - - - - - - - - - - - House Document 109-59
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,
2006, THE EXPIRATION DATE OF THE CURRENTLY AUTHORIZED PERIOD OF
PRODUCTION, PURSUANT TO 10 U.S.C. 7422(c)(2)(B)
October 6, 2005.--Message and accompanying papers referred to the
Committee on Armed Services and ordered to be printed
To the Congress of the United States:
Consistent with section 7422(c)(2) of title 10, United
States Code, 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, 2006, the expiration date of
the currently authorized period of production.
Attached is a copy of the report prepared by my
Administration investigating the necessity of continued
production of the reserves consistent with section
7422(c)(2)(B) of title 10. 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 4, 2005.
Continued Production of the Naval Petroleum Reserves Beyond April 5,
2006
BACKGROUND
The Naval Petroleum Reserves Production Act of 1976 (Pub.
L. 94-258) directed that what were then the 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 George H. W. Bush exercised his authority
once; President Clinton three times; and President George W.
Bush most recently in 2002. As a result, production from the
Reserves has been continuously authorized since 1976 and is
currently authorized through April 5, 2006.
Under Pub. L. 94-258 the President may:
Continue production at the maximum efficient
rate for up to three years beyond April 5, 2006, or
Shut in production at a level that would
protect the reservoirs from ultimately losing oil
reserves, perhaps indefinitely or until a 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 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. 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. Continued production from Naval
Petroleum Reserve No. 2 (NPR-2, Buena 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.
In addition, section 331 of the recently-enacted Energy
Policy Act of 2005 transferred administrative jurisdiction and
control over all public domain lands in NPR-2 (with certain
limited exceptions) from DOE to the Department of the Interior
for management in accordance laws governing management of the
public lands. Production at NPR-2 is expected to continue under
the terms of the new Energy Policy Act.
CONTINUED PRODUCTION OF NPR-3
Economic 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). Actual production from all
wells during FY 2005 has averaged 420 barrels of oil per day.
As a result of an average crude oil sales price of over $49 per
barrel, FY 2005 revenues from the sale of the produced oil and
natural gas liquids will yield nearly $8 million. Based on FY
2005 budget authority, direct and overhead operational costs
are anticipated at $6 million, resulting in revenues to the
U.S. Treasury which exceeds the cost to operate the field by $2
million in FY 2005. NPR-3 should continue to generate revenues
which exceed the cost to operate the field through the period
of this report based on assumptions which include: (1) crude
oil sales price assumptions included in the Mid-Session Review
of the FY 2006 Budget; (2) suspension of all capital investment
projects (although this would result in an annual decline rate
in oil production of 9 percent); (3) the return of temporarily
shut-in wells to production; and (4) continued emphasis on
reducing operating and overhead costs.
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 that can be transferred to and utilized
by the domestic oil and gas industry. An additional benefit to
NPR-3 is that testing successful technologies provides
increased production and reduced operating costs directly to
NPR-3, thus positively impacting the economic performance of
the field.
To decrease field operating costs and maintain a position
of revenues exceeding costs for the oil field operations at
NPR-3, 300 wells have been plugged and abandoned in the past
seven years. The remaining 690 wells will continue to be
maintained as long as they are economically viable. In
addition, several test batteries and production facilities have
been demolished and restored, further lowering operating costs.
While the revenues from production operations at NPR-3 and
the salvage of surplus equipment are not significant in the
context of the overall Federal budget, they nonetheless provide
a positive impact to the U.S. Treasury. Discontinuing
production at NPR-3 at this time would result in the loss of
the 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 in. Once closed, it would remain closed, and more
than 500,000 barrels of oil that could be recovered under
continuing production operations would likely be lost as
unrecoverable.
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. Daily production from NPR-3 is only
slightly more than 0.003 percent of daily consumption of crude
oil in the U.S. and would have no measurable effect on
mitigating oil supply interruptions.
CONCLUSION
Given that the revenues generated and deposited into the
U.S. Treasury exceed the cost to operate the Teapot Dome Field,
continued production of Naval Petroleum Reserve No. 3 beyond
April 5, 2006, is in the national interest.