[Congressional Record (Bound Edition), Volume 154 (2008), Part 7]
[Extensions of Remarks]
[Pages 9174-9175]
[From the U.S. Government Publishing Office, www.gpo.gov]




    THE DEPARTMENT OF THE INTERIOR'S ROLE IN FILLING THE STRATEGIC 
 PETROLEUM RESERVE AS IT RELATES TO H.R. 6022, THE STRATEGIC PETROLEUM 
          RESERVE FILL SUSPENSION AND CONSUMER PROTECTION ACT

                                 ______
                                 

                         HON. NICK J. RAHALL II

                            of west virginia

                    in the house of representatives

                        Wednesday, May 14, 2008

  Mr. RAHALL. Madam Speaker, on Tuesday, May 13, 2008, the House 
overwhelmingly passed H.R. 6022, the Strategic Petroleum Reserve Fill 
Suspension and Consumer Protection Act by a bipartisan vote of 385-25.
  This important piece of legislation is now awaiting action by the 
Senate, which passed a similar bill 97-1. Hopefully this bill will be 
on the President's desk in the immediate future, and he will sign it 
into law so that American consumers can experience some relief 
immediately.
  The purpose of the bill is to temporarily halt filling the Strategic 
Petroleum Reserve (SPR) while oil is at recordbreaking highs. It makes 
absolutely no sense for the Government to be buying oil at roughly $125 
a barrel and pumping it underground. While this is a modest measure to 
address gasoline prices, every little bit helps, as the President noted 
over 2 years ago. Considering that American taxpayers are paying $9 
million a day to continue filling the reserve, I think halting the 
purchases is more than just a ``little bit.''
  The Strategic Petroleum Reserve was created in 1975 to respond to the 
first Arab oil embargo of the 1970s. Originally, the Department of 
Energy was provided with appropriations to purchase oil to fill the 
SPR, but in 1999 the situation changed, and it was announced that oil 
taken as a ``royalty-in-kind'' from production in the Gulf of Mexico 
would be used instead. Through the end of the last fiscal year, the 
Department of the Interior has provided roughly 140 million barrels of 
royalty-in-kind oil to fill the SPR, valued at approximately $4.6 
billion. Today, the SPR is almost 97 percent full, yet royalty-in-kind 
oil is still flowing into it at a rate of 70,000 barrels, worth, as 
stated above, nearly $9 million per day.
  As in any government contractual undertaking, the act of suspending 
shipments of oil to the SPR cannot occur without some adjustments in 
schedules, and it will take some time as well. For example, the 
Department of Energy will have to suspend its contracts with those 
entities that are delivering the oil to the SPR, and at any given 
moment a huge quantity of oil is already in transit.
  My interest, however, as chairman of the Committee on Natural 
Resources, which has primary jurisdiction over the Department of the 
Interior and the program that has been transferring royalty-in-kind oil 
to the Department of Energy, is to ensure that proper guidance and 
oversight is provided to that Department of the Interior.
  To that end, we understand the language of Section 2(c) of H.R. 6022 
to provide the necessary authority to the Secretary to terminate 
existing SPR-related contracts and dispose of any remaining RIK oil 
accordingly.
  Under the terms of Federal oil and gas leases, the Federal Government 
is entitled to a percentage of the proceeds derived from the sale of 
oil and gas produced on Federal lands. The specific percentage is set 
by the terms of the lease, and typically ranges from 12.5 and 18.75 
percent. The Secretary of the Interior is authorized to take that 
percentage either in the form of a cash payment or in the form of oil 
or gas itself. This latter method is called royalty-in-kind, RIK, and 
when the Government chooses to take its royalty-in-kind, it then 
typically sells--using private marketing companies--that oil and gas on 
the open market, directly competing with private firms. Currently, some 
of that RIK oil is not sold, but instead is directed towards filling 
the SPR.
  Under the terms of the RIK-SPR program, the Secretary of the Interior 
enters into long-term transportation contracts with energy companies to 
deliver royalty oil from the Gulf of Mexico to an onshore market 
center, where title is transferred to the Department of Energy. These 
contracts are typically for 6-month terms, and on May 1, the Interior 
Department issued those contracts for the period of July 1 to December 
31 of this year. These contracts have a contingency clause to convert 
them from purely transportation to an outright sale contracts, but 
there is a 45-day notification requirement before such a conversion can 
occur.
  In order to get the oil from the onshore market center to the SPR, 
the Department of Energy enters into exchange contracts with energy 
companies. Under the terms of the exchange contract, the contractor 
takes title of the oil at the market center, and then delivers other 
oil that meets SPR specifications at one of the SPR sites. 
Consequently, the RIK oil does not directly flow into the SPR.
  The language of H.R. 6022 directs the Secretary of the Interior to 
``suspend acquisition of petroleum for the Strategic Petroleum Reserve 
through the royalty-in-kind program.'' This means that the Department 
must terminate its

[[Page 9175]]

transportation contracts and suspend delivery of the RIK oil to the 
SPR. In order to ensure that the Department of the Interior does not 
end up leaving RIK oil ``in the pipeline'' so to speak, H.R. 6022 
intends that the Secretary convert the transportation contracts into 
sales contracts as soon as practicable and in accordance with the terms 
of the transportation contracts.
  This is the obvious intention of the bill, as Congress would 
certainly not want to strand tens of thousands of barrels of oil a day 
in pipelines across America. Consequently, we envision that the 
Department of Energy will continue to accept the oil at the market 
centers for as long as the Department of the Interior is contractually 
obligated to have it delivered, which we anticipate will not exceed 45 
days from enactment of H.R. 6022.
  Congressional intent in this matter is to require the Departments of 
the Interior and Energy to end the process of filling the Strategic 
Petroleum Reserve as rapidly as possible. The Department of the 
Interior should immediately, upon enactment of this legislation, 
provide the necessary notice to their contractors that RIK delivery 
contracts will be converted to sale contracts within 45 days.

                          ____________________