[Federal Register Volume 62, Number 244 (Friday, December 19, 1997)]
[Notices]
[Pages 66609-66616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33208]


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DEPARTMENT OF ENERGY


Record of Decision: Supplemental Environmental Impact Statement/
Program Environmental Impact Report for the Sale of Naval Petroleum 
Reserve No. 1 (Elk Hills), Kern County, California

AGENCY: U.S. Department of Energy.

ACTION: Record of Decision.

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SUMMARY: The Department of Energy (DOE) is issuing this Record of 
Decision to proceed, subject to review by Congress, with the sale to 
Occidental Petroleum Corporation (Occidental) of all right, title, and 
interest of the United States in Naval Petroleum Reserve No. 1 (NPR-1) 
located in Kern County, California, in accordance with Title XXXIV of 
the National Defense Authorization Act for Fiscal Year 1996, Public Law 
104-106 (hereinafter the ``Elk Hills Sales Statute'' or ``Act'').
    The Act requires that DOE undertake a process to sell NPR-1 in a 
manner consistent with commercial practices and in a manner that 
maximizes the proceeds to the Federal government. Furthermore, the Act 
requires DOE to complete the sale of NPR-1 by February 10, 1998, unless 
DOE and the Office of Management and Budget (OMB) jointly determine 
that (i) the sale is proceeding in a manner inconsistent with 
achievement of a sale price that reflects full value, or (ii) another 
course of action is in the best interests of the United States. The Act 
also specifies a process for determining the minimum acceptable price 
for the sale of NPR-1.
    Based on the analyses in the Supplemental Environmental Impact 
Statement/Program Environmental Impact Report (SEIS/PEIR) titled, 
``Sale of Naval Petroleum Reserve No. 1 (Elk Hills) Kern County, 
California,'' consideration of the Congressional direction contained in 
the Elk Hills Sales Statute, and an offer submitted by Occidental that 
exceeded the minimum acceptable sale price as determined pursuant to 
section 3412(d) of the Act and exceeded all other offers received 
following a competitive sales process, DOE has determined that 
implementation of the Proposed Action and Preferred Alternative in the 
SEIS/PEIR (i.e., the sale of all right, title and interest in NPR-1 in 
accordance with the Act to Occidental) is in the best interests of the 
United States. Accordingly, DOE is publishing this Record of Decision 
(ROD) under the authority of the National Environmental Policy Act 
(NEPA) of 1969 to proceed with the sale of NPR-1 to Occidental and to 
document the basis for this decision.

ADDRESSES: For further information on the sale of NPR-1 (Elk Hills), 
contact Anthony J. Como, NEPA Document Manager, Office of Fossil 
Energy, U.S. Department of Energy, 1000 Independence Avenue SW, 
Washington, D.C. 20585, (202) 586-5935 or 1-888-NPR-EIS1. For further 
information on the NEPA process, contact Carol Borgstrom, Director, 
Office of NEPA Policy and Assistance, U.S. Department of Energy, 1000 
Independence Avenue SW, Washington, D.C. 20585, (202) 586-4600 or leave 
a message at 1-800-472-2756.

SUPPLEMENTARY INFORMATION: DOE is issuing a ROD pursuant to the 
regulations of the Council on Environmental Quality implementing the 
procedural provisions of NEPA 1 and DOE's NEPA implementing 
regulations.2
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    \1\ 40 CFR Parts 1500-1508.
    \2\ 10 CFR Part 1021.
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Background

    The Elk Hills Sales Statute, signed by President Clinton on 
February 10, 1996, authorized and directed the Secretary of Energy (the 
``Secretary'') to enter into one or more contracts for the sale of NPR-
1 by February 10, 1998, unless the Secretary and the Director of OMB 
jointly determine that (i) the sale is proceeding in a manner 
inconsistent with achievement of a sale price that reflects full value, 
or (ii) another course of action is in the best interests of the United 
States. The Act further directed that the sales process be conducted 
``in a manner consistent with commercial practices and in a manner that 
maximizes sale proceeds to the Government.''
    The Act directed the Secretary to take certain measures which were 
designed to assure that the sale of NPR-1 would result in the maximum 
return to the government and that the full value of the reserve would 
be realized. These measures included:
    (1) The retention of an investment banker to independently 
administer the sale in a manner that maximizes sale proceeds to the 
government;
    (2) The hiring of an independent petroleum engineer to prepare a 
reserve report in a manner consistent with commercial practices;
    (3) The finalization of equity interests of known oil and gas 
zones;

[[Page 66610]]

    (4) Conducting a competitive sale that was fair and open to all 
interested and qualified parties;
    (5) The establishment of a process for setting the minimum 
acceptable sales price; and
    (6) The authority to transfer to the purchaser(s) of NPR-1 the 
otherwise nontransferable incidental take permit 3 issued to 
the Secretary by the U.S. Fish and Wildlife Service (FWS) under section 
7 of the Endangered Species Act (ESA).
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    \3\ The authority for Federal agencies to incidentally ``take'' 
(i.e., kill, harm, hunt, wound, trap, etc.) endangered species is 
granted by the FWS through a consultation process. Such consultation 
results in the issuance of a Biological Opinion, which includes an 
incidental take statement. As used in this Record of Decision, the 
term ``incidental take permit'' or ``permit'' refers collectively to 
the Biological Opinion and the incidental take statement contained 
therein.
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    The Act also requires that DOE submit a written notification to 
Congress of the conditions of the proposed sale at least 31 days before 
DOE enters into any contract(s).

Minimum Acceptable Sales Price

    Section 3412(d) of the Act prescribes a process for the Secretary 
of Energy, in consultation with the Director of OMB, to set the minimum 
acceptable price for the sale of NPR-1. As required by this section of 
the Act, the Secretary retained the services of five independent 
experts in the valuation of oil and gas fields to conduct separate 
assessments, in a manner consistent with commercial practices, of the 
value of NPR-1 to the United States under continued government 
ownership and operation. Section 3412(d) specifies that in making their 
assessments, the independent experts shall consider, among other 
factors, the net present value of the anticipated revenue stream that 
the Secretary and the Director of OMB jointly determine the Treasury 
would receive from NPR-1 if it were not sold, adjusted for any 
anticipated increases in tax revenues that would result if NPR-1 were 
sold. This net present value determination was prepared jointly by DOE 
and OMB and was provided to the five independent experts for 
consideration in making their assessments.
    Section 3412(d)(3) of the Act specifies that the Secretary may not 
set the minimum acceptable sale price below the higher of: (a) The 
average of the five independent assessments; and (b) the average of 
three assessments after excluding the high and low assessments. The 
five independent assessments were submitted to DOE on September 15, 
1997. After reviewing these assessments, on September 26, 1997, the 
Secretary and the Director of OMB jointly established the minimum 
acceptable price for the sale of NPR-1 as the average of the five 
assessments, which average was higher than the average of the middle 
three assessments. The best and final offer submitted by Occidental on 
October 3, 1997, exceeded the minimum acceptable sale price established 
by the above process, as well as all other offers, and combinations of 
other offers, submitted by qualified offerors.

Transfer of Incidental Take Permit

    Section 3413(d) of the Elk Hills Sales Statute permits the 
Secretary to transfer to the purchaser(s) of NPR-1 the incidental take 
permit issued to the Secretary by the FWS and in effect on February 10, 
1996, ``if the Secretary determines that transfer of the permit is 
necessary to expedite the sale of the reserve in a manner that 
maximizes the value of the sale to the United States.'' At the 
beginning of the commercial sales process, DOE decided that 
transferring to the purchaser(s) of NPR-1 the Biological Opinion (and 
incidental take statement contained therein) issued to DOE by the FWS 
on November 8, 1995, should help maximize the proceeds from the sale of 
NPR-1. However, in the event that not all potential purchasers of NPR-1 
would be willing to accept the transferred Biological Opinion and its 
terms and conditions, DOE determined to make the transfer optional on 
the part of the prospective operators in the draft Purchase and Sale 
Agreement distributed to potential purchasers during the sales process.
    In its offer to purchase NPR-1, Occidental agreed to accept DOE's 
Biological Opinion and incidental take statement. Accordingly, under 
the terms of the Purchase and Sale Agreement, Occidental will assume 
and agree to be bound by and perform all of DOE's obligations (terms, 
conditions, and mitigation measures) under the Biological Opinion, 
including the on-going monitoring requirements and the obligation to 
establish a 7,075-acre conservation area.

NEPA Process

    The continued operation of NPR-1 by DOE has been analyzed in two 
previously-issued environmental impact statements (EISs): the 1979 EIS 
titled ``Petroleum Production at Maximum Efficient Rate, Naval 
Petroleum Reserve No. 1 (Elk Hills), Kern County, California'' (DOE/
EIS-0012) and a 1993 supplement to the 1979 EIS titled ``Petroleum 
Production at Maximum Efficient Rate, Naval Petroleum Reserve No. 1 
(Elk Hills), Kern County, California'' (DOE/EIS-0158). However, neither 
of those documents addressed the possible divestiture of NPR-1. 
Therefore, subsequent to the enactment of the Elk Hills Sales Statute, 
DOE determined that the sale of NPR-1 would constitute a major Federal 
action that may have a significant impact upon the environment within 
the meaning of NEPA. Accordingly, on March 21, 1996, DOE published a 
notice in the Federal Register (61 FR 11617) announcing its intention 
to prepare a supplement to the 1993 Supplemental EIS to address 
foreseeable impacts from the sale of NPR-1 and reasonable alternatives. 
On April 16, 1996, DOE conducted two public scoping meetings in 
Bakersfield, California, to identify major issues and concerns that 
should be addressed in the SEIS.
    After consultation with the Kern County (California) Planning 
Department, Kern County determined that the proposed sale was a project 
within the meaning of the California Environmental Quality Act of 1970 
(CEQA) requiring the preparation of a environmental impact report 
(EIR). Kern County also determined that, because of the unknown future 
development decisions of the potential new owners, the EIR should be a 
program EIR (PEIR) with future additional analyses to be conducted 
under CEQA as required. Then the determination was made by DOE and Kern 
County to prepare a joint SEIS/PEIR as allowed by the NEPA and CEQA 
regulations.
    In July 1997, the DOE and Kern County published a Draft SEIS/PEIR 
on the proposed divestiture of NPR-1 titled ``Draft Supplemental 
Environmental Impact Statement/Program Environmental Impact Report for 
the Sale of NPR-1, Kern County, California (DOE/SEIS/PEIR-0158-S2). 
This document addressed the environmental impacts associated with the 
Proposed Action (sale of all right, title, and interest of the United 
States in NPR-1 as required by the Elk Hills Sales Statute) and two 
possible alternatives. DOE and Kern County distributed approximately 
300 copies of the Draft SEIS/PEIR to members of Congress, Federal, 
state and local agencies, Native American organizations, environmental 
groups, businesses, and interested individuals. On July 25, 1997, the 
U.S. Environmental Protection Agency published a notice in the Federal 
Register (62 FR 40074) announcing the availability of the Draft SEIS/
PEIR and the start of a 45-day public comment period, which ended on 
September 8, 1997. As part of the public comment process, DOE and Kern 
County held two

[[Page 66611]]

public hearings on August 26, 1997, in Bakersfield, California.
    In preparing the Final SEIS/PEIR, DOE and Kern County considered 
all public comments received, including comments received after the 
September 8, 1997, comment closing date as well as the oral comments 
made during the public hearings. Over 300 comments were received from 
29 written comment letters and 7 oral statements made at the public 
hearings. The Final SEIS/PEIR was distributed on October 17, 1997. This 
Final SEIS/PEIR consisted of the Draft SEIS/PEIR and a comment-response 
document that included public comments received on the Draft SEIS/PEIR, 
responses to those comments, and changes in the Draft SEIS/PEIR in 
response to public comments. The Final SEIS/PEIR identified the 
Proposed Action as DOE's Preferred Alternative. DOE and Kern County 
distributed approximately 300 copies of the Final SEIS/PEIR to members 
of Congress, Federal, state and local agencies, Native American 
organizations, environmental groups, businesses, and interested 
individuals. On October 24, 1997, the U.S. Environmental Protection 
Agency published a notice in the Federal Register (62 FR 55399) 
announcing the availability of the Final SEIS/PEIR.

Sales Process

    In order to meet the February 10, 1998, statutory deadline 
contained in the Elk Hills Sales Statute for the completion of the 
sale, DOE conducted its sales process concurrently with the NEPA and 
CEQA processes. On May 21, 1997, DOE announced the start of the sales 
process, which culminated on October 1, 1997, with the submission of 
bids for the purchase of NPR-1.
    To comply with the provisions of the Act, DOE implemented a sales 
strategy designed to maximize the proceeds to the Federal government. 
To comply with DOE's further obligations under NEPA to identify all 
practicable means of mitigating adverse impacts, DOE structured the 
sales process to incorporate mitigation in a manner that would not 
impair the ability of DOE to maximize the proceeds from the sale of 
NPR-1. To meet DOE's obligations under the Elk Hills Sales Statute and 
NEPA, the Purchase and Sale Agreement provided to prospective offerors 
during the sales process (May 21, 1997, through October 1, 1997) 
contained three optional provisions designed to incorporate mitigation 
into the sale of NPR-1 in a manner that did not impair DOE's ability to 
maximize proceeds from the sale. These optional provisions were:
    (1) Acceptance of the Biological Opinion (including incidental take 
statement) issued to DOE by the FWS;
    (2) Identification of mitigation measures (contained in the SEIS/
PEIR) that would be committed to, without reducing the offering price; 
and
    (3) A guarantee that small and independent refiners in the region 
would have access to 25% of the new operator's NPR-1 oil production for 
three years following the sale.
    During the sales process, prospective purchasers were notified 
that, even after offers were submitted and the ``highest offer(s)'' 
identified, DOE could not enter into a sales contract until:
    (1) The NEPA process is completed and DOE publishes a Record of 
Decision;
    (2) The Justice Department completes an antitrust review of the 
sale; and
    (3) A 31-day Congressional review period expires with no adverse 
Congressional action.
    On October 1, 1997, DOE received twenty-two (22) offers from 
fifteen (15) entities. After a preliminary evaluation of these offers, 
DOE requested submission of ``best and final'' offers from all offerors 
whose initial offer exceeded the minimum acceptable price. After review 
of the ``best and final'' offers, DOE identified Occidental as the firm 
submitting the highest offer for the purchase of NPR-1. In the final 
Purchase and Sale Agreement to purchase NPR-1, Occidental proposed to 
accept the transfer of DOE's Biological Opinion and to submit to DOE, 
within ten (10) business days following the publication of the Final 
SEIS/PEIR, a list of mitigation measures Occidental would implement 
after the closing date of the sale, which is scheduled to occur no 
later than February 10, 1998. This list of mitigation measures 
4 is described in this Record of Decision.
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    \4\  The final Purchase and Sale Agreement negotiated with 
Occidental contained a provision in which Occidental agreed ``to 
deliver a list of mitigation measures to be implemented by Buyer 
[Occidental] after Closing.'' In compliance with this provision, on 
November 7, 1997, Occidental submitted a list of thirty-three (33) 
mitigation measures that it intends to implement. In this letter, 
Occidental also identified the appropriate State, local, or Federal 
agency which is expected to monitor compliance with each of the 
measures.
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Description of Alternatives

    Three alternative actions were analyzed in the SEIS/PEIR: (1) Sale 
of all right, title, and interest of the Federal government in NPR-1 in 
accordance with the Act (the Proposed Action); (2) continued DOE 
ownership and operation of NPR-1 (the No-Action Alternative); and (3) 
withdrawal of DOE from direct petroleum production activities at NPR-1 
but continued Federal ownership (Alternative to the Proposed Action).
    Comments received during the scoping process suggested that, 
depending upon how NPR-1 was offered for sale and the type of 
entity(ies) to whom NPR-1 was sold, different types and levels of 
environmental impacts could result. Based on these scoping comments, 
DOE and Kern County developed and analyzed three different divestiture 
scenarios under the Proposed Action and two different divestiture 
scenarios under the Alternative to the Proposed Action. In each case, 
the analyses in the SEIS/PEIR were based upon either a government 
approach to field development or a commercial approach, depending upon 
the type of entity(ies) assumed to be the eventual owner(s) of NPR-1. 
The three alternatives, five divestiture scenarios, and the two field 
development approaches combine to produce varying types and levels of 
environmental impacts that are identified in the SEIS/PEIR. These 
differences in types and levels of impacts result from differences in 
the rate and level of intensity of oil field development among the 
three alternatives.
    The No Action Alternative assumes continued government ownership 
and operation of NPR-1 and is based upon the lowest rate and level of 
intensity of field development activities among the three alternatives. 
Because the Proposed Action and the Alternative to the Proposed Action 
both assume operation of NPR-1 by a private entity, these two 
alternatives are based upon the same rate and level of intensity of 
field development activities, which is above that assumed in the No 
Action Alternative.
    In order to provide a development baseline against which to analyze 
the environmental impacts resulting from each alternative, the SEIS/
PEIR also included a Reference Case. The Reference Case is based on 
continued production of NPR-1 at maximum efficient rate (MER) in 
compliance with the Naval Petroleum Reserves Production Act of 1976, 10 
U.S.C. 7420 et seq. The 1976 Production Act defines MER as ``the 
maximum sustainable daily oil and gas rate from a reservoir which will 
permit economic development and depletion of that reservoir without 
detriment to the ultimate recovery'' (10 U.S.C. 7420). Such a case 
formed the basis of the Proposed Action in the 1993 SEIS. The Reference 
Case in the SEIS/PEIR is

[[Page 66612]]

based upon NPR-1's 1995 Long Range Plan.

Proposed Action

    The Proposed Action and DOE's Preferred Alternative is the sale of 
all the Federal government's right, title, and interest in NPR-1 as 
directed by the Elk Hills Sales Statute. Under the Proposed Action, one 
or more private entities would purchase NPR-1 and continue to develop 
and operate it as a commercial oil and gas field for at least the next 
40 years. This alternative would result in a higher rate and level of 
intensity of development for NPR-1 than would be the case under 
continued government ownership and operation (the No Action 
Alternative). This higher rate and level of intensity of development 
would result in the construction and operation of more oil field 
infrastructure (wells, pipelines, gas processing facilities) than under 
government operation with a resulting increase in the level of 
environmental impacts.

No Action Alternative

    The No Action Alternative assumes continued Federal ownership of 
NPR-1 with ongoing responsibility for the field continuing to be 
assumed by DOE. This could occur if the Secretary exercises his 
authority under section 3414(b) of the Act to suspend the sale. If such 
a recommendation were made, new and separate Congressional action would 
be required before further action with respect to the disposition of 
NPR-1 could take place.
    However, section 3412(h) of the Act specifies that, until sale, 
production at NPR-1 is to continue at ``the maximum daily oil or gas 
rate from a reservoir, which will permit maximum economic development 
of the reservoir consistent with sound oil field engineering 
practices.'' Therefore, under the No Action Alternative, continued 
ownership and operation by DOE would result in a higher rate and level 
of intensity of development and associated environmental impacts than 
those that formed the basis of the Proposed Action in the 1993 SEIS and 
that are above those characterized by the Reference Case in the SEIS/
PEIR.

Alternative to the Proposed Action

    Under this alternative, the Federal government would take some 
action other than that required by the Act to sell part, but not all, 
of its interest in NPR-1, with the same objective of maximizing the 
value of the reserve to the government. Under this alternative, some 
level of Federal ownership and control over NPR-1 would be retained. 
Future oil and gas development of NPR-1 would be at the same rate and 
level of intensity as the Proposed Action but at a higher rate and 
level of intensity than under the No Action Alternative. However, the 
continued Federal role in the overall management of the property would 
result in a lower level of environmental impacts than under the 
Proposed Action. Implementation of this alternative would require 
additional legislation.

Environmentally Preferable Alternative

    The Environmentally Preferable Alternative is the No Action 
Alternative: continued ownership and operation of NPR-1 by DOE. This 
alternative would result in a continuation of the present level of 
Federal protection for the threatened and endangered species that are 
found on NPR-1. Also, under this alternative, the Federal government 
would develop NPR-1 at a lower rate and level of intensity than would a 
private entity under the Proposed Action or the Alternative to the 
Proposed Action. This lower rate and level of intensity of development 
would produce proportionately lower levels of impacts across the full 
spectrum of environmental resources. Finally, under the No Action 
Alternative, NPR-1 likely would revert to some form of conservation 
area after the completion of oil and gas operations. The 
environmentally preferable alternative was not selected as DOE's 
preferred alternative because it would not permit DOE to comply with 
the Congressional direction contained in the Act of divesting the 
Federal government of all right, title, and interest in NPR-1.

Major Environmental Impacts and Mitigation Measures

    NPR-1 is expected to remain exclusively an oil field for about the 
next half century. The differences in environmental impacts among 
alternatives are driven by the rate and level of intensity of 
development. Development by a private entity under the Proposed Action 
or the Alternative to the Proposed Action would occur at a higher rate 
and level of intensity than development by the Federal government under 
the No Action Alternative.
    The two most import resource areas expected to be impacted by the 
Proposed Action (as well as the No Action Alternative and the 
Alternative to the Proposed Action) are biological and cultural 
resources. The SEIS/PEIR also identified two other potentially 
significant resource areas for the three alternatives. These include 
air resources and water resources. Other potential resource areas and 
impacts analyzed in the SEIS/PEIR include geology and soils, hazardous 
waste, land use, noise, socioeconomic, energy conservation, and 
environmental justice. However, none of the impacts occurring in these 
areas were considered likely to be significant. The SEIS/PEIR concludes 
that all of the impacts resulting from the three alternatives could be 
mitigated to levels that are less than significant.

Proposed Action

    Because the proposed sale of NPR-1 to Occidental would involve the 
sale of all of the Federal government's right, title, and interest, 
implementation of mitigation measures under the Proposed Action would 
be accomplished, for the most part (except for the completion of 
certain mitigation measures related to cultural resources), by the 
proposed purchaser of NPR-1, Occidental, with enforcement by the 
Federal, state and local agencies that have regulatory responsibility 
for the activities occurring at NPR-1.

Biological Resources

    Impacts: The most significant impacts from the Proposed Action and 
the attendant future development of NPR-1 would be on biological 
resources. NPR-1 serves as an important habitat for a number of 
threatened and endangered species, including the San Joaquin kit fox, 
the blunt nose leopard lizard, the giant kangaroo rat, the Tipton 
kangaroo rat, the antelope squirrel, and Hoover's woolly-star (a 
flowering plant).
    Oil and gas development on NPR-1 would continue to alter habitat 
and destroy or injure individuals of threatened and endangered species 
under the Proposed Action. Development under private ownership of NPR-1 
would be at a higher rate and level of intensity and, consequently, 
have a greater impact on plant and animal communities in general and on 
threatened and endangered species in particular. Under the Proposed 
Action, potentially significant impacts include: (1) loss of the 
affirmative Federal obligation under section 7(a)(1) of the ESA to 
protect, conserve and help recover threatened and endangered species 
and their habitats, because the degree of mitigation required of 
private entities by the ESA is lower than that required of the Federal 
government; (2) the potential lack of funds for protection and 
management of the habitat conservation area required to be created by 
the 1995 Biological Opinion; (3) reduced potential for recovery of 
listed species and increased potential for listing additional species; 
and (4) increase in habitat loss and mortality, injury or displacement 
of plant and

[[Page 66613]]

animal communities, including threatened and endangered species.
    The impacts under private ownership from future development 
following the depletion of the reserves and the end of oil and gas 
production are too speculative to be predicted with any specificity. 
However, it is possible that additional stress to biological resources 
could occur, depending on how the owners use the land.
    Mitigation: The principal mitigation for the potentially 
significant impacts on biological resources is Occidental's decision to 
accept transfer of and agreement to be bound by all the terms and 
conditions of the Biological Opinion and incidental take statement 
issued to DOE by the FWS on November 8, 1995. Those terms and 
conditions, including the mitigation commitments made by DOE, will be 
in effect until Occidental applies for and receives a new incidental 
take permit from the FWS under section 10 of the ESA.5 A new 
section 10 permit would contain appropriate terms and conditions agreed 
to by the FWS and Occidental. The principal mitigation measures 
contained in the 1995 Biological Opinion include:
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    \5\ This is the section of the ESA which contains requirements 
applicable to private landowners.
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    (1) Creation of a 7,075-acre conservation area and habitat 
management program;
    (2) Conducting research, monitoring, and biological survey 
programs;
    (3) Incorporation of a variety of measures to limit disturbance or 
destruction of individuals of threatened and endangered species during 
operation and construction activities;
    (4) Prohibitions of public access, hunting, and livestock grazing 
within NPR-1; and
    (5) Restrictions on the use of pesticides, herbicides, and 
rodenticides.
    In addition to accepting the terms and conditions of the 1995 
Biological Opinion, Occidental will enter into and implement an Interim 
Memorandum of Understanding with the California Department of Fish and 
Game pursuant to Section 2081 of California's Endangered Species Act. 
The terms, conditions, and mitigation measures that would be contained 
in this Memorandum of Understanding will mitigate potentially 
significant impacts on those plant and animal species listed as 
threatened or endangered by the State of California.

Cultural Resources

    Impacts: The second major resource area impacted by the Proposed 
Action is cultural resources. Approximately 60 percent of the area of 
NPR-1 has been subject to archaeological survey and inventory. There 
are two historic archaeological sites at NPR-1 that the California 
State Historic Preservation Officer (SHPO) has determined are eligible 
for inclusion on the National Register of Historic Places (discussed 
below). There are also four prehistoric sites that are eligible for the 
National Register. Additional inventory efforts are underway and more 
prehistoric sites are likely to be found (discussed below). The 
documented prehistoric sites are represented by accumulations of flaked 
and ground stone, shell and bone artifacts, features, faunal dietary 
remains and human remains (at two known sites), all of which may be 
relevant to the prehistory of the area.
    Although many potentially significant individual historic 
archaeological sites or buildings at NPR-1 have been so disturbed that 
their archaeological values have been destroyed, DOE recommended to the 
SHPO that NPR-1 be eligible for inclusion on the National Register as 
an historic landscape. The SHPO concluded, however, that NPR-1 was not 
an historic landscape but found that three early production wells (the 
Hay No. 1 Discovery Well, the Hay No. 5 well, and the Hay No. 7 natural 
gas well) appear to be eligible for the National Register.
    Discussions with the SHPO on prehistoric sites indicate that NPR-1 
development may disturb the four individual prehistoric sites eligible 
for the National Register. In September 1997, DOE completed a survey of 
3,000 acres previously unsurveyed but predicted to be sensitive for 
prehistoric archeological resources, and by the end of November 1997, 
archeological testing at the most promising sites within the 3,000-acre 
survey area had been completed. Data recovery on significant 
prehistoric archeological resources will be completed prior to the 
conclusion of the sales process which is presently scheduled for early 
February 1998.
    Mitigation: Pursuant to sections 106 and 110 of the National 
Historic Preservation Act, DOE is in the process of finalizing a 
Programmatic Agreement with the California SHPO and the Advisory 
Council on Historic Preservation concerning surveys, research, data 
recordation, documentation and other preservation activities, as 
appropriate, to mitigate the impacts of the Proposed Action. A set of 
prehistoric resources representative of the types found on NPR-1 would 
be treated by a combination of surface mapping, collection, subsurface 
excavations and analysis to recover data and to address important 
scientific research questions. A Cultural Resources Management Plan 
(CRMP) will address the appropriate mitigation required to recover 
important data from these resources and preserve them through 
appropriate documentation and publication. The CRMP will be made a part 
of the Programmatic Agreement.
    The Programmatic Agreement will also include mitigation measures 
specifically designed to address the impacts on resources of particular 
concern to Native Americans. The mitigation measures will be performed 
under appropriate archeological protection permits with notice to 
Native Americans in accordance with Native American Graves Protection 
and Repatriation Act (NAGPRA) and the Archeological Resources 
Protection Act. As one of the mitigation measures, DOE will inform 
Occidental and the California Department of Conservation, Division of 
Oil, Gas, and Geothermal Resources that sites of this type are known to 
exist in particular areas of the Reserve, although without providing 
specific locations so as to protect Native American values.
    The SHPO has indicated to DOE that the Programmatic Agreement must 
also address the concerns related to NAGPRA. As DOE develops the 
Programmatic Agreement with the SHPO, DOE will provide for involvement 
and comment by Native Americans, both from tribes on the NAGPRA list 
and from others with traditional ties to Elk Hills. In addition, DOE 
will work closely with the FWS and with Occidental in determining the 
location of the land to be included in the conservation set aside area 
required under the terms of the 1995 Biological Opinion, in order to 
maximize the inclusion of areas that archaeologists and Native 
Americans have identified as known or likely to contain human remains.
    With respect to the two historic oil and gas wells that the SHPO 
has determined are eligible for the National Register, the Programmatic 
Agreement will provide for a treatment plan to describe the historic 
context of these wells, as well as to publish the descriptions and 
distribute the descriptions to public libraries.
    In addition to DOE's mitigation, the mitigation measures Occidental 
intends to implement include:
    (1) Evaluate inclusion of the two locations of suspected human 
remains identified by DOE within the conservation area to be 
established pursuant to the 1995 Biological Opinion;
    (2) Implement a cultural resources training plan supervised by an 
archaeologist; and

[[Page 66614]]

    (3) Implement a plan to address the discovery of suspected human 
remains, other than human remains addressed by the Programmatic 
Agreement between DOE and the SHPO, which may be unexpectedly 
encountered during construction activities. The plan may include 
consulting with the County Coroner, an archaeologist and/or a local 
Native American Representative to avoid disturbing suspected human 
remains.

Other Potentially Significant Impacts

    Impacts: The two other potentially significant resource areas 
impacted by the Proposed Action are air quality and water resources. 
Future development of NPR-1 under the proposed action would likely 
result in higher levels of air emissions. Modeling of projected 
emissions for the year 2001, the highest expected emission year, shows 
the potential that the state ambient air quality standards for 
PM10 (particulate matter 10 microns or larger) could be 
exceeded off-site. In addition, on-site Federal ambient air quality 
standards for NO2 (Nitrous Oxide) and state ambient air 
quality standards for PM10 and SO2 (Sulfur 
Dioxide) might be exceeded. However, these results are conservatively 
based on maximum permitted emission rates rather than likely lower 
actual emission rates, so the actual future emissions are expected to 
be within the National and state standards.
    The last potential significant impact area from the Proposed Action 
is the potential impact on water resources. The higher rate and level 
of intensity of development under the Proposed Action would increase 
water use in the enhanced oil recovery technique knows as ``water 
flooding'' and increase in treatment and disposal requirements for 
``produced waters.''
    Mitigation: The impacts to these resources would be roughly 
proportional to oil production levels and can be mitigated through 
compliance with applicable National and state air emission standards 
and a continuation of the ongoing NPR-1 program to use treated produced 
waters in ``water flood'' projects. Occidental intends to implement two 
mitigation measures with respect to air quality and fifteen (15) water 
resource mitigation measures. These mitigation measures by Occidental 
would continue existing DOE practices.

Other Resources

    Impacts: Additional areas of potential concern are geology and 
soils, hazardous waste management and disposal, land use, noise, 
socioeconomic, energy conservation, and environmental justice. Impacts 
in these areas are not likely to be significant.
    Comments received during scoping and comments received on the Draft 
SEIS/PEIR expressed concern that the possible loss of access to NPR-1 
oil for use in local refineries and as a diluent for pipeline 
transmission could lead to a premature loss of local refinery 
production and/or the inability of local crude oil producers to deliver 
their products to market. Some local small and independent refiners 
and/or producers of heavy crude oil are dependent on continued access 
to the lighter NPR-1 oil, and concern was expressed that the proposed 
sale could limit their access to the oil. Although the proposed 
purchaser of NPR-1, Occidental, did not accept the optional sales 
provision to guarantee access to small and independent refiners, 
Occidental does not refine oil in California and is expected to put its 
share of the production from NPR-1 on the market. Therefore, small and 
independent refiners in the region should have access to NPR-1 crude 
oil under the Proposed Action (sale of NPR-1 to Occidental).
    Mitigation: Occidental intends to implement 10 additional 
mitigation measures (see Footnote 4) with respect to these other impact 
areas. In addition, all known hazardous waste sites at NPR-1 have been 
or will be remediated by DOE using appropriate remediation technology. 
However, remediated sites have, as yet, not received determinations 
that no further actions are needed from the relevant regulatory 
agencies. DOE will continue to work with these agencies to achieve 
final closure on the sites, including any additional mitigation work if 
required. In the unlikely event that any previously undiscovered 
reportable hazardous waste sites are encountered prior to the sale, DOE 
will characterize the contamination and disclose it to Occidental.

No Action Alternative

    Government development of NPR-1 under the No Action Alternative 
would likely be at a lower rate and level of intensity than under the 
Proposed Action or the Alternative to the Proposed Action. Further, DOE 
would retain the affirmative Federal obligation to mitigate the 
environmental consequences of its actions. However, the affected 
environment and the types of impacts to the affected environment would 
be the same under both the Proposed Action and the No Action 
Alternative. In addition, the SEIS/PEIR recognizes the possibility 
(although an unlikely one) of a higher rate and level of intensity of 
development under government operation than might occur under 
commercial operation.
    For biological resources, there would be less destruction, 
disturbance and fragmentation of endangered species habitat under the 
No Action Alternative compared to the Proposed Action because it is 
expected that fewer wells would be drilled under the No Action 
Alternative. In addition, the level of mitigation required of Federal 
agencies under the ESA is greater than that for private industry. 
Furthermore, although future development cannot be predicted, at the 
end of NPR-1's useful life as an oil and gas field, it is more likely 
to be converted to wildlife habitat under government ownership than 
under private ownership.
    For cultural resources, again there would be less disturbance of 
surface areas under the No Action Alternative than under the Proposed 
Action. Further, the requirements placed on Federal agencies by the 
National Historic Preservation Act to protect historic properties would 
continue under this alternative.
    For air resources and water resources, the lower rate and level of 
intensity of development under the No Action Alternative would mean 
fewer impacts to these affected environments than under the Proposed 
Action or the Alternative to the Proposed Action. However, the 
difference in impacts between the No Action Alternative and the 
Proposed Action is not expected to be significant. The additional areas 
of potential concern of geology and soils, hazardous waste management 
and disposal, land use, noise, socioeconomic, energy conservation, and 
environmental justice would not involve significant differences in 
level of impacts between the No Action Alternative and the Proposed 
Action. However, the implementation of mitigation measures in each of 
the resource areas would reduce potential impacts to levels that are 
less than significant.

Alternative to the Proposed Action

    Development of NPR-1 by a private entity under the Alternative to 
the Proposed Action would likely occur at the same rate and level of 
intensity as the Proposed Action. However, the continuing government 
interest in NPR-1, although not direct operation, would mean that 
development would continue to be subject to the affirmative Federal 
obligation to mitigate the environmental consequences of its actions, 
especially for biological and cultural resources.

[[Page 66615]]

Again, the affected environment and the types of impacts to the 
affected environment would be the same under both the Proposed Action 
and the Alternative to the Proposed Action.
    For biological resources, there would be the same destruction, 
disturbance and fragmentation of endangered species habitat under the 
Alternative to the Proposed Action as for the Proposed Action because 
it is expected that the same number of wells would be drilled. However, 
the higher levels of mitigation required of government agencies would 
continue to apply and although future development cannot be predicted, 
at the end of the field's life, it is more likely to be converted to 
wildlife habitat under this limited amount of government ownership than 
under complete private ownership.
    For cultural resources, again there would be the same disturbance 
of surface under the Alternative to the Proposed Action as the Proposed 
Action. Further, the requirements placed on Federal agencies by the 
National Historic Preservation Act to protect historic properties would 
continue under this alternative.
    For air resources and water resources, the similarity of the rate 
and level of intensity of development likely for this alternative 
compared to the Proposed Action would mean similar impacts to these 
affected environments as in the Proposed Action. The impacts to 
additional areas of potential concern of geology and soils, hazardous 
waste management and disposal, land use, noise, socioeconomic, energy 
conservation, and environmental justice would not be significantly 
different from the impacts in these areas under the Proposed Action. 
However, the implementation of mitigation measures in each of the 
resource areas would reduce potential impacts to levels that are less 
than significant.

Cumulative Impacts

    Section 3416 of the Elk Hills Sales Statute directed the Secretary 
to study four options for the disposition of the other Naval Petroleum 
Reserves (other than NPR-1) 6 and to recommend to Congress 
which option or combination of options would maximize the value of the 
reserves to the United States. These options included:
---------------------------------------------------------------------------

    \6\ The other Naval Petroleum Reserves include NPR-2 located 
adjacent to NPR-1 in Kern County, California; NPR-3 located in 
Natrona County, Wyoming; Naval Oil Shale Reserve Nos. 1 and 3 
located in Garfield County, Colorado; and Naval Oil Shale Reserve 
No. 2 located in Uintah and Carbon Counties, Utah.
---------------------------------------------------------------------------

    (1) Retention and continued operation by DOE;
    (2) Transfer to the Department of the Interior (DOI) for leasing;
    (3) Transfer of all or part of the other reserves to another 
Federal agency; and
    (4) Sale of the interest of the United States in the other 
reserves.
    Included in these other reserves is NPR-2, which consists of 
approximately 30,181 acres located immediately adjacent to NPR-1. The 
Federal government owns approximately 35 percent of the acreage of NPR-
2, with the mineral rights associated with 9,224 of these acres leased 
to seven oil companies under 15 active leases. DOE administers these 
leases but has no active role in the day-to-day operation of NPR-2.
    The SEIS/PEIR examined the cumulative impacts of the Proposed 
Action for NPR-1 in conjunction with three possible actions for NPR-2: 
transfer to DOI; a No Action Alternative; and a sales alternative. The 
analysis in the SEIS/PEIR indicated that the sales alternative for NPR-
2 coupled with the Proposed Action for NPR-1 could result in 
significant adverse impacts to biological and cultural resources 
because of the loss of the affirmative Federal obligation to protect 
sensitive environmental resources on the additional land comprising 
NPR-2. However, the SEIS/PEIR concluded that there would be no 
significant adverse impact resulting from either transfer to DOI or the 
No Action Alternative for NPR-2 because both actions would continue 
Federal ownership of the land and the attendant protections for 
critical environmental resources.
    Based on the results of the study of options for the other Naval 
Petroleum Reserves directed by the Act, in March 1997 DOE recommended 
to Congress that NPR-2 be transferred to the Department of the 
Interior's Bureau of Land Management (BLM) for management of the 
surface rights under the Federal Land Policy and Management Act and for 
possible leasing of currently unleased acreage under the Mineral 
Leasing Act. As discussed in the SEIS/PEIR, the combination of the 
Proposed Action for NPR-1 and the recommended action for NPR-2 would 
produce no increased stresses on the critical biological and cultural 
resources in the region and result in no significant adverse cumulative 
impacts.
    Congress has not yet authorized DOE to take any action with respect 
to the future disposition of NPR-2.

Response to Comments Received After the Final SEIS/PEIR

    Following publication of the Final SEIS/PEIR, DOE received a letter 
dated November 26, 1997, from the Pacific Environmental Advocacy Center 
(PEAC) notifying DOE that the Southwest Center for Biological Diversity 
intends to file suit against DOE for failure to reinitiate consultation 
with the FWS under section 7(a)(2) of the ESA before selling NPR-1. 
PEAC asserted that DOE is required to reinitiate consultation with the 
FWS independent of the authority contained in the Elk Hills Sales 
Statute, to transfer DOE's incidental take permit to the purchaser of 
NPR-1.
    The issue of reconsultation was discussed extensively in the Final 
SEIS/PEIR in response to several comments received (Final SEIS/PEIR, 
pages 1-5 and 1-6). DOE explained in that discussion the basis for 
concluding that a new consultation was not required. DOE's conclusion 
is supported by an interpretation of the pertinent provisions of the 
Elk Hills Sales Statute provided by the DOI Regional Solicitor. DOE 
believes that PEAC has not provided any new information that would 
change the conclusions contained in the Final SEIS/PEIR or in this 
Record of Decision.

Decision

    DOE has decided to proceed with the sale of all right, title, and 
interest of the United States in the NPR-1 to Occidental, subject to 
other requirements of law, including completion of a 31-day 
Congressional review period with no adverse legislative action by 
Congress. This action will allow compliance with the Congressional 
direction contained in the Elk Hills Sales Statute of removing the 
Federal government from the inherently non-Federal role of operating a 
commercial oil and gas field and also maximizing the value of NPR-1 to 
the United States. This decision also is based in part on the offer 
submitted by Occidental being the highest offer received by DOE at the 
conclusion of the bidding process in 1997, and the fact that the 
Occidental offer exceeds the minimum acceptable sale price set by DOE 
in consultation with OMB consistent with the provisions of section 
3412(d) of the Act.
    DOE has considered the information contained within the SEIS/PEIR 
and comments received in response to the Draft SEIS/PEIR. In making 
this decision, DOE has considered in particular: any potential adverse 
impacts to threatened and endangered plant and animal species which are 
found within NPR-1, as analyzed in the SEIS/PEIR; the decision by 
Occidental to accept the transfer of and to be bound by the terms and 
conditions of the

[[Page 66616]]

Biological Opinion issued to DOE by the FWS on November 8, 1995; the 
intention of Occidental to implement thirty-three (33) mitigation 
measures identified in a letter submitted to DOE on November 7, 1997, 
and which are generally described above; and the mitigation of 
potential adverse impacts to cultural resources through the 
implementation of mitigation measures by DOE pursuant to a Programmatic 
Agreement to be executed among DOE, the California SHPO, and the 
Advisory Council on Historic Preservation.

Mitigation Action Plan

    Section 1201.331(a) of the DOE regulations implementing NEPA (10 
CFR Part 1021) states that DOE shall prepare a Mitigation Action Plan 
that addresses mitigation commitments expressed in the ROD. A 
Mitigation Action Plan regarding DOE's commitments for the divestiture 
of NPR-1 is being developed to ensure implementation of all mitigation 
commitments. Copies of the Plan may be obtained from Mr. Anthony Como 
at the above address.

    Issued in Washington, D.C. this 12th day of December 1997.
Patricia Fry Godley,
Assistant Secretary for Fossil Energy.
[FR Doc. 97-33208 Filed 12-18-97; 8:45 am]
BILLING CODE 6450-01-P