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Techlines provide updates of specific interest to the fossil fuel community. Some Techlines may be issued by the Department of Energy Office of Public Affairs as agency news announcements.
Issued on:  July 19, 1996

DOE Publishes New Schedule of Milestones for Selling Elk Hills Oil Field

Sale Still Expected to Be Concluded by February 1998

Washington, DC - The Department of Energy (DOE) today issued a new timetable for interim milestones in the ongoing divestiture of its share of the Elk Hills Naval Petroleum Reserve in California. The agency said changing the original schedule set by Congress was required to maximize the value of the oil and gas field when it is offered for sale to private bidders.

DOE said that the revised schedule would not change the February 1998 final deadline for the sale set by Congress when it passed the National Defense Authorization Act for FY 1996.

Several intermediate dates in the divestiture process would change, however. For example, the date for a petroleum engineering firm to complete its independent analysis of the field's remaining hydrocarbon reserves would shift from December 1996 to April 1997. Likewise, dates for five independent estimators who will use the reserve analysis to produce benchmark assessments of the field's value would be moved from January 1997 to September 1997.

DOE said that the new schedule reflected the advice of several experts Congress required the department to retain to carry out the statutorily-mandated studies.

Chief among the firms recommending schedule changes were CS First Boston who is serving as DOE's sales administrator; Ryder Scott Co., the petroleum engineering firm conducting the study of the field's remaining reserves; and Netherland Sewell and Associates, Inc., the firm analyzing the division of equity between DOE and Chevron, the co-owner of the field.

"When the initial timetable was developed, neither the Administration nor the Congress had the benefit of having independent firms under contract who were familiar with the Elk Hills field and expert in the divestiture of oil and gas properties," said Patricia Fry Godley, DOE's Assistant Secretary for Fossil Energy who is overseeing the sale. "Now, as Congress directed, we have brought these experts into the divestiture process, they have had the opportunity to familiarize themselves with the Elk Hills asset, and now they are able to provide their professional judgement of the time required to carry out their tasks properly."

Godley stressed that DOE remains on track to meet the February 1998 date set by Congress to complete the sale.

"Our divestiture process is well on its way, and we are confident that we can meet the February 1998 target. In fact, we believe our chances of meeting the target date and obtaining maximum value from the sale are greatly enhanced by the schedule changes we are making. By providing more time in the earlier stages of the process, our experts can prepare higher-quality analyses and other documentation that will be essential during the final stages of the sale."

For example, DOE will extend the time for Ryder Scott to complete its independent reserve report. The analysis will be a key element in the divestiture process because it will give prospective bidders an independent, third-party assessment of the field's remaining hydrocarbon reserves.

Ryder Scott's task is complex because of the large number of reservoirs and the extensive geologic and engineering data that the firm will have to analyze before issuing an independent analysis. For most of its productive life, since 1976, Elk Hills has been one of the Nation's 10 largest oil fields and during any given year, produces oil and natural gas from more than 1,000 wells. In addition to this current production data, DOE has available for Ryder Scott's review internal analyses of the field's reserves done in prior years. By extending the deadline for completing the reserve report from the original December 1996 date to April 1997, DOE will give Ryder Scott sufficient time to examine this extensive collection of data and prepare a complete and credible independent reserve assessment.

The reserve report will not only provide prospective buyers important data, it will also be used for independent assessments of the field's total value. Congress directed that five assessors prepare separate valuations of the field, incorporating estimates of the value of the land and surface facilities in addition to the hydrocarbon reserves. DOE will use the independent assessments to carry out one of the key safeguards mandated by the legislation. Both the Administration and Congress endorsed statutory language that would permit the sale only if bidders offer more for the field than its value as a Government-held asset. DOE will use the independent assessments to establish this value.

Under the original timetable, the five independent assessors were to finish in January 1997, nearly seven months before prospective buyers were to submit bids. This raised the possibility that the assessments could be out-of-date well before the bids were received and evaluated. DOE believed it could assure a more accurate comparison of bids and the independent assessments if both were developed under the same timing and market conditions.

The complete schedule for the Elk Hills divestiture is as follows:


Legislative Completion Date

Revised Completion Date

Issue Notice of Intent to Sell

April 1996

April 1996

Retain Investment Banker
as Sales Administrator

April 1996

April 1996 (Selection)
June 4, 1996 (Contract)

Complete Reserve Report

December 1996

April 1997

Finalize All Equity Interests

October 1996

May 1997

Retain Five Independent Assessors

September 1996

January 1997

Perform Independent Assessments

January 1997

September 1997

Develop Draft Contract

January 1997

January 1997

Issue Solicitation of Offers

March 1997

April 1997

Determine High Offer(s)

August 1997

December 1997

Sale Notice to Congress

January 1998

January 1998

Award Sales Contract(s)

February 1998

February 1998

In the notification letters sent to Congress, DOE also said that its consultant's study of options for the future management of Naval Petroleum and Oil Shale Reserves other than Elk Hills would be completed in August 1996 and that recommendations and possibly legislation dealing with the other properties would be sent to Congress no later than December 1996.

-End of TechLine-

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Naval Petroleum & Oil Shale Reserves




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Page updated on: March 30, 2004 

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