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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:  April 2, 1997

DOE Outlines Details in Plan to Offer Elk Hills Oil Field to Multiple Bidders

Agency Also Names 5 Independent Assessors

The Department of Energy (DOE) today released new details of its plan to sell the government portion of the giant Elk Hills oil and gas field near Bakersfield, California. The sale, due to be completed by Feb. 10, 1998, is likely to be one of the largest divestitures of federal property in the nation's history.

In its solicitation process, DOE will offer two types of interests: first, a single "operating working interest" that represents about three-quarters of the government's interest in the field. The purchaser of this package will have a working interest of at least 51 percent in each of the productive zones. Second, DOE will offer the government's remaining one-quarter interest in separate "non-operating working interests," each of which will represent 2 percent of the government's interests. Purchasers will be able to bid on one, some or all of the interests being sold. Additionally, DOE has not dismissed the possibility of selling a portion of its interests in Elk Hills in ways which could appeal to institutional investors, if such a structure would help maximize value to the United States.

DOE also said today that it had decided not to sell the United States' interest in the field's surface facilities separately from the reserves. Instead, the government's interest in such facilities as the large gas processing plants, an onsite cogeneration plant, and crude oil and natural gas handling equipment will be included in the government's offering of the overall undivided working interests in the field.

"When we announced our strategy last October, we had not decided on the size of the interests we would offer or whether we would offer the surface facilities separately," said Patricia Fry Godley, DOE's Assistant Secretary for Fossil Energy. "Today's announcement adds those details." Godley said that DOE, with recommendations from its investment banking advisors, set the operating interest at more than 51 percent of each productive zone to ensure that there would be no question over which owner held a majority interest in the field after the sale.

Currently, ownership of Elk Hills is divided between the United States and Chevron USA Production Company with each owning fee simple title to its respective parcels. The field is operated on a unitized basis with the government's participation share of production being approximately 78 percent. DOE and Chevron are currently redetermining the exact split in the ownership of production from each of the field's four currently-productive zones to settle accounts for pre-sale operations.

Regardless of the outcome of these redeterminations, DOE would structure the bidding process to ensure that the winning purchaser of the operatorship interest would own at least 51 percent of each zone.

DOE's decision to offer the remaining portion of the government's share in 2-percent segments is intended to give bidders the opportunity to purchase smaller portions of the Elk Hills field. It does not preclude, however, the purchase of the United States' entire interest by one buyer if that maximizes the sale price.

Draft Agreement for Future Field Unit Operations Now Available for Public Comment

DOE also announced today that it is making available for public comment a draft agreement that, under the Department's current plans, would create a new unit for the Elk Hills field following the sale and establish the field's operating agreement.

DOE's intent is for the agreement to cover substantially all of the Elk Hills interests of both the United States and Chevron. Legislation authorizing the sale of Elk Hills requires that the existing Unit Plan Contract between Chevron and the United States be terminated by the time the Elk Hills sale is completed. To prepare for this termination, DOE and Chevron have been negotiating a possible form of a new agreement to which Chevron and the buyer(s) of the United States' Elk Hills interests would be parties.

Copies of the draft agreement are available from Petrie Parkman & Co., 6350 Texas Commerce Tower, Houston, TX 77002 (phone: 713-650-3383; fax: 713-650-8461). Written comments should be returned to Jon Hughes of Petrie Parkman no later than April 14, 1997.

Five Assessors to Independently Evaluate Value of Field to Government

DOE also named the five independent experts that will assess the value of the Elk Hills oil and gas field to the U.S. Government. The statute authorizing the sale of Elk Hills required DOE to set the minimum sale price for the field based on the experts' separate assessments. The five are: Miller and Lents, Ltd. of Houston, TX; The Scotia Group, Inc., Dallas, TX; S.A. Holditch & Associates, Inc., New Orleans, LA; Ernst & Young LLP, Washington, DC; and Gaffney, Cline and Associates, Dallas TX.

- End of Techline -

For more information, contact:
Robert C. Porter, DOE Office of Fossil Energy, 202/586-6503, e-mail: robert.porter@hq.doe.gov

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