DOE Signs Major Agreement with Exxon Pipeline To Lease Idle Pipelines at Strategic Reserve

Could Bring in $25 Million to Treasury Over 15 Years

Officials with the U.S. Department of Energy's (DOE) Strategic Petroleum Reserve have signed a contract that will turn two government-owned pipelines in the Government's emergency crude oil storage complex into a source of revenue for the U.S. Treasury or possibly additional oil for the Reserve.

DOE inked an agreement with Exxon Pipeline Company to lease two government pipelines connecting the Reserve's Bryan Mound oil storage site, near Freeport, TX, to crude oil distribution hubs in Texas City and Jones Creek, TX.

DOE estimates the agreement could bring in at least $25 million to the U.S. Treasury over 15 years. The contract has a provision for allowing the lease fees to be paid in crude oil that would be added to the Reserve's current 561-million barrel inventory. Also, since Exxon Pipeline will take over responsibility for operating the lines, the Government will save more than $300,000 a year in pipeline maintenance fees.

The pipelines will provide Exxon Pipeline with transportation capacity to connect other new and existing pipelines to bring production from offshore oil fields in the Gulf of Mexico to refining centers in the Texas Gulf Coast and Midwest United States areas.

The Bryan Mound-to-Texas City pipeline is a 40-inch diameter, 46-mile long pipeline, while the Bryan Mound-to-Jones Creek pipeline is a 30-inch diameter, 4-mile long pipeline.

The Exxon Pipeline lease is expected to begin on or before July 1, 2000, and continue for a minimum of 10 years with options for additional 5-year extensions.

In the interim, DOE has signed a short term contract to lease the same pipelines to Seaway Pipeline Company. Arco Pipeline Company, the operator of Seaway, intends to use the pipelines to keep oil moving while it refurbishes some of its storage tanks at the Jones Creek tank farm. The Seaway contract is for six months and can be renewed on a month to month basis until the Exxon Pipeline lease begins.

Under both lease contracts, DOE retains priority use of the pipelines in the event a national emergency requires crude oil to be withdrawn from the Strategic Reserve. The Government also has the right to use the pipelines to conduct yearly tests of the Reserve's distribution capability.

The two contracts are part of an Energy Department initiative, begun four years ago, to convert underused portions of its more than 240 miles of pipelines and a government-built marine terminal into commercial value. Previously, DOE had leased pipelines in Louisiana and the St. James Marine Terminal on the Mississippi River and had executed several shorter-term leases for pipelines at its Big Hill and Bryan Mound sites in Texas. DOE also has sold a pipeline that was no longer needed because the Weeks Island site near New Iberia, LA, is being decommissioned.

- End of Techline -

For more information:
JoAnn Rochon, DOE SPR Project Management Office, 504/734-4731