Production of Naval Petroleum Reserve No. 1

GAO presented its findings concerning the options for the Elk Hills Naval Petroleum Reserve No. 1 (NPR-1), which are: (1) continued production at the maximum efficient rate (MER); (2) a near total shut-in; (3) a partial shut-in; or (4) continued production using the revenues generated to establish a defense petroleum reserve (DPR). GAO found that, under continued production at the MER, NPR-1 would provide approximately $3.2 billion in net revenues to the government, and it would be a significant source of oil to the Department of Defense (DOD) in the short-term. However, the value of NPR-1 to DOD will continually decline as production levels decrease. A near total shut-in would disrupt the local economy and, under a shut-in, NPR-1 would be of little immediate help to DOD in an oil shortage because of the time required to return the field to full production. A partial shut-in would keep NPR-1 in a state of readiness for future emergencies and cause some disruption to local economy. GAO believes that the DPR option would be a more effective means of ensuring an adequate supply of petroleum products for DOD than any of the production options under consideration. Finally, GAO found that there are indications that the MER is too high, which could result in a decrease of 139 million barrels in ultimate recovery from NPR-1.