Naval Petroleum Reserve No. 1

Examination of DOE's Report on Divestiture Gao ID: RCED-88-151 August 25, 1988

In response to a congressional request, GAO examined: (1) the Department of Energy's (DOE) report on the proposed divestiture of Naval Petroleum Reserve 1 (NPR-1); and (2) whether DOE could lease the reserve instead of selling it.

GAO found that the report did not justify the sale of NPR-1 assets, since it: (1) lacked a comprehensive study of all producing pools at NPR-1 to estimate the reserve's value, but relied instead on 1987 long-range-production data; (2) estimated the reserve's value from an industry perspective but did not provide adequate information on the government's ownership interest in NPR-1; (3) covered such issues as defense requirements, foreign ownership, and state claims to certain NPR-1 lands, but discounted the Department of Defense's need for access to an oil reserve for national security reasons; and (4) did not consider leasing as an alternative to either selling or keeping NPR-1. GAO also found that the report's: (1) marketing plan would not sufficiently promote competition or maximize sales revenue because it provided an undue advantage to the firm that had joint ownership of the reserve; and (2) proposed sales date of September 30, 1989, would not allow sufficient time to complete a new study, negotiate an agreement with the joint owner, and complete the sales process. GAO believes that DOE should study leasing NPR-1 as a way to protect government interests.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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