Proposed Sale of the Naval Petroleum Reserves

GAO discussed the proposed sale of Naval Petroleum Reserves 1 and 3, focusing on the: (1) adequacy of reserve and production information; (2) current operating contract; and (3) impact of discount rates and oil prices on divestiture. GAO found that: (1) there was insufficient accurate data on past production, estimated recoverable reserves, and appropriate production rates to support divestiture; (2) the government and the contractor would have to negotiate a settlement of the current operating contract to provide for selling shares of the field and for the imbalance between production and actual distribution; (3) although the Department of Energy stated that the imbalance would reverse itself as the field depleted, the government should obtain any revenues resulting from the imbalance now rather than including them in the procurement package; and (4) increases in interest rates reduced the present value of net revenues.