Reasons and Current Outlook for the Sale of Federal Royalty Oil to Small and Independent Refiners

Gao ID: RCED-85-139 August 26, 1985

In response to a congressional request, GAO examined the Department of the Interior's 1983 basis for determining the need to sell federal royalty oil to eligible refiners and alternatives to improving the program.

The Mineral Lands Leasing Act authorizes the Secretary of the Interior to hold oil sales when he determines sufficient supplies of crude oil are not available in the open market to refineries. In addition, the Outer Continental Shelf Lands Act provides for sales when the Secretary determines that small refiners do not have access to adequate supplies of crude oil at equitable prices. Neither law requires the Secretary to make a detailed analysis to support such a determination. The 1983 determination of need was based on: (1) the fact that previous royalty oil contracts were expiring; (2) strong refiner interest in continuing to receive royalty oil; and (3) a belief that small and independent refiners could not continue to exist without government royalty oil. In early 1984, GAO found that many refiners reported that they were having difficulty obtaining crude oil and competitive prices. However, later, many refiners who began finding it possible and more advantageous to obtain crude oil elsewhere withdrew from the program. Therefore, the 1984 sale was deferred, and the program was deleted from the 1986 budget because it was difficult to justify a national need for the program. GAO found that, although the need for the program now appears to be limited to a small number of refiners in the west, there is no compelling reason to eliminate the program if it remains Congress' desire to retain a mechanism for aiding small and independent refiners who have difficulty in obtaining crude oil.

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