Naval Petroleum Reserves

The Petroleum and Oil Shale Reserves were established in the early 1900s when the government began setting aside large sections of public lands favorable for hydrocarbon production. Although these reserves were originally intended as a source of oil for the military, the Naval Petroleum Reserves are now primarily produced for commercial purposes. By contrast, the Naval Oil Shale Reserves have remained largely undeveloped, although protective drilling has occurred since 1985 to protect government-owned resources from being drained by adjacent operations. This testimony discusses the Energy Department's recommendation that Oil Shale Reserves 1 and 3 be transferred to the Interior Department for leasing and surface management under the Mineral Leasing Act and the Federal Land Policy Management Act.

GAO noted that: (1) the National Defense Authorization Act for Fiscal Year 1996 required DOE to retain an independent petroleum expert to conduct a study to determine which of four options, or combination of options, would maximize the value to the United States of the five Naval Petroleum and Oil Shale Reserves; (2) the four options specified in the act for DOE's consideration are: (a) retention and operation of the Naval Petroleum Reserves by DOE; (b) transfer all or a part of the Reserves to the jurisdiction of another federal agency for continued administration under the Naval Petroleum Reserve law; (c) transfer all or a part of the Reserves to the Department of the Interior for leasing in accordance with the Mineral Lands Leasing Act and surface management in accordance with the Federal Land Policy and Management Act; and (d) sale of the interest of the United States in the Reserves; (3) DOE is recommending to the Congress that NOSR-1 and NOSR-3 be transferred to Interior and leased; (4) GAO assumes that DOE proposes to structure the transfer in such a manner that NOSR-1 and NOSR-3 would lose their unique status under the Mineral Lands Leasing Act, whereby all of the receipts from those reserves would be retained by the government; (5) there is another option which would allow Interior to retain NOSR-1 and NOSR-3 and operate them by leasing them in a manner consistent with commercial practices; (6) royalties from such leases would be paid into the miscellaneous receipts account of the Treasury and all of the proceeds, not just 50 percent, would accrue to the U.S. government; (7) DOE has authority to lease NOSR-1 and NOSR-3, and an exemption to authorize the United States to retain all of the proceeds generated from the NOSRs is delineated in the Mineral Leasing Act of 1920; and (8) GAO has been advised by a DOE official that disposition of revenues from various reserves over the years has been consistent with this position.