Contracts Awarded for Continued Fill of Strategic SPR

Strategic Petroleum Reserve Storage Site
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The U.S. Department of Energy has awarded three new contracts to deliver crude oil to the Strategic Petroleum Reserve beginning this fall under the Royalty-In-Kind (RIK) exchange program.

Chevron-Texaco, Shell Trading (U.S.), and Vitol S.A., Inc. submitted the best offers for the delivery of approximately 93,000 barrels per day of crude oil over a six-month period beginning in October.

As with all recent oil delivery contracts to the SPR, the crude oil will come from exchange arrangements the companies make for "Royalty-in-Kind" crude produced from federal offshore leases in the Gulf of Mexico and owed to the U.S. government. The Energy Department awarded contracts to companies offering the highest exchange value of specification-grade oil for the Reserve.

Under the RIK program, Federal Outer Continental Shelf tracts are leased to crude oil producers who deliver royalty oil from designated Gulf of Mexico production platforms to market centers along the Gulf Coast. The companies will receive crude from the market centers and deliver "in-kind" oil to the SPR. Actual volumes delivered to the SPR take into account adjustments for transportation and quality differentials.

The RIK program is managed by the Department of Interior Minerals Management Service and represents a practical means of filling the reserve in keeping with the President's objective to do so in a deliberate and cost-effective manner.

Approximately 665 million barrels of oil are currently stored in the SPR's underground salt caverns located along the Gulf Coast of Louisiana and Texas. The SPR is estimated to reach 700 million barrels in inventory during 2005.
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