U.S. Government Seeks to Exchange Crude for Cash

The U.S. Department of Energy issued a solicitation seeking contracts to exchange up to approximately 13 million barrels from Federal leases in the Gulf of Mexico for crude oil that meets the specifications of the Strategic Petroleum Reserve (SPR). Bids are due by November 6, 2007.

This action is taken in accordance with the provisions of the Energy Policy Act of 2005, which directs that the SPR fill to its authorized size of one billion barrels, and advances the Presidentís agenda to increase the Nationís energy security. It allows for a modest fill rate of approximately 70,000 barrels per day for a period of six months. The royalty-in-kind contracts will begin in January 2008, and deliveries of crude oil will begin on or after February 1, 2008, and must be completed no later than July 31, 2008.

Under the royalty-in-kind exchange program, crude oil producers deliver royalty oil owed to the U.S. Department of the Interior to market centers along the Gulf Coast. Ownership of the oil is transferred from the Department of the Interior to the Department of Energy. Contractors are required to take the full contracted amount from the market centers and deliver exchange oil to the SPR. Actual volumes delivered to the SPR take into account adjustments for transportation and quality differences.

In addition, the Department has no immediate plans to issue bids to purchase and replace the 11 million barrels of SPR crude that were sold in response to Hurricane Katrina.

The SPR has a capacity of 727 million barrels, and currently holds 693 million barrels in inventory.


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