U.S. DOE To Continue Royalty-In-Kind Strategic Oil Stocks

WASHINGTON, April 4, 2008 (Dow Jones Newswires)

The U.S. Department of Energy Friday solicited bids for royalty-in-kind, or RIK, oil to fill the Strategic Petroleum Reserve by up to 13 million barrels from August to December.

Filling the nation's emergency crude stockpile when oil is trading over $100 a barrel is controversial on Capitol Hill, with many federal lawmakers - backed by consumer groups, trucking and airline industries - calling for the Bush administration to tap stocks to relieve price pressure.

The DOE said continuing the RIK program, which allows companies to pay royalty fees in barrels in lieu of cash, would fill the SPR at a fill rate of around 76,000 barrels a day over the six-month period.

The agency's current RIK program was due to expire in July. Bids for the new tender are due by May 13, with the contracts starting in July for first delivery in August.

The SPR has a capacity of 727 million barrels of oil, and currently holds approximately 700.9 million barrels - the highest it has been since the 2005 hurricane season - in the underground salt caverns located along the Gulf Coast of Louisiana and Texas.

The DOE said it will decide in coming weeks whether to go ahead with another controversial plan to buy crude oil in the open market to increase the pace of further increases in the strategic stockpile.

Just after the SPR hit its peak in 2005, President George W. Bush ordered the reserve tapped on Sept. 2 to cover supply disruptions after Hurricane Katrina disrupted oil and natural gas output and refinery operations along the U.S. Gulf.

The Energy Department sold 11 million barrels of crude oil after the Katrina disruption as part of a global coordinated drawdown with the International Energy Agency.

The DOE is required to spend the $584 million raised in the Katrina sale to repurchase oil for the reserve, and those plans to purchase crude for emergency storage when prices are near all-time highs have drawn heavy fire in Congress.

Sen. Byron Dorgan, D-N.D., has vowed to block purchases, introducing legislation that would prevent purchases of oil for the SPR until after crude oil prices have averaged below $50 a barrel for three consecutive months. That hasn't happened since December 2004-February 2005.

Dorgan said Thursday he hadn't yet determined the legislative vehicle for his proposal, but it could be attached to an emergency supplemental bill.

Crude oil prices touched a record high of $111.80 a barrel in recent weeks. At current prices, around $104.80 a barrel, the Katrina sale funds would purchase only around half of the volume that was sold, or about 5.6 million barrels.

WASHINGTON, April 4, 2008 (Dow Jones Newswires)