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Three Companies Awarded Contracts for Royalty-in-Kind Exchanges for the SPR

November 8, 2007 - 4:31pm

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Deliveries to Begin in January 2008

WASHINGTON, DC - The U.S. Department of Energy (DOE) today awarded contracts to Shell Trading Company, Sunoco Logistics, and BP North America for exchange of 12.3 million barrels of royalty oil produced from the Gulf Coast for crude oil meeting the requirements of the Strategic Petroleum Reserve (SPR).  Deliveries are expected to begin in January at a modest rate of approximately 70,000 barrels per day for a period of six months.  The offers are in response to the Department's solicitation issued last month and represented the highest value of specification-grade oil for the Reserve.

The contract terms apply royalty-in-kind (RIK) exchange provisions that require the contractor to take delivery of oil owed to the U.S. Government from offshore Gulf Coast federal leases and deliver to the SPR a volume of crude oil, adjusted for transportation and quality differentials, that meets the SPR's quality specifications.  The exchange oil will be delivered to two SPR sites, West Hackberry, Louisiana and Bryan Mound, Texas.

This contract continues the RIK fill program that began this summer with the award of a six-month contract for deliveries to the SPR beginning in August at the rate of approximately 50,000 barrels per day.  The RIK program is managed by the Department of the Interior's Minerals Management Service and serves as a means of filling the Reserve in a deliberate and cost-effective manner without the use of cash payment.  Instead, it involves an exchange of product already owned by the Government.  Separately, 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.

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.  The SPR has a capacity of 727 million barrels and currently holds 694 million barrels of crude oil in underground salt caverns located along the Gulf Coast in Louisiana and Texas.

Media contact(s):

Megan Barnett, (202) 586-4940

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