The federal government is selling oil from the Elk Hills Naval Petroleum Reserve to private bidders for as little as $6.30 a barrel at the same time that it is paying $12.60 a barrel for foreign oil to fill the national petroleum reserve, according to a new General Accounting Office report.
The report, released yesterday by Rep. Philip R. Sharp (D-Ind.), is the second congressional attack in less than a week on production and marketing practices at the government's oil field near Bakersfield, Calif., which the Reagan administration has proposed to sell to the private sector for an estimated$3.6 billion.
In a letter to Energy Secretary John S. Herrington, Sharp said that the GAO report calls the Department of Energy's stewardship of Elk Hills into question and suggests that the department may not be in a position to know what the field is worth.
"I am sure you can understand that Congress and the public are likely to be skeptical about the department's ability to obtain a fair market price for a multibillion-dollar oil field if it currently undersells its product," Sharp wrote.
Energy Department spokesman Dave Devane said the price disparity stems from the complex bidding process used at Elk Hills. Until about 15 months ago, the process resulted in higher-than-average prices for Elk Hills crude, he said, "but in an unstable market like now, it works against you."
Unlike private companies, Devane said, DOE cannot simply reduce its production at Elk Hills. Under a 1976 law, the department must either produce at the "maximum efficient rate" or shut down the fields.
Critics contend that the administration has opposed congressional attempts to provide some middle ground, in part because the fields have been lucrative. In fiscal 1985, Elk Hills brought in $1.3 billion, or more than $10 in revenues for every $1 in production costs.
Last week, two Democratic senators accused DOE and Chevron Inc. USA, which owns 22 percent of the reserve, of damaging the field by pumping too much oil too quickly, a practice that can reduce the amount of recoverable oil. Citing a DOE inspector general's report, Sens. Lloyd Bentsen (Tex.) and Albert Gore Jr. (Tenn.) said that the government may already have lost 65 million barrels of oil, worth more than $600 million at today's prices and possibly much more in the future.
Sharp said the GAO analysis indicates that the government is losing additional revenue by under-pricing the oil it pumps. Discounted prices are costing the taxpayers more than $400,000 a day, Sharp said, and amount to "the Energy Department's $600 toilet seats."
According to the GAO, the Department of Energy accepted bids as low as $6.30 a barrel for the contract period that began April 1. The price is less than half the going rate in California for crude of equivalent quality.
At the same time, the department paid $12.60 a barrel, including transportation costs, for about 35,000 barrels a day of Mexican crude oil to fill the Strategic Petroleum Reserve.
"The process appears to have been designed for stable oil prices, but then left on automatic pilot when the market got turbulent," Sharp wrote. "Shareholders would demand a change if a private company's oil were being sold so cheaply; the taxpayers deserve no less."