interesting where is the oil going???
Congressional Committees to Probe
Clinton's Oil Policy After Release
By JOHN J. FIALKA and ALEXEI BARRIONUEVO
Staff Reporters of THE WALL STREET JOURNAL
WASHINGTON -- House and Senate committees plan to probe the
Clinton administration's release of 30 million barrels of crude oil from the
Strategic Petroleum Reserve -- part of it earmarked for three little-known
entrepreneurs -- and will question whether the move will deliver
home-heating oil to the fuel-starved Northeast.
"The question we have is whether providing this oil to a bunch of
speculators actually achieves that purpose," said Sen. Frank H.
Murkowski, chairman of the Senate Energy Committee. "We are going to
look at this very closely."
Mr. Murkowski, an Alaska Republican, was referring to the release of the
oil to 11 companies selected to receive it as part of a year-long swap deal.
Three of the 11 are run by small entrepreneurs who have no experience
with large oil deals.
"This was apparently done with very little thought by the administration,"
said Steve Schmidt, spokesman for the House Commerce Committee,
which also is launching an investigation. "We are intrigued by the strange
way it was done."
Heat From All Sides
The Clinton administration's rationale for the deal -- that the refined crude
oil would generate about three million to five million barrels of
home-heating oil for Northeast states -- also was questioned by a
bipartisan group of lawmakers from the area. Led by Rep. Bernie Sanders
(I., Vt.), they have written to President Clinton seeking a temporary ban on
exports of U.S.-refined heating oil.
The group noted that private stocks of
home-heating oil are more than 60% below
normal levels in New England, an area that is
heavily dependent upon oil for heating. The group asserted that a "major
reason" fuel inventories haven't increased is that some of it is being
exported.
Participants in the huge oil swap are also having difficulties with logistics.
Since U.S. refineries are running at 95% of capacity, even large companies
may have difficulty matching the differing grades of oil being released by
the government with refineries that have the capacity to handle them. The
politics of the problem and the short time left to address it became more
intense during the weekend as the season's first major cold snap brought
near-freezing temperatures to the Northeast.
"We have a home-heating oil problem of phenomenal magnitude," said
Matthew Simmons, president of a Houston energy investment-banking
company. "The problem should have been addressed by the first of July,
when we first became aware that the [heating-oil] stocks just hadn't
moved."
Streamlined Bids
The Energy Department awarded contracts giving 11 companies the right
to take oil from the reserve, which is stored in four salt domes along the
Gulf Coast. "The government is treating all bidders equally in this
competition," said a statement issued by the Strategic Petroleum Reserve
Office in Metairie, La., which made the awards.
"The winning bids met
all requirements of the
solicitation and offered
the best value to
taxpayers," the
statement added,
noting that the
government decided to
streamline bid
requirements by
allowing bidders to
prove their financial
worth later.
The 11 companies are
required to submit by
Thursday letters of
credit from banks
covering the value of
the oil they intend to
borrow from the
reserve. If the letters of
credit fail to materialize,
the statement said, the
government "will void
the contract" and
request a new round of
bidding.
Meanwhile the winning bidders scrambled to work out their financing and
logistical arrangements, which will require tankers and pipeline space to get
the oil to refineries by November. There is nothing in their contracts that
would prevent them from sending either the crude oil or the products
refined from it to Europe, where heating-oil prices have been running
higher than in the U.S.
Lance Stroud, who runs his tiny company from a New York City
apartment, said he was continuing to talk to potential buyers of his allotted
four million barrels of oil and with BNP Paribas of Paris for a letter of
credit.
'Going Good'
"It's going good," he said after concluding a midday conference call with
some would-be buyers, but before the investigations were announced. One
company, BP Amoco PLC, confirmed it was in talks with Mr. Stroud as
well as with two other bidders that lack experience in large oil deals, Euell
Energy and Burhany Energy Enterprises Inc.
Mr. Stroud said his plan is to sell the oil to a buyer that can handle
transportation and refining; he would receive a brokerage fee. The buyers
are discussing locking in the price on the futures market to guarantee Mr.
Stroud and the buyer their profits. Tensions in the Middle East that have
pushed up crude-oil prices by about $3 during the past three days are only
helping to widen Mr. Stroud's profit and further encourage potential
buyers, he said.
"Basically, they know that if DOE says I have been awarded the crude, I
have the power and authority to control four million barrels. So they are
looking to me, not the other way around."
The former Army intelligence enlisted man has worked a variety of odd
jobs since leaving college and starting his company two years ago,
including bus driver, security guard, and most recently, census taker. None
of that prepared him for the past few days' whirlwind of activity, he said.
It started Thursday when he began receiving hand-delivered solicitation
packets from "the big boys in financing," including BNP Paribas. He spent
much of Thursday and Friday in a suit shuttling from his fourth-floor
Harlem apartment to midtown Manhattan for meetings with bankers and
potential buyers.
He has also fielded media calls and even one movie offer, he said, by
someone involved with "The Negotiator," which starred Samuel L.
Jackson.
Write to John J. Fialka at john.fialka@wsj.com and Alexi Barrionuevo at
alexi.barrionuevo@wsj.com |
