Scope/Scale: Currently, MMS is selling more than 150,000 barrels/day of crude oil sourced from the Gulf of Mexico Outer Continental Shelf (OCS) and approximately 6,500 barrels/day from the Pacific OCS. Of these volumes, approximately 50,000 barrels/day are sold to qualified small refiners under MRM’s Small Refiner Program. Our current royalty position of crude oil in the Gulf of Mexico totals approximately 184,000 barrels/day. Business Model:
MMS’s business strategies focus on the producing area in the Gulf of
Mexico and the Pacific OCS, rather than downstream regions.
MMS is a price taker, seeking
fair market value as expressed in relation to published physical pricing
indices in the production area.
MMS optimizes revenues through leveraging the government’s
creditworthiness and large, ubiquitous volume position. However, MMS
does not employ financial instruments to hedge or otherwise financially
backstop physical transactions.
Oil Sources/Availability:
Current sales involve nine different types Gulf of Mexico crude oil -
Light Louisiana Sweet (LLS), Heavy Louisiana Sweet (HLS), Eugene Island
(EI), Bonito Sour (BS), Poseidon,
Mars, Hoover Offshore Oil Pipeline System (HOOPS), Texas City, and
Southern Green Canyon (SGC) - sold from more than 80 locations and
flowing on more than 55 pipelines in the Gulf. In the Pacific, sales
involve Santa Ynez crude oil from one large producing facility.
Sales Packages:
Crude oil is currently aggregated and packaged for sale at offshore
producing meters or at major onshore market locations.
Each location can be supplied by
multiple Federal leases.
Volumes sold are based on the government’s royalty share of
production produced on the lease.
Bidders can make offers on each individual sales package.
Sales volumes for each package typically range from 100 to 6,000
barrels per day or more.
Pricing Options:
RIK crude oil is offered for sale with a variety of commercially based
price indices available for each production area.
MMS prices its oil in the same manner
as other producers.
Bids are accepted in relation to calendar NYMEX or published spot
prices for barrels in the Gulf of Mexico.
MMS remains flexible and responsive to its oil purchasers’
requests and State partners’ preferences for consideration of
alternative pricing options.
Oil Delivery Points:
Points of delivery
to crude oil purchasers are typically at the offshore production meters,
major pipeline interconnections, or
onshore market centers.
Contract Terms
MMS strives to make
the RIK oil program as commercial as possible.
MMS uses commercially based
General terms and
conditions for RIK crude oil purchases.
Contract terms and volume information specific to individual sales
events are contained within bidding documents (Invitations for Offers, or
IFOs). Finally, transaction
confirmations formalize prices accepted at bidding/sales events and other
agreements negotiated within these sales events.
Length of Contract:
Sales contracts are
typically for either 6-month or one-year periods.
MMS conducts monthly spot sales on some of the royalty oil and also
considers longer-term contracts as well.
Recently, MMS restructured its
6-month sales terms to stagger every 3 months to allow MMS to enter into the
market four times each year instead of two.
Business Reputation:
MMS encourages potential new participants in its oil sales program to
contact the more than 26 companies that have previously participated or
are currently doing so. (Contacts
are available upon request.) MMS
has earned a reputation for being a reliable, flexible, and
strategically positioned business partner that is responsive to oil
purchasers’ needs.
Strategic Petroleum Reserve:
In his State of the Union message, President Bush announced his intention
to increase the Strategic Petroleum Reserve (SPR) the world’s largest
supply of emergency crude oil to 1.5
billion barrels by 2027. SPR oil is stored in huge underground salt
caverns along the coastline of the Gulf of Mexico. At the present time, the reserve holds about 700 million barrels of crude oil. The
Minerals Management Service (MMS) and the Department of Energy work
together to fill and maintain the
SPR. Oil from the RIK oil program
is used to fill the reserve.
The Future:
The RIK oil sales program continues to seek out new marketing strategies
and potential for revenue uplift.
It constantly reevaluates the sales program and
make modifications when advantageous to
maintain alignment with crude oil markets.
MMS is excited about new deepwater prospects coming online and
the return of normal offshore crude oil production in the wake of the
2005 hurricane season. For questions, contact Mr. Jim Steward, acting
Manager of the RIK Crude Oil Sales Business Unit, at 303-231-3715.
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