Naval Petroleum Reserves

The Naval Petroleum Reserves (Reserves) program has controlled oil bearing lands owned by the U.S. Government[i].  The Reserves acted as a contingency source of fuel for the U.S. military in times of emergency.  Government owned petroleum and oil shale properties were under the Reserves.  The Naval Petroleum Reserves Production Act authorized full commercial development of the Reserves[ii].  The crude oil, natural gas, and liquid products produced from the Reserves were sold by Department of Energy (DOE) at market rates.

The Secretary of Energy (Secretary) can take possession of all properties inside the Reserves that can be used by the U.S. for national defense purposes[iii].  The Secretary can directly, by contract or lease, explore, prospect, conserve, develop, use, and operate the Reserves according to the Secretary’s discretion[iv].  The Secretary can provide preferential rights to new leases that were accorded by former lessees who had leases earlier that had expired after the time period prescribed in the prior lease[v].

The Secretary should consult with the Committees on Armed Services of the Senate and the House of Representatives and should also obtain the approval of the President of the U.S. before execution of instruments such as[vi]:

  • a lease of any part of the Reserves;
  • a contract to alienate from the U.S. the use, control, or possession, of any part of the Reserves;
  • a contract to sell the petroleum produced from any part of the Reserves;
  • a contract for conservation or for compensation for estimated drainage;
  • an agreement to exchange land, the right to royalty production, or the right to any money due to the U.S.

The Secretary can choose the manner in which any oil, gas, gasoline, or any other substances that accrues to the U.S. government from the Reserves, should be delivered to the U.S or should be paid in money.  The Secretary deposits the revenues in the U.S. Treasury[vii].

Some foreign countries deny the privilege of leasing public lands to citizens or corporations of the U.S. based on the laws, customs, or regulations of the foreign countries.  In such conditions, citizens of that foreign country, or a corporation controlled by citizens of that country can not acquire or own any interest in, or right to any benefit from, any lease of land in the naval petroleum, naval oil shale, or other naval fuel reserves, by any contract made after a specified date, or by stock ownership, holding, or control[viii].

The Secretary can protect the federal oil lands by making contracts with owners and lessees of land inside or adjoining the Reserves for conservation of oil and gas; and for compensation for estimated drainage caused because of drilling or operating offset wells.  The Secretary can acquire privately owned lands or leases that are inside specified petroleum reserves by the exchange of land inside a particular reserve or of the right to royalty production from any Reserves[ix].

The Secretary can also provide the right to money owed to the government as a result of the wrongful extraction of petroleum products from lands within a specified petroleum reserve.  The Secretary can acquire private lands and leases with the approval of the U.S. President by purchase or condemnation, if the Secretary is not able to make satisfactory arrangements for exchanges of land, or agreements for conservation or contracts for cooperative plans with respect to certain lands or leases[x].  In most cases, before condemnation proceedings are initiated the Secretary should consult the Committees on Armed Services of the Senate and the House of Representatives, and should obtain approval of the President.

The Secretary should reexamine the need for production of petroleum from oil shale for national defense from time to time.  When the authorized quantity is not needed, the Secretary should reduce production to the amount that is needed for national defense[xi].  In every unit or cooperative plan of development and operation and every lease affecting government lands within the Reserves there should be a provision that authorizes the Secretary to change the rate development, and the quantity and rate of production from, government lands under the plan or lease.  However, this should be subject to approval by the President and to any limitation in the plan or lease[xii].

The Secretary should use, store, or sell petroleum produced from the Reserves and the land covered by joint, unit, and other co-operative plans.  The U.S. share of petroleum should be sold by the Secretary to the highest qualified bidder[xiii].

[i] 10 USCS § 7420.

[ii] 42 USCS § 6501.

[iii] 10 USCS § 7421.

[iv] 10 USCS § 7422.

[v] 10 USCS § 7429.

[vi] 10 USCS § 7431.

[vii] 10 USCS § 7433.

[viii] 10 USCS § 7435.

[ix] 10 USCS § 7424.

[x] 10 USCS § 7425.

[xi] 10 USCS § 7423.

[xii] 10 USCS § 7428.

[xiii] 10 USCS § 7430.

Inside Naval Petroleum Reserves