-Caveat Lector-
October 11, 2000
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.
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Shalom, A Salaam Aleikum, and to all, A Good Day.
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