Bloomberg News

Phillips 66, Shell Purchase Majority of U.S. Reserve Oil Sale

March 17, 2014

Phillips 66 and Royal Dutch Shell Plc (RDSA) walked away with about 3.3 million barrels of the 5 million that the Energy Department sold in what will be the first release from the U.S. Strategic Petroleum Reserve since 2012.

Exxon Mobil Corp., Marathon Petroleum Corp. and Mercuria Energy Asset Management BV also were named winners in the department’s report on successful offers. Chevron Corp., Valero Energy Corp. and Petroleos Mexicanos were among companies that made bids that the Energy Department turned down. This was the first test sale for the reserve since 1990.

The successful offers totaled $495 million, for an average price of $99 a barrel for the sour crude stored in salt caverns on the Gulf Coast. Southern Green Canyon crude, a sour grade produced in the Gulf of Mexico, cost $96.08 a barrel today, according to data compiled by Bloomberg.

The Energy Department offered 4 million barrels from the West Hackberry storage area in western Louisiana and 1 million from the Big Hill cavern in eastern Texas. Deliveries will be made between April 1 and May 10. It will be the first release from the reserve since the department exchanged 1 million barrels with Marathon after Hurricane Isaac in 2012.

The SPR, which contains 434 million sour barrels and 262 million sweet, hasn’t sold crude since June 2011, when it offered 30 million barrels in response to disruptions in Libya.

SPR Test

The agency initiated this test to make sure the SPR system still works after rising domestic oil production brought about new, expanded and reversed pipelines and increased use of oil terminals, William Gibbons, an Energy Department spokesman, said in a statement last week.

The Energy Department will deliver 2.8 million barrels by pipeline to Lake Charles, Louisiana; 500,000 by pipeline to Nederland, Texas; 800,000 to a Shell pipeline in Texas; 380,000 to barges and 520,000 in a tanker shipment for Shell.

Phillips 66 (PSX:US) purchased 2.04 million barrels at an average price of $100.23 a barrel. Shell bought 1.22 million for $97.53.

Marathon bought 1.2 million barrels at an average cost of $99.06. Exxon purchased 500,000 barrels for $97.68. Mercuria bought 40,000 barrels for $95.40 each.

To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net David Marino, Bill Banker


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