Audit Report: IG-0786

The Department of Energy's Strategic Petroleum Reserve is a critical component of this Nation's energy security strategy. Established in 1975 in the aftermath of the oil
embargo, the Reserve is one of the primary means of assuring U.S. energy stability and security in the event of a petroleum production or import disruption.
The Department of Interior operates a Royalty-in-Kind program designed to handle oil collected from private production platform operators in the Gulf of Mexico as royalties to the Federal Government. Through a Memorandum of Understanding between the Department of Energy and the Department of Interior, a portion of the royalty oil has been used to fill the Reserve. The Department of Interior's Mineral Management Service (MMS) transfers oil to the Department of Energy at specific oil terminal locations referred to as "market centers." MMS and the Department use contractors to both deliver and receive oil at the market centers.
Since 2002, MMS has transferred over 11 2 million barrels of royalty oil to the
Department, with an approximate value of $4.4 billion. The Department plans to use the royalty oil to increase the size of the Reserve from 727 million barrels of oil to 1 billion barrels as authorized by the Energy Policy Act of 2005.
Because of the significant value of royalty oil and the importance of the Reserve to U.S. energy security, we initiated an audit to evaluate the effectiveness of the Department of Energy's control system over the receipt of royalty oil.