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Commentary : Christopher Edmonds Will Strategic Petroleum Reserve Oil Make You Warm? Maybe Not By Christopher Edmonds Special to TheStreet.com Originally posted at 8:00 AM ET 10/9/00 on RealMoney.com

When the U.S. Department of Energy revealed the "winners" of the Strategic Petroleum Reserve lottery last week, you might have expected the list to read like a Who's Who of petroleum refiners.

After all, the whole reason for releasing the 30 million barrels of crude is to make sure all Americans stay warm this winter, especially those using heating oil, manufactured from refined crude. "The temporary infusion of 30 million barrels of oil into the market will likely add an additional 3 million to 5 million barrels of heating oil this winter, if refineries could match higher runs and yields seen in the past," said Secretary of Energy Bill Richardson in announcing the plan to release oil from the Strategic Petroleum Reserve, or SPR.

This column has noted the challenges refiners face in transforming the crude into distillate products. Now, however, there appears no guarantee that the SPR oil will ever make it to domestic refiners. Most of the companies receiving SPR crude aren't refiners or even directly related to them.

Take a look at the winning bidders:

A Slick Proposition Traders Benefit from Strategic Petroleum Release Company Grant Marathon Ashland Petroleum, LLC 2.4 Million Barrels (MMB), West Hackberry Sweet 1.5 MMB, Bayou Choctaw Sour Euell Energy 3.0 MMB, West Hackberry Sweet BP Oil Supply Company 6.0 MMB, West Hackberry Sweet Elf Trading, Inc. 1.0 MMB, West Hackberry Sweet Equiva Trading, Inc. 0.5 MMB, Bayou Choctaw Sour 2.0 MMB, West Hackberry Sweet Morgan Stanley Dean Witter 1.5 MMB, West Hackberry Sweet 0.55 MMB, Bryan Mound Sour Vitol, S.A. 1.05 MMB, West Hackberry Sweet 0.55 MMB, Bryan Mound Sour Valero Marketing and Supply 1.0 MMB, Bryan Mound Sour Burhany Energy Enterprises 4.0 MMB, West Hackberry Sweet Lance Stroud Enterprises 4.0 MMB, West Hackberry Sweet Hess Energy Trading 1.0 MMB, West Hackberry Sweet Source: U.S. Dept. of Energy

While a couple of refiners are getting a piece of the action, a significant amount of oil is going to energy trading firms to be put to work in their general trading efforts. As it turns out, almost half is going to neophyte, possibly wannabe oil tycoons with little, if any, experience in the energy business.

Take Lance Stroud Enterprises. According to Platt's Oilgram, an oil trade publication, the company has one employee, Lance Stroud, and is located in a residential section of New York's Harlem district. When Platt called to inquire about the company's bid, the mother of the former army intelligence officer answered the phone.

Stroud, who has worked as a grain wholesaler and has never been involved in the energy business until now, was out shopping for a Letter of Credit (LC). Each winning bidder has until Monday to present an LC to the Department of Energy.

Platts reported that Stroud has an LC offer from Banque Paribas. Interestingly, Paribas is the same bank that energy marketers say refused to stand behind an LC it provided to the Power Company of America, or PCA, a now-defunct power trading and marketing company that contributed to a near meltdown of the wholesale power markets in 1998. "This sounds way too familiar and ominous," says an energy trading executive familiar with PCA's blackout.

Two other winners of SPR oil are also unconventional: Burhany Energy Enterprises is located in Tallhasee, Fla. Burhany also appears to be a sole proprietorship, with Ronald Peek listed as the company's only employee.

And, Euell Energy Resources is a Colorado company with "operations that include natural gas and power marketing, diverse pipeline installations and construction management," according to its Web site.

Neither Burhany or Euell could be reached for comment. However, a check of filings at the Federal Energy Regulatory Commission, or FERC, show no filings by Stroud, Burhany or Euell. And while there would be no requirement to register with the FERC to receive oil from the SPR, most "legitimate" energy trading operations "have regular dealings with FERC and would appear in occasional filings" says the trading executive.

Together the three companies are scheduled to receive 10 million barrels of crude from the release, over 40% of the total. At the same time, bids from refiners like Conoco (COC:NYSE - news), Texaco (TX:NYSE - news) and Royal Dutch Shell were turned down. "A prudent operator would not sell to these [lesser known] types of organizations," says one oil analyst. "There is just too much risk. It's almost like the government is selling the oil to itself," suggesting the winning bidders will ultimately not qualify.

If winning bidders cannot provide an LC by Monday, the Department of Energy is likely to "go down the list" to other bidders, according to the analyst. However, that will delay the process even longer.

http://www.thestreet.com/comment/christopheredmonds/1115538.html

-- Martin Thompson (mthom1927@aol.com), October 11, 2000