SOLICITATION FOR THE SALE OF NAVAL PETROLEUM RESERVE NUMBERED 1 -- "ELK HILLS". U.S. DEPARTMENT OF ENERGY, SOLICITATION OF OFFERS FOR THE SALE OF UNITED STATES' INTEREST IN NAVAL PETROLEUM RESERVE NUMBERED 1, KERN COUNTY, CALIFORNIA -- Pursuant to title XXXIV of the National Defense Authorization Act for Fiscal Year 1996 ("Act"), Public Law 104-106, the U.S.= =20 Department of Energy ("DOE") on behalf of the United States of America through this notice is initiating the process for the sale of the interest of the United States in and to all lands owned or controlled by the United States inside Naval Petroleum Reserve Numbered 1 (NPR-1), commonly referred to as Elk Hills, located in Kern County, California. The DOE retained the investment banking firm of Credit Suisse First Boston which, with its subcontractor Petrie Parkman & Co. (individually and collectively referred to as "Financial Advisers"), is administering the sale of the United States' interest in Elk Hills on behalf of the United States Government. This notice sets forth general offer submission matters and the processes through which offers will be solicited from all interested and qualified parties. More detailed information will be forthcoming during the sales process through the Financial Advisers. Interested parties may contact: Herb Williamson, Credit Suisse First Boston (713) 220-6712, or Jon Hughes, Petrie Parkman & Co. (713) 650-3383. This notice is divided into two parts. Part I addresses General Sales Information. Part II addresses the Sales Process, including anticipated timetables. Parties are advised that=20 these matters may be later revised or adjusted. All interested and qualified parties will be informed in writing in the event the matters contained in this notice are modified or supplemented. For this reason, each interested party is responsible for designating in writing to the Financial Advisers an authorized representative who is responsible for receipt of sales information, including such modifications and supplements. Part I -- General Sales Information. 1.General Description of Property: NPR-1 (or Elk Hills) is located about 35=20 miles west of Bakersfield in Kern County, California. Elk Hills is an operating oil and gas field composed of approximately 47,409 acres. About eighty percent (80%) of the parcels comprising NPR-1 are separately owned or controlled by the United States and the remaining parcels are owned or controlled by Chevron U.S.A. Production Company. Most of NPR-1 is operated under an agreement executed in 1944. Fiscal Year 1996 average gross daily production for the unit was approximately 59,800 barrels of oil, 358 million cubic feet of natural gas, and 445,900 gallons of processed natural gas liquids. The United States is=20 offering all of its interests in the following shares of production from the four unitized producing zones: Dry Gas Zone, 83.8726%, Shallow Oil Zone, 70.0119%, Stevens Zone, 79.6357%, and Carneros Zone, 100%. Additionally, the United States receives 100% of production from the non-unitized portion of the Asphalto field within NPR-1. These final sales percentages are the result of an agreement executed by DOE and Chevron for purposes of sale, and the participation percentage shares of production stated in the preceding=20 sentences will be the fixed and final participating percentage shares conveyed by the United States in this sale. Chevron has waived any right to challenge those final sale participating percentage shares. 2.Structure of the Sale: Two types of interest in Elk Hills are being offered for sale by the United States: one operating segment and multiple non-operating segments. The operating segment consists of approximately three-quarters of the U.S. Government's interest in the Elk Hills field which will constitute the majority interest in each=20 producing zone. The Government's remaining interest will be sold as multiple non-operating segments with each representing approximately 2 percent (2%) of the Government holding. Qualified parties may submit offers on one, some or all of the interests being sold. 3. Submission of Offers: A. Offer Due Date: Offers are due by 1:00 p.m. (Central Time) on October 1, 1997. Offerors are responsible for ensuring receipt of their offers by the office designated below (whether submitted by mail or hand carried) by the time and date due. Offers will be considered late and will not be accepted if they are not received by the=20 designated time unless placed in U. S. Mail (as evidenced by postal receipt stamp) at least five days prior to the due date. Offers may not be submitted by facsimile. Offers should be submitted to: Petrie Parkman & Co., Attn.: Mr. Jon Hughes, 6350 Texas Commerce Tower, Houston, Texas 77002 (713) 650-3383 (telephone). B. Reservation of Rights: The Government reserves the right to reject any and all offers, to modify any portion of the sales process, and to terminate the sales process at any point it is determined to be in the=20 best interests of the Government to do so. The Government will not reimburse any costs of prospective bidders or purchasers including costs associated with propertyevaluation or offer preparation. All costs associated with offer preparation or submission, including site visits and studies or analyses deemed necessary by the prospective offerors, are to be borne entirely by the offerors. 4. Offeror Qualifications: Two Phases of Offeror Qualification are=20 anticipated: A. Sales Process Participation: In order to attend the Technical Data Presentations and receive a Data Package following receipt of the Preliminary Sales Material (see Part II description below), a prospective offeror must submit a written expression of interest, execute a Non-Collusion Agreement, and submit a Financial Qualification Statement which will consist of documentation sufficient to demonstrate to the satisfaction of the Financial Advisers/DOE that the offeror has a tangible net worth of at least ten=20 million dollars (=A410,000,000). By way of example only, indicia of such qualifications may include audited financial statements or bank statements of account. (Parties who have completed these steps and have received written confirmation from the Financial Advisers that their Financial Qualification Statement is acceptable are referred to as "interested and qualified" parties.) B Consideration of Offers: In order to be considered for evaluation, an=20 offer must be fully financed, no financing contingency whatsoever (including "highly confident" letters) will be considered acceptable. Evidence of satisfactory financial capacity to close the transaction in a timely fashion will be required and may include audited financial statements, committed lines of credit by acceptable financial institutions, letters of credit,=20 available cash as indicated by bank demand or escrow accounts or other evidence deemed by the Financial Advisers/DOE in their sole discretion to be adequate to permit a timely closing. 5. Site Visit: Beginning in early July, the property will be available for inspection by interested and qualified parties. Interested and qualified parties should contact Mr. Randy King, Petrie Parkman at (713) 650-3383 to schedule an appointment. 6. Restrictions on Investment by Particular Foreign Governments or Persons: Potential offerors are advised that, pursuant to the International Emergency Economic Powers Act, 50 U.S.C. 1701-1706=20 ("IEEPA"), and the Trading with the Enemy Act, 50 U.S.C. App. 1-44 ("TWEA"), the United States Government prohibits certain transactions in property and interests in property in which certain persons -- designated governments, entities or individuals of those countries or their agents, or specially designated terrorists or drug traffickers -- have an interest. Currently, such sanctions affect Cuba, Libya, Iran, Iraq, North Korea, Sudan, Syria,=20 the UNITA rebels in Angola, certain significant narcotics traffickers centered in Colombia, terrorists threatening to disrupt the Middle East peace process, and their agents. Potential offerors should consult 31 C.F.R. Chapter V and the appendices to that chapter for regulations and lists of designated persons issued by the Office of Foreign Assets Control of the Department of the Treasury ("OFAC") for particular restrictions in this regard. DOE will not accept, and reserves the right to reject, offers from foreign governments or persons=20 with respect to which transactions would be prohibited or restricted under IEEPA or TWEA or OFAC's implementing regulations. Potential offerors bear the responsibility of ascertaining in advance whether any payments by them or on their behalf would be prohibited or restricted under the laws of the United States. Part II -- Sales Process Information. In order to maximize competition and the sales price to the Government, the following process is contemplated: 1. Distribution of Preliminary Sales Material (Beginning May 22, 1997): Upon issuance of this solicitation, the Financial Advisers will initiate=20 calls to interested parties. Calls will be made to parties who have submitted written expressions of interest in bidding on Elk Hills, those who express such interest following publication of this notice, and those other prospective purchasers which the Financial Advisers otherwise believe may be interested and capable of purchasing an interest in the Elk Hills property. In order to participate in the sales process, parties submitting an expression of=20 interest will be required to execute a Non-Collusion Agreement. Written expressions of interest in participating as an offeror must be telefaxed to Mr. Jon Hughes, Petrie Parkman & Co. (713) 650-8461. o Following receipt from an interested party of an initial written indication of interest, an executed Non-Collusion Agreement, and a certified or cashiers check for= =A4200. 00 payable to the U.S. Treasury as a preparation and copying charge, the Financial Advisers will provide to each such interested party a Sales Brochure describing the United States' interest in Elk Hills and a Financial Qualification Statement form. 2. Technical Data Presentations and Distribution of Data Package (Beginning June 9, 1997): o For those interested parties returning an executed Non-Collusion Agreement, Technical Data Presentations=20 will be conducted in Bakersfield, California (June 9-11, 1997) and Houston, Texas (June 16-18, 1997). o A pre-copied Data Package will be distributed by the Financial Advisers at the Technical Data Presentations for a preparation and copying charge of =A45,000.00 (certified or cashier's check payable to= the U.S. Treasury). The Data Package includes (among other things) an Independent Reserve Report and supporting data, an Upside Study prepared by DOE, its contractor (Bechtel) and the Financial Advisers, historical audited financial statements, and a Phase I Environmental Site Assessment. Each interested party will be entitled to one (1) data package after the party has paid the requisite=20 preparation and copying charge. o Each interested and qualified party who cannot attend a Technical Data Presentation session may receive the pre-copied Data Package following receipt by the Financial Advisers of an executed Non-Collusion Agreement and the =A45,000.00 preparation and copying charge. Such interested parties should contact Herb Williamson, Credit Suisse First Boston. (713) 220-6712. 3. Requests for Further Information and Site Visits (Beginning June 30, 1997): o Following acknowledgment by the Financial Advisers that an=20 interested party's Financial Qualification Statement has been approved, an interested party becomes an "interested and qualified" party and may submit to the Financial Advisers written requests for: (i) further information, (ii) discussions with the firm that prepared the independent reserve report, and (iii) site visits. No requests for information and/or site visits should be submitted to DOE personnel. o Efforts will be made to respond to all=20 reasonable requests for information necessary to submit an offer and to ensure that all interested and qualified parties have timely access to relevant valuation information. 4. Distribution of Procedures for Submission of Offers and Draft Purchase and Sale Agreement (July 1997): o On or before July 31, 1997, the Financial Advisers will distribute to interested and qualified parties a draft Purchase and Sale Agreement and additional details regarding=20 non-financial bidder qualifications, sales procedures, and other pertinent matters. o Interested and qualified parties will be requested to submit offers in writing to the office designated in Part I, paragraph 3(A) of this notice by 1:00 p.m.(Central Time) on October 1, 1997. 5. Submission of Offers (October 1, 1997): o All offers will be due by 1:00 p.m. (Central Time) on October 1, 1997, and will not be opened prior to that time. Offers will be considered late and will not be accepted if they are not received by the designated time unless=20 placed in U. S. Mail (as evidenced by postal receipt stamp) at least five days prior to the due date. A public opening of offers will not be held as further discussions and negotiations are expected to be conducted with those offerors submitting the offers representing the most favorable prospective transactions to the Government (price and other transaction terms considered). Because some offerors may be eliminated from further consideration before discussions are held, offerors are encouraged to submit offers at prices and on terms which=20 maximize the value to the Government. o Offers must be submitted on an all cash basis, payable in United States dollars at closing. o Offers will be required to remain open for sixty (60) days following the offer submission date. 6. Offer Evaluation/Negotiation (October and November 1997). o Following the submission of offers, offers and offeror qualification criteria will be evaluated. Further discussions/negotiations will be conducted with those qualified offerors whose offers appear to maximize value to the Government. The Government reserves the right to negotiate with one or more parties during this phase of the offer evaluation / negotiation process. 7. Pre-closing Matters (November and December 1997). o Following the selection of the successfulofferor(s), the successful offeror(s) must submit an earnest money deposit satisfactory to the Financial Advisers/DOE in terms and amount and execute the Purchase and Sale Agreement. o The DOE will execute a Letter(s) of Intent. o Prospective purchaser(s) may attend to other pre-closing matters during this period. 8. Submission of Proposed Contract Terms to Appropriate Congressional Committees (December 1997 or January 1998): o As required by section 3414(a) of the Act, prior to its execution of the Purchase and Sale Agreement DOE will submit to appropriate Congressional committees for the required 31-day statutory waiting period:= =20 (i) written notification describing the conditions of the proposed sale and (ii) an assessment by the Secretary of Energy of whether it is in the best interests of the United States to sell Elk Hills under those conditions. o The DOE will execute the Purchase and Sale Agreement after the 31-day statutory waiting period. 9. Sale Closing (February 1998): o Sale closing is anticipated no later than February 10, 1998 following the 31-day congressional review period.Message:

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