Teapot Dome Oil Field Purchased by Stranded Oil Resources Corporation
Naval Petroleum Reserve No. 3, better known as the Teapot Dome oil field, is well known for its connection to the Harding Administration over 90 years ago and the infamous Teapot Dome Scandal that resulted in the first sitting Cabinet member to go to prison. Teapot Dome is arguably the most famous oil field in the country and even crosses over to popular culture with references found in the famous “Drink your milkshake” line from Daniel Day-Lewis in “There will be Blood” and featured in episodes of Downton Abbey.
The United States came into possession of this property through the Louisiana Purchase and provided the 9,500-acre oil field to the United States Navy in the early part of the 20th Century to ensure petroleum reserves to the Navy as it shifted from steam to a petroleum fueled fleet.
Recognizing the Teapot Dome’s potential, oil tycoons Edward and Harry Ford Sinclair set to work on a plan to obtain control of the property. The two collaborated on an elaborate plan of under-the-table bribery schemes including securing Warren Harding as the Republican nominee, and ultimately the winner, of the 1921 Presidential election. Once sworn into office, Harding appointed the easily manipulated Edwin Derby to Secretary of the Navy and convinced him to relinquish control of the Teapot Dome to the Department of Interior via Executive Order. Finally out of the Navy’s grasp, Doheny and Sinclair recruited Secretary of the Interior and New Mexico state senator Albert Fall to provide Sinclair rights, through a non-bid lease, after paying him a sum of approximately $5 million in today’s dollars. Eventually, Senator Tom Walsh of Montana uncovered and prosecuted the participants and many, including Fall, went to prison.
After the Teapot Dome Scandal was uncovered, the United States has possessed the property without commercial exploitation. Since the mid-1970’s the oilfield was used by the Department of Energy as a commercial testing ground for new technologies and processes designed to improve drilling, oil production, and enhanced oil recovery. In 2013, the Energy Department recommended to Congress that the asset is sold for continued use as an oilfield by the private sector with special legislation passed for the sale. After a competitive bid process, Stranded Oil Resources Corporation, a subsidiary of Alleghany Corporation and Alleghany Capital Corporation, purchased the oil field in a competitive bid for $45 million.
The sale of Teapot Dome oil field was unique for a variety of reasons. The property and sale process was delicate and high profile, the transaction timeline was short, the property had not been transferred since the Louisiana Purchase, and the oil market was in flux during the transaction. As a result of the United States owning the property since the Louisiana Purchase, the due diligence on the property was extensive and being conducted for the first time. The deal negotiation, real estate and environmental due diligence, along with historical preservation nuances, required a parallel multidisciplinary approach working in a fluid and collaborative manner.
The Polsinelli team led by Alan Anderson and Britton Gibson, Energy Practice, and with multidisciplinary support from Melinda Pasquini, Real Estate Practice and Adam Troutwine and Scott Young, Environmental Practice, addressed the matter and the obstacles by coordinating twice weekly meetings with Stranded Oil personnel from their headquarters, their field offices and Polsinelli staff from various cities. This allowed the group to react quickly to issues and to accomplish their goals in a shortened timeframe with fluid collaboration with the attorneys and client. Having a deep understanding of Alleghany’s business also allowed Polsinelli to closely operate with Stranded Oil as one team.
Under the terms of the sale, Stranded Oil took possession of approximately 9,000 surface acres and the operations and ownership of all mineral rights three months after winning the competitive bidding. They are scheduled to take ownership of the remaining surface acreage in May 2015.
More on the Polsinelli – Alleghany Corporation Relationship
Polsinelli serves as outside general counsel to Alleghany Corporation in relation to its subsidiary Stranded Oil Resources Corporation.
Polsinelli is very proud of the results we obtain for our clients, but you should know that past results do not guarantee future results; that every case is different and must be judged on its own merits; and that the choice of a lawyer is an important decision and should not be based solely upon advertisements. Polsinelli PC. Polsinelli LLP in California.