RIK IVc SOLICITATON

DE-RP96-08PO54920

QUESTIONS AND ANSWERS

5/12/08

1\. Question: Is Poseidon acceptable crude for the SPR?

> Answer: Poseidon is acceptable on a provisional basis meaning cargos
> will be monitored for compliance with SPR crude oil specifications.
> Should the crude fall outside SPR specifications it will be rejected
> for future deliveries.

2\. Question: Why has the Letter of Credit requirement increased to 60%?

Answer: To protect the Government's asset the SPR requires a guarantee
of three months of Royalty Oil. Previous solicitations were for a six
month cycle which equated to 50% of the total contracted value of
Royalty Oil. However, this solicitation is for a five month cycle
therefore three months of Royalty Oil would equate to 60% of the total
contracted value.

3\. Question: Girassol is no longer on the list of approved SPR sweet
crudes in the latest Phase IVc RIK exchange tender. Can you advise why,
and what its current approval status is?

> Answer: Girassol has been removed from the approved crude list because
> the gravity of the stream has lowered to very near the minimum
> acceptable specification. However, Girassol is still \'provisionally\'
> acceptable meaning should the it's characteristics fall outside
> acceptable SPR specifications it will no longer be acceptable for
> delivery into the SPR

4\. Question: If a company bids with the intention to deliver back sour
crude, how will section A5c be handled with regard to the \"50% delivery
requirement by the midpoint of the delivery period\" given that Bryan
Mound deliveries won\'t be accepted until 10/1/08?  We assume 1.5MM
barrels will need to be delivered by Oct 31.

Answer: Ratable schedule is based on total contract volume awarded;
economic

> cargo sizes and any other variables that may have to be considered
> such
>
> as specific site delivery period.  All will be considered in
> determining a

ratable schedule.

5\. Question: Will the DOE accept Forties under the sour specifications?

Answer: Yes, Forties is acceptable as a sour crude into the SPR but not
as a

sweet crude.

6\. Question: If the DOE determines that this deal needs to be revised
from an

exchange to an outright sale during the agreement period, how will the

pricing be handled under the outright sale?

Answer: Should DOE terminate receipt of exchange oil prior to November
30,

> 2008 Provision G.4 would be implemented.  Only MMS has a provision for
> conversion to a sale in their contracts.

7\. Question: Shipping instructions to W. Hackberry show ships going
through Sun to the DOE line, but is there a problem with ships going
through Chevron\'s (old Unocal) docks and being tight lined over to the
DOE line through Sun\'s terminal?  Also, I can\'t find a tariff anywhere
on the DOE line from Nederland to W. Hackberry and Big Hill.  Is there a
fee for this?

Answer: Oil from Chevron/Unocal to West Hackberry must go through a
cross-over connection at Sun Terminal at Nederland. There is a
cross-over fee associated with this movement. Coordination and agreement
with Sun Terminal is also required. There are no tariffs associated with
the DOE pipelines going to West Hackberry or Big Hill.

8\. Question: There are a lot of potential changes to the Poseidon
stream with movements of production from Poseidon to other pipelines
over the course of the year. Will the DOE monitor the quality monthly to
determine is it becomes unacceptable?

> If Poseidon crude oil is offered for delivery, with no other
> alternative crude offered by the successful offeror, how will the DOE
> resolve the remaining deliveries? The Y value submitted would be based
> on Poseidon, but if it becomes unacceptable, the next alternative
> would likely be several dollars per bbl more expensive than Poseidon.
> Will the DOE make a ratio adjustment to the Y value, or will the
> original Y value stand and the offeror be stuck delivering some other
> much more expensive acceptable crude?
>
> Answer: DOE will monitor crude characteristics as required. Should
> Poseidon's quality fall outside acceptable SPR specifications the
> crude will no longer be acceptable for delivery. If Poseidon was the
> only crude submitted with a successful offer an acceptable crude
> substitution would be required pursuant to provision A.8 of the
> contract. Evaluation of the request would be against Poseidon.
> Adjustment of the Y value would not be considered therefore the risk
> of this potential event happening should be factored into the value.