FOUR FIRMS SETTLE CALIFORNIA PRICE-FIXING SUITS

Four of the five remaining oil companies involved in a 16 year legal action with California and the city of Long Beach over alleged crude oil price-fixing have tentatively agreed to a $220 million settlement.

Chevron Corp., Mobil Oil Corp., Shell Oil Co., and Texaco Inc. agreed to the proposed settlement last week. The state and Long Beach said they will go to trial Sept. 3 to seek further damages from Exxon Corp., the remaining company involved. ARCO and Unocal Corp. earlier struck separate deals to settle the suits.

Including punitive damages, the suits could have exposed the companies to more than $2 billion in potential damages and civil penalties.

Announcements related to the proposed settlement kept alive the rancorous flavor of the dispute.

BACKGROUND

The settlement relates to a dispute over crude oil pricing that spurred lawsuits in 1975 in federal court and in 1986 in state court that alleged the seven companies conspired to fix prices at artificially low levels for heavy crude purchased from the state during 1971-77 and 1980-85.

The price of crude in California has long been a source of contention, with state producers contending imports of Alaskan North Slope crude and lack of markets for the state's heavy crude create a surplus that has depressed California crude prices below their market value.

The suits involved crude purchase contracts, buying practices, and pipeline access in the Long Beach area. Long Beach is the trustee for the state on supergiant Wilmington oil field production.

A federal appeals court in San Francisco in 1989 reinstated the two lawsuits (OGJ, Apr. 24, 1989, Newsletter) after a federal judge had thrown them out in 1986 (OGJ, Mar. 3, 1986, p. 34). That was followed by antitrust investigation by the Justice Department (OGJ, Aug. 14, 1989, Newsletter) and the U.S. Supreme Court last year declining to hear the companies' appeals that evidence is insufficient to permit them to be sued.

SETTLEMENT DETAILS

Under the proposed settlement, Chevron, Mobil, Shell, and Texaco will pay the state $180 million in cash and dedicate their unheated oil pipelines to common carrier status. The switch to common carrier status will net the state at least another $40 million in the form of higher prices it will receive for oil produced from state land.

The agreement still must be approved by the State Lands Commission (SLC), state attorney general, governor, Long Beach city council, and state and federal courts.

Counting last week's settlement agreement, the state will have received $319.5 million in settlements since the suits were filed.

In January, California agreed to a $77 million settlement with Unocal that included cash payments of $49.8 million, transfer to the state of two environmentally sensitive parcels of land valued at $10.2 million, and conversion of Unocal's pipeline to common carrier status, which the state valued at $17 million.

In 1984, California and ARCO agreed to a $22.5 million cash settlement.

POT SHOTS

Announcement of the settlement didn't keep the two sides from continuing to take verbal shots at each other.

"For most of two decades oil companies conspired to cheat California taxpayers out of several hundred million dollars," said SLC Commissioner and state Controller Gray Davis. "The major oil companies finally realized we would pursue them relentlessly until justice was done."

California Lt. Gov. and SLC Chairman Leo McCarthy said the settlement "shows that these four oil companies are finally starting to understand the concept of corporate responsibility."

CHEVRON RESPONDS

Chevron, to pay $45 million in cash and convert certain pipelines to common carrier status, denied any liability but said the settlement was "a prudent course of action, given the financial risks inherent in presenting such a complex case to a jury that could have lasted for 6 months."

Chevron Chairman Ken Derr said, "This is yet another example of lawsuits being filed for such exorbitant amounts that innocent companies have no prudent alternative but to pay what is in effect legal ransom."

Chevron also noted the trial judge for most of the case concluded its pricing practices were lawful and no trial was necessary. In addition, although an appellate court ordered a trial, it did not determine there was a conspiracy, the company said.

"The plaintiffs were claiming the price of crude oil was too low, yet the companies were paying the maximum allowed under federal price controls for most of the period," Chevron said. "In contending that crude oil prices should have been higher, the plaintiffs would have guaranteed that prices for gasoline and other petroleum products would have been higher, thus penalizing the consumer.

"This case has been politically motivated since day one, when it was filed despite the conclusion of the SLC staff that the crude oil pricing practices were proper. The city and state have spent an estimated $50 million plus to prosecute this case for the last 16 years. The rhetoric in the state's announcement shows the case continues to be used for political purposes."

MOBIL RESPONDS

Mobil, also to pay $45 million and convert some of its pipelines to common carrier status, noted its San Joaquin Valley crude lines are not included in the settlement.

Joe L. Cooper, Mobil's executive vice-president for U.S. refining/marketing, said, "Over the years we have been forced to devote a great amount of time and attention and substantial legal expenses to this litigation. Now we are faced with the prospect of two lengthy, expensive jury trials over the next 2 years and many years of appellate litigation-plus the possibility of additional trials after that.

"We no longer have our interest in the production contract with the city of Long Beach that led to the litigation in the first place. The time has come to put an end to it."

Copyright 1991 Oil & Gas Journal. All Rights Reserved.