MOBIL BRACES FOR 'ARAMCO ADVANTAGE' TAX HIT

Mobil Oil Corp. says the U.S. Internal Revenue Service intends to tax it on $2 billion of income it didn't receive in 1979-81. To restrain world crude prices after the Iranian revolution, the Saudi Arabian government required Mobil, as one of four partners in what was then Arabian American Oil Co., to sell its crude for less than market price. IRS said Mobil should be taxed for the value of crude between the price it received and the market price it could have charged-the so-called Aramco

July 29, 1991

2 min read

Mobil Oil Corp. says the U.S. Internal Revenue Service intends to tax it on $2 billion of income it didn't receive in 1979-81.

To restrain world crude prices after the Iranian revolution, the Saudi Arabian government required Mobil, as one of four partners in what was then Arabian American Oil Co., to sell its crude for less than market price.

IRS said Mobil should be taxed for the value of crude between the price it received and the market price it could have charged-the so-called Aramco advantage.

IRS is seeking $2.6 billion from Texaco Inc. and $2 billion from Exxon Corp., also former partners in Aramco. And it is considering an assessment against Chevron Corp., the fourth. It has not disclosed what it may seek from Mobil.

Texaco and Exxon have appealed their cases to the U.S. Tax Court, which heard testimony last spring. A ruling is not expected before late this year.

In the trial, IRS maintained Exxon and Texaco could have sold the crude at a higher price to their affiliates without violating the Saudi edict.

Mobil said it "strongly disputes the IRS theory, which reconstructs history and alleges Mobil should have charged its consuming country affiliates higher prices for Saudi crude. Prices the affiliates paid to Mobil were the same as those Mobil paid Saudi Arabia for the crude oil, as mandated by the Saudi government during those years."

Mobil Chairman Allen E. Murray said, "It seems a bit ludicrous to try to punish us for complying with official mandates and the moderate crude pricing policies of Saudi Arabia, which the U.S. government firmly endorsed.

"A decade after the fact seems a little late to be telling us what we should have charged our affiliates. Obviously, we will be going to court if the IRS presses on with its theory, and we expect to win."

Murray said for Mobil to have sold the crude at higher prices "would have resulted in reduced supplies for use from Saudi Arabia and, in general, higher prices for the consumer.

"At a time when more stable supplies and lower prices were being sought by governments around the world, it would have been foolhardy for us not to follow the Saudi edict in this regard. This is why the IRS notice defies logic."