Oxy Unit Fined $724 Million in Antitrust Case : Natural Gas Pipeline Co. Breached a Contract, Wyoming Jury Decides

A pipeline subsidiary of Occidental Petroleum has been ordered to pay $724 million in damages after being found guilty of violating U.S. antitrust laws.

A federal judge in Cheyenne, Wyo., said Friday that a jury found that Natural Gas Pipeline Co. of America, acquired earlier this year by Occidental, had stopped buying gas from Colorado Interstate Gas Co. in violation of a contract between the two firms.

In Los Angeles, Occidental declined to comment. But Natural Gas said it will appeal the case, which it described as an attempt to circumvent a 1984 ruling in its favor by the Federal Energy Regulatory Commission.

Colorado Interstate Gas is a subsidiary of Coastal Corp. of Houston. Natural Gas Pipeline is a unit of the MidCon Corp. of Chicago, which was acquired by Occidental earlier this year.

No Immediate Effect

If the full amount of damages is upheld on appeal, analysts estimated that Occidental might be faced with a one-time pretax charge against earnings of as much as $360 million. But there was not expected to be any immediate financial impact.

The case centered on what has become a common dispute in the natural gas pipeline industry since energy prices began declining in 1981. Numerous long-term gas purchase contracts were written when prices were higher, and later were broken. But lawsuits resulting from the broken contracts have tended to be settled out of court.

In this case, the jury concluded after a 36-day trial that, in addition to breaching a seven-year contract to buy Colorado Interstate’s gas from western Wyoming gas fields, Natural Gas Pipeline planned to create a monopoly in the long-distance gas transportation market.

U.S. District Judge Clarence Brimmer said Colorado Interstate was awarded damages of $373 million by a jury, and a portion of that was tripled under antitrust laws relating to monopolization of a market.

The Colorado company was awarded $175 million in damages on the monopoly charge, and under federal law that was tripled to $525 million. The company was also awarded $160 million in damages relating to the breached contract charge and $39 million more for interfering with a gas supply contract between Colorado Interstate and Champlin Petroleum Co.

In a written statement, Natural Gas Pipeline “expressed its deep disappointment” with the verdict and said it “believes the result is wrong as a matter of law.” The company held that the verdict was precluded by decisions of the Federal Energy Regulatory Commission in 1984 that were upheld earlier this year by the U.S. 10th Circuit Court of Appeals.

“The parties already litigated the question of whether Natural was required to take gas under a contract between the parties. Natural won that dispute, which result was affirmed by the 10th Circuit,” the Occidental subsidiary said.

The company added that it will contest the verdict in post-trial motions and, if necessary, by appeal to the 10th Circuit.

Analyst M. Craig Schwerdt, who follows both Occidental and Coastal for the Morgan, Olmstead investment firm in Los Angeles, said there should not be any immediate financial impact because Occidental will not have to set aside a financial reserve to cover any ultimate verdict.

“We’re not going to see any money pass back or forth for years,” he said.

Such court judgments are normally written off as a pretax charge to earnings, he said.