U.S. Looking at Oil Pricing on West Coast : Seeks State Data on Claims of Conspiracy to Avoid Paying Taxes

The Justice Department is looking into allegations that several major oil companies conspired to hold down the price of West Coast crude to evade federal taxes and state royalty payments--the same allegations contained in a suit that has bounced around California courts for nearly 15 years.

“While it is the policy of the Department of Justice not to discuss pending investigations, I can confirm that the antitrust division is looking at crude oil pricing in the state of California,” James F. Rill, assistant attorney general for antitrust, said in a statement. “We are monitoring the situation and related developments in the litigation that was instituted by the state of California and the city of Long Beach.”

Rill referred to a $550-million suit brought in 1975 by the state of California and the city of Long Beach against Texaco Inc., Mobil Oil Corp., Chevron Corp., Exxon Corp., Shell Oil Co. and Unocal Corp. The suit alleged that the oil companies tried to monopolize and control the production, distribution, purchase and sale of crude oil on the West Coast.

Anthony Brown, a lawyer for Chevron, denied the allegations Thursday and downplayed the Justice Department probe, saying they had so far asked only to see the massive amount of documents produced by the lawsuit.

“It has not been one of those formal civil document investigations,” he said.

State Officials Pleased

But news of the federal inquiry brought pleased reactions from California officials Thursday. “We are delighted. We welcome their investigation, and we are prepared to cooperate in any manner that we can,” said Alan Ashby, spokesman for Atty. Gen. John Van de Kamp.

James McCabe, deputy city attorney for the city of Long Beach, echoed the sentiment, adding: “There is just no explanation for the disparity in prices over a long period of time.”

Mobil Spokesman John Lord said he had no knowledge of the Justice Department inquiry, but denied the allegations in the California-Long Beach lawsuit.

The Justice Department opened its inquiry after the U.S. 9th Circuit Court of Appeals ruled in April that there is sufficient evidence of a conspiracy to justify a trial in the lawsuit.

“The department’s antitrust division is currently conducting an investigation of crude oil pricing in California,” U.S. Assistant Atty. Gen. Carol T. Crawford wrote to Rep. Jim Bates (D-Calif.).

“If the division concludes that antitrust violations have occurred, appropriate enforcement action will be taken.”

Bates had written to the Justice Department to urge its involvement in the matter. “We just keep pounding away, and it appears we must be onto something if the Justice Department feels there’s enough information to open an inquiry or investigation,” Bates said Thursday.

Companies Unnamed

Royce H. Schulz, a lawyer for Long Beach, said Justice Department attorneys have requested copies of documents from the state case and are negotiating “protective orders” to shelter some company records from public scrutiny.

The Justice Department has not named the oil companies targeted in its investigation.

Atlantic Richfield Co., originally named in the suit, was dropped in 1984 when it agreed to a $22.5-million settlement with the state and city of Long Beach.

According to analysts, oil companies normally pay royalties to the state and other land owners, and in the past paid the federal windfall profits tax, on the basis of the “posted price” of their crude oil.

For several years, the posted price of West Coast crude was lower than that in the rest of the country by as much as $7 per barrel. The pivotal issue is whether the difference resulted from economic and geographic forces, as the oil companies say, or from a conspiracy by the companies to disguise the true price of the oil.

Eight members of Congress, indicating their skepticism about the oil companies’ explanation of the pricing, in December, 1987, wrote to then-Treasury Secretary James A. Baker III that “there is a strong inference that the low Alaska and California prices can be explained by the efforts of producers to limit their windfall profits tax obligations.”