Big Oil Bummer

Charges of overcharging

For nearly two years, federal investigators have been probing overpricing in the oil industry, and last week they made their biggest charges yet. Even as the General Accounting Office was leaking a report criticizing the Department of Energy for foot dragging in its petro-probes of smaller middlemen, DOE was accusing seven of the largest oil companies of overcharging refineries by $1.7 billion since 1973. The alleged method: selling petroleum at far higher prices than permitted under domestic crude-oil controls.

The major offenders, according to DOE, were Texaco, which is accused of some $888 million in overpricing, and Gulf Oil, with $578 million. Behind them came Standard Oil of California, Atlantic Richfield, Marathon Oil, Standard of Indiana and Standard of Ohio.

Rather than press criminal charges against the companies, DOE told them to refund the money, and gave the firms 40 days to appeal to an administrative law judge. Government attorneys fear that meeting the strict, "beyond a reasonable doubt" standard of proof under criminal law would be almost impossible considering the technicalities of the case.

The companies vigorously denied the charges and responded that they had simply been trying to abide by immensely confusing DOE regulations. At issue is the seemingly simple distinction between "old" oil and "new" oil. Under the price controls that Jimmy Carter will begin to phase out next month, petroleum discovered before 1973 can be sold only at a price that now averages $5.86 per bbl. More recently discovered oil fetches $13.06 per bbl. The companies are accused of selling the old oil to refineries for the new-oil prices.

DOE's ever multiplying regulations have turned the distinction between old and new into a lawyer's romper room. Complains an attorney for one of the companies: "The Government issues the regulations and leaves us to interpret them. Then the regulators sit down to decide what they meant in the first place, and they get as confused as we do."

The DOE investigators say that the companies just played fast and loose in interpreting the rules. One mind-boggling example of the old-new complexity: a now revised regulation stating that all petroleum pumped from a field that had even one well drilled before 1973 must be classified as being old oil. The idea was to stop companies from getting new-oil prices by drilling new wells into old reservoirs after 1973. The companies are accused of, among other things, ignoring this provision whenever they actually struck new oil in an old-oil field. Instead of selling it as old oil, they are said to have charged top dollar.

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