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Energy Penalties Will Cost Exxon $2.1 Billion and Arco $315 Million

January 28, 1986|PAUL RICHTER | Times Staff Writer

NEW YORK — Atlantic Richfield agreed Monday to pay $315 million in restitution and fines to settle a federal suit alleging that the Los Angeles-based company violated federal oil price controls in crude oil trades between March, 1978, and January, 1981.

Separately, the Supreme Court declined to review a lower court decision that fined Exxon $2.1 billion for overcharging customers for crude oil pumped from the sprawling Hawkins Field oil properties near Tyler, Tex. The sum will be divided among the 50 states to fund energy conservation programs, with the largest share--$200 million--going to California.

The two cases were among about 400 that are still pending from the seven-year period when domestic oil prices were governed by complex rules promulgated by the Energy Department.

The Arco agreement settled a case in which the energy agency alleged that the company had collected $240 million in illegal charges through a series of two-way trades. The energy agency contended that the oil company sold price-controlled domestic crude oil to customers who promised to in turn sell unregulated foreign crude to Arco at a discount.

Among the oil trading companies involved in these swaps was Marc Rich & Co., the Swiss commodity trading firm that in 1984 was found guilty of oil trading fraud and was fined $150 million.

The Energy Department had sought $499 million from Arco, and last year it rejected an Arco offer to settle for $225 million. The $315 million includes $313 million in restitution and $2 million to satisfy the government's claims that the oil company should also be fined.

Settled Separate Claims

Arco admitted no wrongdoing in the settlement agreement, which will not be final until the Energy Department has solicited public comments and held a public hearing.

Last summer, Arco agreed to pay $65.7 million to settle separate Energy Department claims that it had violated price rules on crude and refined petroleum products in the early 1970s, shortly after federal price controls were imposed. Late Monday, federal and Arco officials said they were unable to immediately provide further details of those allegations.

Arco's provision for the settlement brought a net $164-million after-tax charge for the quarter ended Dec. 31, causing Arco's net income for the period to drop 50% to $142 million, the company said in an earnings report that was also released Monday.

Analysts said neither the Supreme Court decision nor Arco's settlement were unexpected. "Arco's (penalties) were certainly within the range of what people expected, and I think the Exxon fines are also considered past history," said M. Craig Schwerdt, analyst with the Morgan, Olmstead, Kennedy & Gardner brokerage in Los Angeles.

He speculated that the decline in Arco's stock price in Monday trading was more a consequence of concern over falling oil prices than surprise at the settlement.

Arco's stock declined $1.50 to close at $54.375, while Exxon's rose 37.5 cents to $51.25.

Exxon said it will pay $895.5 million in restitution, plus interest that brings the total charge to $2.1 billion. However, an Exxon spokesman noted that Exxon will recoup a portion of taxes it paid on the overpriced crude and excess royalties it paid to owners of the oil field property.

Reserves Set Aside

When those revenue savings are considered, Exxon expects its net cost to amount to about $1 billion, according to the spokesman. The spokesman noted that the oil giant has set aside reserves to cover the charge and said the penalties would not figure in the company's soon-to-be-released 1985 earnings results.

In a statement, Exxon Chairman Clifton C. Garvin said the company was "extremely disappointed" in the Supreme Court's ruling, which he charged "continues a trend of judicial rulings unfavorable to the oil industry."

Garvin said the federal price control rules involved myriad legal issues that the oil companies struggled to interpret but that were often reinterpreted later by federal officials.

Exxon sought a Supreme Court review following a decision by the Temporary Emergency Court of Appeals last July, which found that the company and its oil field partners had illegally sold their crude as expensive "new oil" when it should have been sold as cheaper "old oil."

Federal rules allowed higher prices for newly discovered oil, to provide an incentive for continued oil exploration.

In its initial ruling on the case in 1983, a U.S. District Court in Washington ordered that the proceeds be divided among states according to a formula based on their energy consumption. The states may spend the money on several energy conservation purposes such as insulating buildings, finding alternative, less expensive energy sources, paying the home utility bills for the poor and promoting conservation.

In its earnings statement, Arco said it lost $202 million for the year, compared to a profit of $567 million in 1984. The full-year loss also reflects a $1.5-billion charge made in connection with the company's restructuring program.

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