Chevron Wins Suit Against U.S. Over California Oil Field

Chevron Corp. (CVX) is entitled to unspecified damages against the federal government in a contract dispute over oil deposits in California worth $37 billion, the U.S. Court of Claims ruled.

The Department of Energy “repeatedly and materially violated” two agreements governing determination of equity interests in oil and gas deposits located in the Elk Hills Reserve of California, Judge Susan Braden in Washington wrote in a 90-page ruling.

Chevron “is entitled to be compensated for damages, in an amount to be determined, including sanctions for DOE and the government’s ‘bad faith’ conduct and abusive discovery tactics,” Braden wrote in the ruling made public yesterday.

Chevron filed the suit in 2004 after failing to agree on the exact split of its joint holdings in the Elk Hills facility with the Energy Department. The company and the government operated the field together for more than 50 years, and had agreed to proceed with the sale of the government’s stake to Occidental Petroleum Corp. (OXY) while they worked out the holdings.

Steven Thai, an Energy Department spokesman, referred calls for comment to the Justice Department. Allison Price, a Justice Department spokeswoman, didn’t immediately respond to an e-mail message seeking comment. Donald Campbell, a spokesman for San Ramon, California-based Chevron, didn’t immediately respond to an e-mail message seeking comment on the ruling.

Elk Hills

The Elk Hills Field, located near Bakersfield, California, encompasses more than 47,000 acres and includes more than 1,000 wells, a 47-megawatt power plant and two units that process gas. The government’s share in the field of about 78 percent, which is still being disputed by Chevron, is estimated to hold reserves equal to about 1 billion barrels of oil.

Occidental Petroleum bought the government’s stake in Elk Hills, one of the largest remaining oil fields outside Alaska, for $3.65 billion in 1997. That’s about $3.65 for each barrel of oil-equivalent it contains. Chevron and Occidental are not operating the oil and gas field together.

The sale of the interest in Elk Hills reserve, set aside in the early 1900s for emergency military use by the U.S. Navy, was the largest government asset sale ever at the time.

In her ruling, Braden ordered the government to reimburse Chevron for 42 percent of its legal fees for two years, beginning in February 2007, as a sanction for “bad faith” litigation tactics involving the production of documents.

The case is Chevron USA Inc. v. U.S., 04-1365, U.S. Court of Federal Claims (Washington).

To contact the reporters on this story: Andrew Zajac in Washington at azajac@bloomberg.net; Tom Schoenberg in Washington at tschoenberg@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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