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Wednesday, May 15 2013 06:06 PM

Judge faults government's 'abusive' tactics against Chevron in Elk Hills lawsuit

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    By Casey Christie / The Californian

    An oilfield worker with Jacobs Engineering, Mario Ramos, unloads some tubing in the oilfields near an oil pumping unit at a Chevron installation in Lost Hills in this file photo.

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BY JOHN COX Californian staff writer jcox@bakersfield.com

A federal judge has ruled that the U.S. Department of Energy owes Chevron Corp. unspecified damages in a years-old contract dispute over $37 billion in petroleum deposits at the prolific Elk Hills oil field in northwestern Kern County.

A 91-page ruling issued May 8 by the U.S. Court of Federal Claims said the department "repeatedly and materially" violated two agreements intended to establish the parties' relative ownership of the field.

Judge Susan G. Braden ruled that the department is liable to Chevron for damages in an amount of money yet to be determined -- "including sanctions for (Department of Energy) and the Government's 'bad faith' conduct and abusive discovery tactics."

The Department of Energy referred news media questions to the U.S. Department of Justice, which declined to comment.

A Chevron spokeswoman wrote in an email Tuesday, "We are reviewing the court's decision. Because the decision is not yet final, we do not believe it is appropriate to comment at this time."

Chevron and its predecessor, Standard Oil Co., operated Elk Hills together with the federal government for several decades. In 1997, the government sold the former Navy petroleum reserve to the highest bidder, Los Angeles-based Occidental Petroleum Corp., for $3.65 billion -- at the time the largest-ever sale of U.S. government property.

Elk Hills is among the most productive oil fields in the country.

The primary question raised in the lawsuit is what share of the field belonged to Chevron -- and by extension, how much of the 1997 sale proceeds the company is entitled to.

A 1944 contract between the Department of the Navy and Standard Oil divided the field into three zones. It gave the oil company about 23 percent ownership of Elk Hills' dry gas zone, 36 percent of its shallow oil zone and 35 percent of the so-called Stevens Zone.

Those numbers were subject to revision, and in 1957, the Navy's share of the shallow oil zone was raised to about 70 percent, giving Chevron about 30 percent.

In 1995, 18 years after the Navy's ownership was transferred to the Department of Energy, an independent consultant re-estimated Chevron's equity in the shallow zone at 34 percent -- an increase the judge said was worth $340 million.

But the two sides continued to disagree over their respective equity, despite findings by independent parties, and in 2004 Chevron sued the department.

Judge Braden's ruling was highly critical of the government's tactics in court. She noted that most plaintiffs cannot afford to pursue their cases as Chevron did. As a result, she ordered the government to reimburse Chevron 42 percent of its legal costs on the costs since Feb. 16, 2007.

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