"This has nothing to do with oil policy. It is just an old-fashioned scheme," say U.S. Attorney W. A. "Tony" Canales, describing the alleged oil reseller violations he and a Houston grand jury are investigating.
At the heart of the cases the government hopes to bring is evidence that oilmen, using a smokescreen of complicated paper transactions, falsely recertify $5-a-barrel old oil into higher-priced categories.
Documents obtained by The Washington Post containing the results of more than two years of investigation by the Energy Department and its predecessor, the Federal Energy Administration, show how such a scheme would work:
Company A, a producer, sets up Company B, nominally a reseller but in face existing only on paper.
Company A sells B some old oil, but certifies it as not subject to price controls, B accepts the same people who own A and B, certification, then resells the oil to Company C, a real reseller but owned by the same people who own A and B. Company C then sells to Company D, real refiner that also has some of the same owners.
Each company in this "daisy chain," as prosecutors call it, accepts the certification of the previous one that the oil is not controlled. None has any reason to do otherwise: the only real loser, the refiner, which has to sell its product in the legitimate market, can recoup its extra cost through the government's entitlements program, which is designed to compensate companies that do not have access to cheap old oil.
Company A is thus able to sell oil for $10 or more a barrel that should legally bring only $5.