Some buyers of crude oil from domestic producers for about $6 or $15 a barrel are reselling it to refiners for about $36 a barrel, an illegal practice that may have cost American consumers more than $1 billion last year, a House Commerce subcommittee has concluded.
Department of Energy officials confirm the fraud is occurring but believe the amount of money involved may be somewhat less.
The fraud involves individuals and small companies known as crude oil resellers. They buy price-controlled oil from producers -- for about $6 a barrel if it is from fields found before 1973 or about $15 if from newer fields -- and then certify to a refiner that the oil is from so-called stripper wells to which price controls don't apply.
The subcommittee staff notices that, early last year, refinery receipts of oil from stripper wells, which produce less than 10 barrels a day, began to climb much faster than production from such wells.
That coincided with the increase in world oil prices that lifted the cost of uncontrolled domestic oil from about $16 to $36 a barrel. That meant a $30-a-barrel gap between what a crude reseller could get for $6 old oil and $36 stripper oil.
"One began to wonder whether that difference wasn't compelling some people to cheat," Rep. Bob Echkhardt (D-Tex.), chairman of the Commerce oversight and investigations subcommittee, said.
The subcommittee estimates that at least 200,000 barrels of oil a day were miscertified by crude oil resellers last year, with the amount continuing to increase as the price gap widens.
Eckhardt plans to question Hazel R. Rollins, head of DOE's Economic Regulatory Administration, at a hearing today about why DOE has not moved more quickly to end the fraud. Eckhardt said DOE, as far as he knows, has not yet filed any civil or criminal complaints concerning any mislabeling of crude oil that has occurred since the beginning of 1979.
In a letter to Eckhardt this month, Rollins said, "The department is presently engaged in an effort to identify instances of miscertification of crude oil classifications and to take appropriate legal action where warranted."
Rollins said her agency's office of enforcement has already determined, for instance, that "a significant portion" of the problem is, in fact, due to miscertifications by crude oil resellers rather than fraudulent actions by producers or refiners.
That office, she added, "has recently developed the crude oil reseller's self-reporting form . . . which has been useful in targeting firms for audits and further investigation. . . .
"In addition, the new domestic crude oil first purchases report . . . provides us with detailed information on uncontrolled crude oil production classifications," Rollins continued. "This new form combined with enforcement audits will enable the department to identify volumetric discrepancies for stripped well production within six months."
According to data Rollins attached to her letter, the amount of stripper oil bought rose steadily throughout 1978. Receipts of stripper oil at refineries also rose more or less in line with the figures for "first purchases" of such oil.
Then in January 1979, the two lines began to diverge. Subcommittee sources believe the difference between reported first purchases of stripped oil and refinery receipts currently may be as much as 300,000 barrels a day. At the end of the year stripper production was up to nearly 1.4 million barrels a day.
Even after adjusting the numbers to take into account mislabeling by refineries of some other uncontrolled oil as stripper oil -- a mistake that would not increase anyone's legal selling price -- Rollins' data showed a difference of 273,000 barrels a day during the last six months of 1979.
"Somebody is breaking the law," Eckhardt declared."We want to know to what extent DOE is enforcing the law."
And he added, "$1 billion a year is a very substantial overpricing . . . that represents about a 1-cent increase in the price of gasoline" for a year.