These alleged pricing practices hurt others because the oil revenues of independent oil producers, the state of California and the federal government are all based on the well-head price of crude. Although Exxon extracts California crude and refines it in its own facilities, it is not fully integrated because it does not have a proprietary pipeline in that state, POGO says. The California case is unusual. Although the state is the nation s fifth largest oil producer and has the largest U.S. market for transportation fuel, only one of the seven major oil pipelines crossing federal lands in California is a common carrier. Most oil pumped by independent producers must flow through proprietary pipelines of the integrated companies or be moved by truck, which is much more expensive.
Refineries owned by the integrated companies require more crude than the owners produce directly.
To meet this demand, the integrated companies stipulate that independents using their pipelines must sell all crude passing through proprietary pipelines to the pipeline s owner, the report says. Independent refiners, on the other hand, typically purchase transported crude from integrated suppliers at prices that are substantially above the Big Seven well- head price, on which government royalties are based. A 1988 General Accounting Office report found well-head prices for California crude were 13 percent lower than prices for a similar grade of West Texas crude between 1980 and 1986. The practices of these integrated companies are common knowledge within the appropriate federal agencies, explains the POGO report, citing documents from the Commerce and Interior departments. Inspector General report cited in the study.