Opinion ID: 1298687
Heading Depth: 1
Heading Rank: 2

Heading: Relationship between AOC and APC

Text: APC and AOC made their operating decisions independently from one another. APC did not consider AOC's needs when deciding where to explore or how much crude oil to produce. It produced all the crude oil it was legally allowed to produce. AOC used the same bidding process and paid the same prices as other third parties when it purchased crude oil from APC. An employee of Amoco Corporation, the vice president of crude oil supply, set the field price used by AOC to bid on APC's crude oil. The price was set at a competitive market rate even though it was in APC's best interest for the price to be high and AOC's best interest for the price to be low. AOC purchased both proprietary and nonproprietary crude oil. Proprietary crude oil is oil in which APC has an ownership interest and nonproprietary crude oil is crude oil that another company owns when it is being produced. AOC made decisions about whether to purchase proprietary or nonproprietary crude oil based on its operational needs and without regard to the production capabilities of APC. Throughout the audit period, the percentage of proprietary crude oil produced in the United States and then refined in Amoco Corporation refineries was about 15 percent while about 24 percent was from proprietary crude oil produced worldwide. Despite the day-to-day independence of APC and AOC, Amoco Corporation retained some centralized management control over the subsidiaries. For example, Amoco Corporation offered subsidiaries, for a fee, services such as payroll, corporate insurance, legal counsel, and lobbying. The Commissioner asserts that in 1998, APC purchased about 227 million dollars worth of these services provided by Amoco Corporation.