City Council Approves Tentative Settlement With Two Oil Companies in MTBE Lawsuit; Settlement a Milestone in City's Drive to Restore Water Supplies.

News & Business Editors

SANTA MONICA, Calif.--(BUSINESS WIRE)--July 18, 2002

The City of Santa Monica today took a significant step toward restoration of its polluted drinking water supplies as the City Council approved a tentative settlement agreement with Chevron/Texaco and Exxon/Mobil, two of the oil companies the City claimed were partially responsible for contaminating City wells with the suspected cancer-causing gasoline additive MTBE.

"Since the discovery of MTBE forced Santa Monica to shut down its primary drinking water wells, our City's hard-won water independence has been compromised," said City Attorney Marsha Jones Moutrie. "With the Council's approval of a proposed settlement, we have reached an important milestone toward restoring Santa Monica's water and ridding our wells of a dangerous chemical. We still have a long way to go, but we're moving in the right direction."

Under the terms of a draft Memorandum of Understanding negotiated between the oil companies and Santa Monica's attorneys, approved by the City Council late Wednesday night, Chevron U.S.A. Inc., Chevron/Texaco Corporation and Exxon/Mobil Corporation would guarantee they will pay the full cost to design, construct, operate and maintain a needed water treatment facility. In addition, the oil companies would provide a cash settlement to cover costs associated with the contamination.

In return, the City of Santa Monica would release the settling oil companies from its MTBE lawsuit. The lawsuit, initially filed by the City in June 2000 against numerous oil manufacturers, suppliers, refiners and owners and operators of pipelines and other gasoline facilities, arose from the contamination of City's primary drinking water source with methyl tertiary butyl ether ("MTBE"), tertiary butyl alcohol ("TBA"), and related hydrocarbon contaminants resulting primarily from releases from underground storage tanks.

The lawsuit remains in effect with respect to several other oil companies, such as Shell Oil Company, who are not parties to the settlement. Under the settlement agreement approved by the City Council, once full recovery is secured from Shell and the other oil companies, it may be possible for Exxon/Mobil and Chevron/Texaco to be repaid a portion of their contribution to restoring the City's drinking water.

"On behalf of Santa Monica's residents and businesses, I want to congratulate our attorneys for negotiating this settlement, and to express my appreciation to the companies who agreed to settle with us rather than engage in protracted litigation," Mayor Michael Feinstein said.

Note: MTBE is an additive to gasoline used in the United States since approximately 1979, and in California since at least 1986. TBA is a gasoline constituent often resulting from the degradation or breakdown of MTBE. As a suspected carcinogen, MTBE poses a significant public health threat. And because it has a distinctive taste and smell, it is also a significant threat to the purity of drinking water sources. By mid 1996, the City was forced to shut down its Charnock wellfield because of MTBE contamination. Since that time, public awareness of the MTBE threat to drinking water has grown. Governor Gray Davis initially ordered that the use of MTBE as a gasoline additive be phased out by no later than December 2002. The phase out date has since been delayed to December 2003. Other states have followed suit.