Koch Oil posts mixed results with new method of setting crude 'posted prices.'

Koch Oil posts mixed results with new method of setting crude |posted prices'

Be careful what you ask for; you may get it.

This adage well may apply to a change Koch Oil Co. adopted this month in the methodology the petroleum trading company uses to set prices it pays for crude oil produced in Los Angeles County.

Independent producers of crude here long have groused about what they consider arbitrary methods used by major petroleum companies to set and change their "posted prices" for oil bought under contract in various producing fields.

Among the posting companies here are such majors as Chevron Corp., Mobil Corp., Texaco Inc. and Unocal Corp. Enron Oil Trading & Transportation Co., another petroleum trading company, also is a posting company here, as Koch had been until it changed to a system "related to values" effective June 7.

Koch since then has based prices it paid to independent producers under supply contract on whatever is the reported price that day for crude piped to L.A. from the San Joaquin Valley by Line 63.

The common carrier pipeline, owned by Four Corners Pipe Line Co., a subsidiary of Atlantic Richfield Co., stretches 118 miles from Kelley Station at the south end of the San Joaquin Valley to Hynes Station in North Long Beach. From there other lines pipe crude to virtually every oil refinery in the Los Angeles Basin, said Robert R. (Bob) Kemper, Four Corners manager of planning.

Since the price of the crude piped by Line 63 (which actually is two pipelines - Line Number 1 and Line Number 63) is negotiated daily between producers and buyers, the price may be adjusted almost every day. And that's the daily price being used as the basis for Koch's prices, which are adjusted for its profit margin and for crude gravity variations.

Posting companies change their posted prices far less often, ranging from days to weeks to even months. Asked if they, too, were considering changing to a pricing methodology similar to Koch's, other posting companies replied: No.

Nonetheless, a Koch manager contended, "We did a considerable study that indicated over the long haul our new methodology would be better for the producers - about 20 cents a barrel higher averaged over the past three years."

So, just how is it working out?

Effective June 14, Koch's price of $12.35 a barrel for Wilmington field crude was 95 cents below Chevron's $13.30, even though Chevron that day had cut its posted price by a dime. Effective the same date, Koch's price of $15.40 a barrel for Long Beach/Signal Hill crude was a nickel more than Chevron's posted price of $15.35 after Chevron cut its price by two bits a barrel that day.