Case Studies: Government Contracts

Chevron awarded more than $18 million in a contract dispute with the Department of Energy

Summary
Beginning in 1944, Chevron, U.S.A., Inc., (“Chevron”) and the US Government jointly operated portions of the Elk Hills Oil Field. Eventually, responsibility for the Government’s management of the field was transferred to the Department of Energy (“DOE”). In 1996, the DOE was required by Congress to sell its ownership interest in the oil field. Chevron and DOE agreed on a process to determine their respective ownership percentages (i.e., “Equity Finalization”). Chevron subsequently discovered the DOE had violated the terms of the process and that the process was tainted. As a result, Chevron alleged a breach of its contract with DOE and sought its costs of participating in the process.

Kenrich professionals were retained by Chevron to determine the incurred cost damages sustained by Chevron to participate in the Equity Finalization process. Kenrich personnel submitted a written expert report and provided testimony at trial on behalf of Chevron. Kenrich personnel also assisted with fact witness preparation and prepared several post-trial submissions related to damages. Ultimately, the Court found the DOE had egregiously breached the contract with Chevron and awarded Chevron more than $18 million.

Background
In 1944, the Standard Oil Company, Chevron’s predecessor, and the US Navy entered into the Unit Plan Contract to govern the operation and production of the oil and gas deposits located in portions of the Elk Hills Reserve. By 1977, Congress transferred the US Navy’s interest and management obligations for the Reserve to the DOE. In 1996, Congress enacted a law that required DOE to finalize the owners’ equity interests in the Elk Hills Reserve so that the Government’s portion could be sold. Chevron and DOE agreed on a process to determine the ownership percentages, however, DOE violated the terms of the process. As a result, Chevron alleged a breach of contract on the part of DOE and sought its costs for participating in the Equity Finalization Process.

Solution
With extensive prior experience on federal government contracting and job cost recovery matters, Kenrich professionals were retained by Chevron’s counsel to assist with analysis and review of incurred costs and establishing the causal link between the incurrence of the costs and Government’s breach. Kenrich personnel reviewed and analyzed the documentation provided by Chevron and produced a written expert report. Kenrich personnel also provided testimony during trial regarding Chevron’s incurred costs, the methods used to review and validate the recorded costs, as well as cost of capital. Kenrich personnel assisted with fact witness preparation and prepared several post-trial submissions related to damages.

Result
The Court found the DOE had egregiously breached the contract with Chevron on multiple occasions. The Court also found the DOE violated the implied covenant of good faith and fair dealing. Chevron was awarded more than $18 million dollars to cover costs incurred to participate in the equity finalization process.