March 7, 2012

Coffeyville refinery to pay nearly $13 million to settle suit

A Coffeyville refinery has agreed to pay nearly $13 million for penalties and environmental upgrades to settle a federal lawsuit over air quality violations that were an issue before the refinery flooded the town with oil five years ago.

A Coffeyville refinery has agreed to pay nearly $13 million for penalties and environmental upgrades to settle a federal lawsuit over air quality violations that were an issue before the refinery flooded the town with oil five years ago.

If accepted by the federal court in Wichita, the settlement announced Tuesday by the Justice Department and Environmental Protection Agency will close a 2004 case alleging that Coffeyville Resources Refining & Marketing made changes to the refinery that increased air pollution, without reporting those changes to federal authorities as required by law.

The company was also alleged to have failed to notify state and local emergency response agencies in cases of release of the toxic gases sulfur dioxide and hydrogen sulfide.

The violations were alleged to have occurred before the refinery’s current owner, CVR Energy of Sugarland, Texas, purchased the 300-acre complex in north Coffeyville.

The settlement announced Tuesday replaces a 2004 agreement the company made with the EPA when it bought the refinery out of bankruptcy from Farmland Industries, said CVR spokesman Steve Eames.

“This new agreement is incremental to the 2004 settlement and satisfies EPA’s National Petroleum Refinery Initiative,” the company said in a statement. “EPA has already reached settlements with companies representing more than 90 percent of the U.S. petroleum refining capacity.”

The EPA initiative is designed to improve environmental compliance and decrease pollution by refineries nationwide. So far, 30 refining companies have reached court-enforceable settlements with the agency, officials said.

In its settlement, CVR has agreed to pay a total of $12.9 million, including:

•  $973,124 in civil penalties, with $611,562 to the federal government and $361,562 to the state, which had joined the lawsuit.
•  $4.25 million for new pollution controls at the refinery.
•  $6.5 million in additional operating costs including more testing and pollution prevention.
•  $1.2 million on a voluntary program to reduce emissions of acidic gases, volatile organic compounds and hydrogen sulfide.

EPA Region 7 administrator Karl Brooks said in a statement that he “welcomes CRRM’s promise to control pollutants that have threatened Kansans’ health and safety for too long.

“The company’s pledge to promptly start and quickly complete pollution-control work supports this agency’s use of the federal environmental protection laws to cut harmful refinery pollutants.”

But CVR’s trouble with federal authorities is not over yet.

The refining company still is facing a Justice Department lawsuit filed last year on behalf of the EPA and the Coast Guard in connection with a 2007 river flood that hit the refinery and subsequently inundated the east side of Coffeyville with oily water.

The lawsuit seeks more than $1.8 million to reimburse the Coast Guard for cleanup expenses and unspecified punitive damages for alleged violations of the federal Clean Water, Clean Air and Oil Pollution acts.

“The 2007 flooding claims are completely different and unrelated to the present settlement,” said Justice Department spokesman Wyn Hornbuckle. “That litigation is ongoing.”

That suit alleges that the company’s training and emergency procedures were inadequate, allowing 1,919 barrels of crude oil, 126 barrels of diesel and 100 barrels of oily sewage to escape and pollute the Verdigris River.

Federal Magistrate Judge James P. O’Hara in Wichita ordered the two sides to meet with a mediator last month in an effort to settle the case.

After reading confidential reports from both sides, “There seems to be a good deal of bluff and bluster in both reports about the strength of plaintiff’s claims and whether further settlement movement is warranted – or likely,” O’Hara wrote. “Although it’s a close call here, the court has concluded that early mediation should be attempted.”

CVR is also trying to stave off a takeover bid by entities controlled by billionaire financier Carl Icahn.

In a letter to its shareholders last week, the CVR board recommended that its shareholders reject the unsolicited offer to purchase the company’s outstanding stock for approximately $30 a share.

The company’s stock closed at $25.80 today, down 90 cents.

In addition to the Coffeyville refinery, CVR owns a refinery in Wynnewood, Okla., giving the company a refining capacity of more than 185,000 barrels a day. It also owns substantial oil transport and agricultural chemical interests.

Last month, the company announced net income of $345.8 million for 2011 on slightly more than $5 billion in sales.

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