Judge finds city liable for more than $740,000 for terminating fuel contract in 2020

The city of Albuquerque could owe a Texas-based oil company more than $740,000 after it terminated the company’s contract in 2020 in an effort to protect the city’s war chest.

In late June, a judge found the city liable for $744,574 in a lawsuit filed by Davidson Oil, a fuel supply company based out of Amarillo, Texas.

The city contracted with Davidson Oil in January 2020 after the company was the lowest bidder to provide unleaded gasoline and diesel fuel at a fixed price.

It was the first time the company had contracted with the city, although Davidson Oil had entered into fuel supply contracts with the city of Amarillo for several years. The company has Albuquerque ties; City Councilor Dan Lewis is director of operations at Davidson Oil.

A few months after entering the contract, the COVID-19 pandemic hit, shriveling oil prices worldwide and causing broader economic unease. By April 2020, the price per barrel of crude oil had plunged to $15.18 — about a quarter of the January 2020 price.

In March 2020, the city gave Davidson Oil notice that it would be exiting the arrangement.

“The City terminated the contract for convenience due in part to the instability in market conditions caused by the pandemic,” said a city spokesperson in an email. “The goal was to protect the public coffers in a time of great uncertainty.”

But the company had, at the request of the city, already bought 12 one-month hedge contracts, which are purchased to protect against volatile market swings.

Later that year, the company sued.

In August last year, U.S. District Court Judge Robert Brack decided in favor of Davidson Oil. In the memorandum opinion and order, court documents stated that “Defendant City of Albuquerque breached the implied covenant of good faith and fair dealing when it terminated the parties’ fixed-price fuel supply contract.”

The city is planning to appeal the judgment.

There are three components to the price tag: lost profits on fuel, lost profits on fuel transport, and hedge losses, totaling $96,648.76, $46,066.80, and $601,858.99, respectively.

Davidson Oil CEO Chan Davidson said in an email to the Journal the majority of the money is to recoup the costs associated with securing the hedge contracts.

“These are reimbursements for expenses paid, not a payday,” Davidson said, noting that interest and litigation fees are additional costs, not included in the judgment, that the company will have to absorb.