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Biodiesel partners sue Chevron

09:39 AM CST on Thursday, December 20, 2007

By Laura Elder / The Daily News

GALVESTON — Vendors have filed more than $6 million in liens against the first large-scale biodiesel production facility in North America as the plant’s once-lauded relationship with oil giant Chevron sours.

Standard Renewable Energy Group and BioSelect Fuels, two members of a partnership formed to build a plant for refining soybeans and other farm crops into motor fuel, filed a lawsuit Tuesday against limited partner Chevron Technology Ventures and related companies. The partners, operating as Galveston Bay Biodiesel, claim the Chevron units breached a limited partnership agreement, undermining the project and causing revenue losses, according to the lawsuit.

The lawsuit, filed in County Court at Law No. 3, argues that Chevron used its involvement in the project to green wash its image in the media, then withheld promised financial and technical support from the 4828 Port Industrial Road plant.

Chevron, which added stature to the startup after announcing a 22 percent stake in the venture, denies all claims in the lawsuit.

“We strongly refute claims laid out in the suit,” said Chevron spokesman Donald Campbell.

“The agreement with our partners specifically states that we’re not obligated to make any further contributions. We had a contract. It’s pretty straightforward, and that’s our position.”

Campbell declined to say what Chevron’s initial financial contribution to the project was.

The lawsuit comes less than six months after executives and politicians, including U.S. Sen. Kay Bailey Hutchison, gathered in Galveston to praise the plant as a tool to help meet rising energy demand.

Island Mayor Lyda Ann Thomas lauded the facility, which has the capacity to produce 20 million gallons of biodiesel from renewable feedstocks, as part of the “greening of Galveston.”

The partners are attempting to resolve liens filed against the plant by vendors, including by Corpus Christi construction firm J.M. Davidson, which says it is owed $4.2 million.

The liens were the catalyst for the lawsuit, island attorney Craig Eiland said.

Chevron Technology Ventures “represented” to the partnership that a substantial, long-term commitment by a major energy company subsidiary would provide stability and be viewed by the venture capital community as a “vote of confidence,” according to the lawsuit.

Even before construction commenced on the first phase, plans were being formulated to increase production to 100 million gallons annually, which would position the island plant to be the most productive biodiesel refiner in the nation, according to the lawsuit.

Chevron portrayed its initial involvement with the plant as “just a start,” and continued promising support through a rough construction phase that was more expensive than expected, the lawsuit asserts.

Despite the problems and increased cost, Chevron was still capitalizing on its role in the venture at the plant’s May 29 ribbon cutting, the lawsuit asserts.

But on Aug. 1, Chevron Technology Ventures declined to participate in a round of financing, according to the lawsuit.

The biodiesel industry is stinging from rising soybean-oil prices, a production capacity glut and difficulties in distribution, according to industry reports.

Chevron said it’s not backing away from biodiesel.

“We are committed to alternative, renewable energy,” Campbell said.

Chevron will commit about $2.5 billion to renewable energy in the next few years, he said.

The island plant continues to operate at full capacity, sending fuel to the European market, Eiland said.

The lawsuit does not specify damages.

“I want to stress that we did not commit to fund or support any particular plant capacity,” Campbell said.

“Each investment decision was based on individual investment offerings or request for funds.”

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