Santa Maria Refining Company, Santa Maria, California, was also put on probation for three years for violating the Safe Drinking Water Act.
Three employees have also pleaded guilty to making false statements to the US Environmental Protection Agency (EPA) in connection with the case.
They are facing sentence of up to five years in jail.
EPA and Department for Justice investigators found the company, a subsidiary of Greka Energy Corporation, had disposed of contaminated wastewater in wells putting groundwater supplies at risk.
The wastewater contained benzene, which can cause cancer, anaemia, heavy bleeding and harm the immune system.
The company pleaded guilty in April and was ordered to put half the $1 million penalty towards the Los Padres National Forest Restoration Project by a district court in California.
It was also sentenced for making false statements to the EPA and ordered to pay the agency $15,500.
And it must submit to an independently audited environmental compliance programme.
The EPA has been investigating allegations Greka officials knowingly and routinely discharged oil refinery waste into the underground “injection wells” since April 2004
The wells are only meant to be used to dispose of brine – used to separate crude oil during the refining process.
Last June it fined Greka’s Santa Maria facility $127,500 for unauthorized disposal. The refinery is at the smaller end of the scale.
Figures from last year show it has a capacity of some 9,500 barrels of crude oil a day compared to others under the Chevron and BP banners with capacities of around 250,000.
California’s refineries process a total of about two million barrels of petroleum a day.