The Environment Protection Authority (EPA) will investigate whether Esso has broken environmental laws.
After a crude oil spill last month at Esso's Longford plant, in south-east Victoria, a nearby resident complained to Esso that a strong smell coming from the plant was making him sick.
Esso offered to pay for the man to stay in a hotel to escape the smell and also sent a company doctor to speak to him.
However, Esso did not tell the EPA about the spill until two weeks after Longford resident Ray Shingles first complained about the smell.
Esso confirmed residents and staff have been exposed to the cancer-causing benzene.
A company spokesman could not say what the the exact levels of exposure were but said they were low.
The EPA is now investigating Esso for breaching its licence.
Esso could be found guilty of breaching two of its licensing requirements - discharging offensive odours beyond its premises and failure to notify the EPA immediately about the incident.
Tracey Anton from the Community Over Mining group says the Victorian Government must strengthen environment laws.
"There's been quite a few stories for years of how ineffectual EPA are and clearly on ...
Esso's compliance report there's been breaches but why haven't they enforced them, well why haven't they?" she said.