Chevron's (CVX) Headaches in the Amazon Continue

Over the past year, oil giant Chevron (CVX: Charts, News) has been haunted by a highly publicized case regarding alleged pollution in the Amazon rainforest by its subsidiary Texaco. In a recent development, Chevron may be forced to hand over $12 billion of its Canadian assets to Ecuadorian villagers for its role in soil and water pollution in the Amazon.

In February, a Canadian judge will decide if the case, filed by 47 Ecuadorians, will proceed to trial. Daily Chart
Chevron inherited these troubles from Texaco, which it acquired in 2001. Texaco had been actively drilling in the Amazon region since 1972, upon the completion of the Trans-Ecuadorian pipeline. Over the following two decades, farmers and fishermen in the region claimed that Texaco's operations - a joint venture with Ecuador's national oil company, Petroecuador - were ruining the health and livelihoods of residents in the Amazon rainforest villages. In a local judgment, which Chevron does not honor, Texaco was found guilty of discharging waste products and other toxic byproducts into the water. As a result, the Ecuadorian villagers have been attempting to collect $19 billion in environmental damages from the company. Chevron management has remained steadfast in its position, stating that the ruling in Ecuador was a result of "bribery and fraud," and an effort to shift the blame from Petroecuador for its aggressive drilling operations. As a result of this aggressive growth in oil drilling between 1972 and 2001, Ecuador quickly emerged as one of the world's largest oil producing nations, becoming a member of OPEC in 1973. Oil also tied with bananas as Ecuador's top export. After Chevron backed out of Ecuador in 1992, it shut down all refineries, oil wells and storage terminals in the country, to distance itself from the litigation and controversy surrounding its Amazonian operations. Petroecuador took over Chevron's remaining oil equipment that same year. As a result, the plaintiffs in the case have launched multi-pronged attacks against Chevron's properties in Canada and South America for compensation. The Ecuadorians are filing to seize not only Chevron's Canadian assets, but also properties in Brazil and Argentina. In Brazil, a judge has ordered some of Chevron's cash assets to be placed in escrow as the case awaits trial. However, a temporary ban against Chevron, which asked the oil company to pay $20 billion in damages for a 3,600 barrel spill in the Frade field, northeast of Rio de Janiero, was lifted. The Ecuadorians have targeted Chevron's Canadian assets in particular because of its estimated value of $12 billion, which would cover a substantial part of the $19 billion the villagers are seeking. Chevron's lawyers have dismissed the claim, citing that Chevron Canada is shielded from litigation targeting its parent company, since it operates as a separate business segment. Chevron spokesman Justin Higgs encouraged a dialogue with the government of Ecuador. "We believe the only path to a constructive resolution of this matter requires the participation of the government of Ecuador," Higgs stated. "Unfortunately, the Republic has rebuffed all attempts at a constructive dialogue." Higgs added that the company would only honor judgments originating in the United States - "where Chevron corporation resides." With a market cap of $205 billion, an unfavorable judgment is unlikely to cripple Chevron. In addition, without a final judgment passed against the company in the United States, it is unlikely that Chevron will be required to pay any of the charges levied against it in Canada or South America. However, the negative publicity from the Ecuadorian case may affect the company's ability to expand in South America or other oil-rich regions. Shares of Chevron have traded in a 52-week range between $95.73 and $118.53, and have risen 3.3% over the past 12 months. The stock pays a quarterly dividend of 90 cents per share - a 3.43% yield at current prices. Other News About CVX Canada Judge in $12 Billion Chevron Case May Delay Ruling Will a small group of Ecuadorian villagers really seize Chevron's Canadian assets? Chevron Brazil Ban Overturned; Company Offers Changes Brazil offers Chevron a second chance after its disastrous oil spill last year. Other Stocks in the News Is Apple Inc. a Good Buy as it Nears $590? Are Apple bulls coming back to the stock? News Corp. Kills The Daily, its iPad Newspaper In a surprising move, News Corp calls it quits on the iPad. Copyright 2012 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Dec 4, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2020. Content published with author's permission.

Posted in ...