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
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Published on Dec 4, 2012
By Leo Sun