Chevron in Ecuador

The archive of the Clean Up Ecuador campaign website

Chevron Falls Short On Disclosure Obligations Relating to $27 Billion Ecuador Liability, Says Investor Advisory Group

Oppenheimer Warns Ecuador Problem Could “Depress” Chevron Stock; Risk Metrics Urges Greater “Transparency” From Oil Giant

Amazon Defense Coalition

Amazon Defense Coalition
Contact: Karen Hinton at +1.703.798.3109

New York, NY (May 26, 2009) – In another setback to Chevron management, a leading investment advisory group is urging the oil giant to disclose more details of a potential $27 billion environmental liability in Ecuador just before what is expected to be a major showdown on the issue at the annual shareholder’s meeting May 27th in California.
The statement by Risk Metrics follows the announcement of a probe by the New York State Attorney General, Andrew Cuomo, to determine if Chevron is misleading investors about the liability, which concerns the clean-up of what experts believe is the worst oil-related contamination on the planet.  The case is on trial in Ecuador at Chevron’s request after it was initially filed in 1993 in federal court in New York by an estimated 30,000 rainforest residents.
Further, analysts at both Barclay’s and Oppenheimer are now warning Chevron investors about the Ecuador liability in their recent quarterly reports on the company.  Oppenheimer, in a report dated May 4th, said the $27 billion claim from Ecuador “could depress the stock until a settlement is reached… the sooner this is removed, the better off shareholders will be.”  Barclay’s called the Ecuador case a “drag” on Chevron’s stock value.
“The pressure is increasing on Chevron’s management over the uncertainty surrounding a very significant potential environmental liability in Ecuador,” said Dan Orlow, an investment advisor who works on the legal team that represents the Amazonian communities.
The lawsuit accuses Texaco (now Chevron) of dumping more than 18 billion gallons of toxic “water of formation” into Amazon waterways and abandoning more than 900 toxic waste pits, which continue to leach hydrocarbons into rivers and groundwater.  A court-appointed team of 15 experts found that 1,401 people had died of cancer and assessed damages, including a clean-up of a 1,700 sq. mile area, at $27 billion.
Risk Metrics, which provides risk management and corporate governance services to investors, published a review of a shareholder resolution calling on Chevron to examine whether it complies with host country laws and environmental regulations. The resolution, which is being supported by some of the nation’s largest pension funds, stems from criticism that Chevron violated such laws in Ecuador.
Risk Metrics urged shareholders to vote against the resolution, calling it too burdensome to implement.  But its analysis also contained a warning for the company about disclosure.
Risk Metrics stated that “it is noteworthy that [Chevron] has not made public the amount, estimated to be $27 billion, that it may be liable to pay upon the verdict of the Ecuadorian courts, nor any information as to how the company plans to manage the possible outcome.  It would be beneficial for the company to increase its disclosure … and provide further details and transparency to shareholders relating to its obligation of liability in the countries where it operates, especially in light of recent developments regarding the company’s liability in Ecuador.”
Public pension funds supporting the resolution on Ecuador include CaLPERS, the largest public pension fund in the country with $170 billion in assets, and those of New York State, Maryland, Pennsylvania and the cities of New York, Philadelphia and Detroit. Together they own well over $1 billion in Chevron stock.
If the Ecuadorian judge accepts the damages assessment, it could be the largest judgment in history for an environmental case and would almost surpass the $31 billion Chevron paid to purchase Texaco in 2001.
Despite the specificity of the damages claim, Chevron claims in its public filings with the SEC that it is unable to estimate a potential loss in the Ecuador case. The company also said it believes it is not subject to the jurisdiction of Ecuador’s courts, despite voluntarily submitting to the jurisdiction in Ecuador as a condition of the case being transferred out of U.S. federal court in 2002.
“We believe there are multiple misleading or demonstrably false statements in Chevron’s public filings that contradict facts in the trial record,” said Pablo Fajardo, the lead Ecuadorian lawyer on the legal case.  “Chevron not only needs more disclosure, Chevron needs to offer truthful disclosure which it has yet to do based on our assessment.”
The Cuomo investigation is being brought under New York’s Martin Act, which allows for both civil and criminal liability for fraud.  Several New York shareholders had requested the probe to determine if Chevron is complying with state and federal securities laws.
Separately, leaders from Ecuador’s Amazon region are expected to attend the shareholder’s meeting and confront Chevron CEO David O’Reilly over the company’s allegedly misleading assertions about Ecuador.