Chevron in Ecuador

The archive of the Clean Up Ecuador campaign website

Chevron's $27 Billion Liability In Ecuador "Glaringly Low" In Light of BP Disaster

Chevron Dumped Toxins for 26 Years; Indigenous Groups Decimated; CEO Fights Shareholders; Chatter about Bankruptcy

Amazon Defense Coalition

Amazon Defense Coalition
Contact: Karen Hinton at +1.703.798.3109

New York, NY – Chevron's potential $27.3 billion liability for causing the world's worst oil-related catastrophe in Ecuador's rainforest – dubbed the "Amazon Chernobyl" by locals – is starting to look like a glaring underestimate compared to the astronomical damages facing BP in the wake of the Gulf oil spill, according to an analysis in The New York Times published today.

In his "Dealbook" column, Andrew Ross Sorkin reports investment bankers have concluded that BP could be a ripe takeover target because it faces a $40 billion liability for the Gulf spill. He says under various worst case scenarios – such as a jury trial in Louisiana – the potential liability could surpass a whopping $100 billion.

The $40 billion includes an estimated $23 billion in clean-up costs according to Credit Suisse and an additional $14 billion from fisherman and the tourism industry, according to analysts. The amount could lead BP to what bankers call the dreaded "Texaco Scenario" – where Texaco's $10.5 billion liability in the Penzoil case (then the largest civil judgment in U.S. history) forced it to file for bankruptcy in 1987.

"The question is, who would buy BP, given its enormous liabilities," wrote Sorkin.

Chevron has a similar problem in Ecuador, given that the company dumped at least ten times as much oil into the rainforest as has spewed out of BP's Deepwater Horizon well, according to observers. The same logic used in the Sorkin article suggests that in a worst-case scenario – particularly if the Ecuador trial judge increases the damages awarded well above the $27 billion estimate – Chevron might face the same danger of bankruptcy now looming over BP, according to Pablo Fajardo, the lead Ecuadorian attorney for the plaintiffs.

"We believe the damages estimate in Ecuador is glaringly low in light of the latest assessments of BP's liability by Wall Street analysts," said Fajardo.

The Ecuador disaster is still considered the world's largest oil-related catastrophe, though it often is not "ranked" because it was the product of deliberate planning to cut costs rather than a spectacular accident, according to representatives of the plaintiffs. "Chevron dumped more than 18.5 billion gallons of toxic waste – about 4 million gallons per day for more than two decades – and the world paid almost no attention," said Mitch Anderson, an American organizer who works with the affected Amazonian communities.

Experts have concluded that Chevron discharged at least 345 million gallons of pure crude into the Amazon as part of its illegal dumping – far more than both the 11 million gallons spilled in the Exxon Valdez and the enormous amounts of crude spewing out of the BP well in the Gulf.

The Chevron Ecuador disaster poisoned an ecosystem roughly the size of Rhode Island that is even more sensitive to its indigenous inhabitants than the coastal marshes of Louisiana are to local fishermen, according to Luis Villacrecis, an environmental consultant who works with the plaintiffs.

"We have long said that the $27 billion damages number for Chevron in Ecuador is too low because it does not take into account the true restoration of the rainforest," said Villacrecis.

"Because this is far away from the United States, and because the victims are mostly indigenous, Chevron believes it can receive a discount on the actual damages," he added. "Whether that is true remains to be seen."

The dumping, which occurred when Texaco (now Chevron) operated a large oil concession from 1964 to 1990, has decimated the traditional lifestyles of five indigenous groups while a sixth, the Tetete, has disappeared. The case was moved from U.S. federal court to Ecuador at Chevron's request in 2002 as a way for the oil giant to try to avoid or minimize liability, said Anderson, who works at Amazon Watch..

Much of the damage in Ecuador – including 916 unlined waste pits gouged from the jungle floor and used for permanent waste storage – is still visible and will cause harm for centuries unless cleaned up, according to experts. Proof can be seen in a 60 Minutes segment which shows the pipes Chevron built to drain toxic sludge from the pits into the forest, or in the documentary film CRUDE, which chronicles the legal battle of the communities against Chevron.

The Ecuador liability has clearly gotten under the skin of Chevron's new CEO John Watson, who is under attack for helping to engineer Chevron's purchase of Texaco for $31 billion in 2001 without proper due diligence. Watson oversaw the integration of the two companies.

At the Chevron annual meeting on May 26, Watson had five shareholders arrested after they made known their criticisms of the company's poor human rights and environmental record. Among them were Anderson and noted author Antonia Juhasz, who was forcibly dragged out of the meeting by several Houston police officers.

Inside the meeting, Chevron's management team suffered a humiliating rebuke when shareholders supported a resolution relating to Ecuador with 26% of the vote, representing an estimated $38 billion in shareholder value. The shareholder support represents an increase of nearly 400% over previous resolutions associated with the Ecuador problem.

"The shareholder defiance of Watson combined with the enormous potential Ecuador liability helps explain why Chevron management is trying to silence its critics," said Anderson.