Chevron (NYSE:CVX) vs. Ecuador (and Canada)

September 8th, 2015 by

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Ecuador is home to one of the most biodiverse areas in the world. Not only is it a top destination for nature-lovers, but it is also rich with indigenous cultures. The country is known for its tourist destinations, particularly those which are associated with ecotourism.

Ecuador’s ecotourism industry has been growing and will likely continue to do so and become a more important part of the state’s economic policies. However, the sanctity of Ecuador’s pristine environment may have been compromised in the 1970s and 1980s when Texaco/Chevron (NYSE:CVX) partnered with Ecuador’s national oil company.

Rivers and other bodies of water in the Ecuadorian Amazon have been contaminated with oil-laced sludge, impacting the rainforest and the indigenous community. The people of the Ecuadorian Amazon had used these bodies of water as sources for drinking water and fishing.

Advocates Challenge Chevron/Texaco

Ecuador gains advocates across the world. Here Madrid, Spain shows its support.

Ecuador gains advocates across the world. Here Madrid, Spain shows its support.

The group of people affected by the environmental waste formed a group called the Union of Persons Affected by Texaco/Chevron (UPAT/C) and filed a claim against Chevron/Texaco for polluting the bodies of water in the Ecuadorian Amazon. A ruling by the Ecuadorian Supreme Court determined that the prominent oil company was to compensate the UPAT/C to the tune of $17.2 billion. Later, Chevron filed an appeal which ended in the court reducing the compensatory amount to $9.5 billion in 2011.

The oil giant refuses to distribute the mandated restitution for polluting, however, because of several apparent defenses. The company claims that it is the victim of wrongful actions: It insists that the Ecuadorian ruling was a result of bribery and that the plaintiff’s lawyer, Steven Donzinger, organized a plan to extort Chevron into making a payment. They also insist that any of the contamination caused by the company has already been cleaned and that the remaining waste is likely the result of activities by the Ecuadorian national oil company. Even last year, the company brought a RICO (Racketeering Influenced and Corrupt Organizations) Act claim against Donzinger and the UPAT/C, gaining support from U.S. federal courts. Donzinger vehemently denies these claims.

Canadian Courts Get Involved

The ruling cannot exactly be enforced in Ecuador either, because Chevron has no seizable assets in the country which would make it easier to compel the company to compensate the indigenous groups. This is where Canada comes into play.

The Canadian Supreme Court recently ruled that “the foreign court had a real and substantial connection with the litigants . . .” so the jurisdiction by the Ecuadorian courts is legitimate. While it seems that Canada has sided with the Ecuadorian plaintiffs, the courts have mentioned that they cannot ensure compensation from the oil company. However, Canada has more leverage on Chevron because the country has numerous Chevron operations within its borders.

The Executive Coordinator of the UPAT/C, Humberto Piaguaje says, “[The Canadian ruling] is the beginning of the end of Chevron’s abusive and obstructionist litigation strategy to avoid paying for the clean-up of the company’s extensive contamination of our ancestral lands.”

Chevron maintains that the the Canadian ruling has no merit. They assert that because there is no direct link between Ecuador and Canada, the UPAT/C cannot collect their debt in Canada. Canada, however, has mentioned that its court will not rule on the legitimacy of the UPAT/C’s claims or Chevron’s claims; it will only attempt to enforce the Ecuadorian court’s ruling.

Oil Slump

Even if Chevron weren’t enduring the prolonged slump in crude oil prices, it would likely still be fighting against the claims in Ecuador. Still, the roughly 60% tumble for oil over the last 5 quarters has undoubtedly eaten into the oil giant’s profits. WTI crude was trading at just $45.50 per barrel on Tuesday afternoon, while Brent crude sat at $49.25/bbl after a surge of more than 3% on the trading day.

Source: Bloomberg

Source: Bloomberg