8 December 2008 - FOR IMMEDIATE RELEASE
Contact: Paul Paz y Miño: +1 510.281.9020 x302, email@example.com
San Francisco - An increase in Chevron's potential environmental liability in Ecuador to $27 billion is causing concern among Wall Street analysts and shareholders that the oil giant has failed to set aside sufficient reserves and has not fully disclosed its risk for what could be one of the largest civil judgments in history, according to a group closely monitoring the trial.
At 247WallStreet.com, which provides insight and commentary for U.S. and global equity investors, analyst Paul Ausick expressed concern, writing: "[Chevron] has made no estimate of potential losses in this case nor has it reserved any funds to pay for damages, so it had better win."
The new $27 billion figure, revised last week from $16 billion primarily because of new evidence about groundwater contamination and oil-related cancers, is the latest in a series of setbacks for Chevron in the class action case. In October, a panel for the U.S. Court of Appeals for the Second Circuit unanimously denied Chevron's attempt to force Ecuador's government to accept responsibility for the contamination. In September, two Chevron lawyers and seven former Ecuadorian government officials were indicted in Ecuador on fraud charges relating to a purported remediation in the mid 1990s that was used to try to get the case dismissed.
Also in October, Ecuador's bilateral trade preferences were renewed by the U.S. Congress despite a concerted lobbying effort by Chevron to block their extension as a way to influence the outcome of the Ecuador trial. The SEC earlier had opened a probe of the company to determine compliance with disclosure obligations relating to the case.
The trial is in Ecuador at Chevron's request after the case was filed in U.S. federal court in 1993 by 30,000 plaintiffs alleging that Texaco (bought by Chevron in 2001) created one of the worst oil-related contaminations on the planet.
Several institutional shareholders who own Chevron stock or follow the company expressed concern about the company's approach to its Ecuador problem:
- Shelly Alpern, who represents Trillium Asset Management in Boston, said the announcement of the $27 billion claim, "is the latest in a series of setbacks for Chevron related to the litigation."
Alpern added: "We believe Chevron's management thought it could keep this case hidden from investors, a strategy that has backfired miserably because it failed to recognize the magnitude of public interest in the case worldwide... It is time for Chevron to rethink what can be gained by continuing to fight what seems to be an increasingly inevitable and embarrassing judgment of enormous financial magnitude."
- Newground Social Investment released a statement referencing the $27 billion figure that said: "Profligate and risky behavior of this sort must be reined in - both for straightforward decency and human value considerations, but also because it damages long-term financial liability."
- Jack Ucciferri, an investor with Harrington Investments in California, said in reference to the damages claim: "It seems it is time for Chevron's directors to get this issue behind them and take the company in a new direction... Unfortunately for [Chevron management]... this Ecuador liability of roughly $27 billion threatens to wipe out more than a full year of profit. And if that number isn't scary enough for shareholders, apparently Chevron has not reserved any funds to cover that potential liability."
- Sanford Lewis, an attorney and expert in corporate disclosure rules, said Chevron now has the "duty to update their shareholders on the late $11 billion increase in projected liability. Also, since they have asserted these figures are not a good estimate of their actual exposure, it seems to be high time for the company to provide either a worst case or best estimate if their legal and factual assumptions fail to be accurate."
In private documents used as part of its Washington lobbying campaign, Chevron had indicated several months ago that it was expecting a "significant adverse judgment" in the case. "But the company has not disclosed that bleak assessment in its public filings with the SEC as required by law," said Mitch Anderson, Corporate Accountability Campaigner at Amazon Watch, an environmental organization that has been monitoring the trial.
Chevron for the first time in May mentioned the long-running case in its SEC filings but downplayed the risk claiming the expert report is not an "adequate" basis for a damages claim and that the company could not estimate the potential loss. "Such a statement contradicts what Chevron management is saying privately in other forums about the nature of the actual risk," said Anderson.
The lawsuit charges that Texaco deliberately dumped billions of gallons of toxic waste into Amazon waterways and abandoned more than 900 waste pits, creating a public health catastrophe and decimating five indigenous groups over an area the size of Rhode Island. Texaco was the sole operator of a concession in the area from 1964 to 1990 that included 378 wells and oil production facilities.
Chevron now claims it is the victim of an unfair trial process, but the plaintiffs counter that the scientific evidence found by the court expert indicates all 94 Chevron sites inspected during the trial are contaminated with life-threatening carcinogens. A group of U.S. scientists who have reviewed the damages assessment called the $27 billion figure reasonable compared to large clean-ups in the U.S., and concluded that the methods used by the expert and his team of 14 technical experts were sound.
Since Texaco left the region, Ecuador's state-owned oil company has taken over the oil fields and significantly improved environmental standards, although problems remain, according to the plaintiffs.