Environmental case in Ecuador at heart of a dispute involving the SEC
By Steve Gelsi, MarketWatch
8 April 2009
NEW YORK – The Securities and Exchange Commission has sided with public pension funds in a dispute over whether Chevron Corp. should be required to include a shareholder proposal citing an environmental court case in Ecuador for which the oil giant is potentially liable for billions of dollars.
The dispute highlights shareholder concern over a future expense that could carry a higher prospective price tag than the roughly $3.5 billion jury verdict originally levied against Exxon Mobil in the Exxon Valdez tanker spill some 20 years ago.
It also comes at a difficult time in the energy business, when companies are moving to conserve cash in order to wait out a drop in demand, rising inventories and weak oil prices.
The disputed shareholder measure for the company's annual meeting on May 26 calls for a new study on San Ramon, Calif.-based Chevron's policies "with respect to their adequacy to protect human health, the environment and our company's reputation" overseas, according to a document cited by the SEC.
The measure also includes information about an environmental trial in Ecuador, where Chevron faces charges of contamination of Amazonian land and water resources in the 1970s by Texaco, the oil company it bought in 2001.
A court-appointed expert in the Ecuadorian litigation in the Court of Nueva Loja has recommended that Chevron be held liable for up to $27.3 billion in damages, according to the shareholder resolution.
"We are unable to concur in your view that Chevron may exclude the proposal," the SEC said in a letter to Chevron.
Chevron, seeking to have the Ecuador litigation dismissed, maintains that the lawsuit is baseless and that the assessment of it potential damages is flawed. Chevron has said that Texaco cleaned up its share of the spills with three years of remediation work and that Ecuador's government absolved it of all future responsibility in 1998.
Chevron spokesman Kent Robertson declined to comment on whether the disputed shareholder resolution will be included in the proxy statement, which is due in the next couple of weeks. Five past resolutions concerning Ecuador have failed to win shareholder support, he said.
Chevron has set up a Web site to provide "facts about Chrevron and Texaco in Ecuador."
Litigation drags on
Mike Holland, an investment manager for Wall Street clients, said that Chevron could face liabilities for the cleanup down the road but that day-to-day developments in such cases rarely affect stock prices.
In the wake of the Exxon Valdez case, a certain amount of liability and risk is baked into the valuation of major oil companies, he said.
"It's an omnipresent part of investing in oil and gas companies because of the nature of the business," Holland said.
Public-employee pension funds of New York City, as well as New York, Maryland and Pennsylvania, have contacted company directors to clarify how Chevron planned to protect itself in the event of an unfavorable verdict. The New York City Comptroller's Office has urged Chevron to settle the case.
Chevron had sought to omit mention of the pension funds' concerns about the case in the proxy statement for its 2008 annual meeting. Chevron will now be required to list those concerns at its May 26 annual meeting.
A verdict in the case may not come until the fall, proponents said. After that, the case could end up in appeals. International tribunals may also be used.
Karen Hinton, a spokeswoman for the Amazon Defense Coalition, the group representing residents of Ecuador, said action may be sought in a U.S. district court to require that the oil major place money in escrow.
The case pits some 30,000 people, mostly farmers, who say they continue to face threats from oil spills such as dead cattle.
Texaco was a 37.5% partner in the oil field venture, with Petroecuador owning the rest. Chevron argues that Petroecuador has not followed through on its share of the cleanup.