Chevron shareholders to vote on environmental report

By Randy Woods, Business News Americas
16 April 2009

In a new chapter in the trial over alleged environmental damage in Ecuador, Chevron's (NYSE: CVX) shareholders will decide May 27 whether the board must prepare a report on the California-based oil major's compliance with host country policies.

Although the proposal does not specifically cite Ecuador, it is widely seen as a strategy to answer outstanding questions - and perhaps pressure the company - on the US$27bn trial.

US securities regulator SEC rejected Chevron's attempt to block the report, disagreeing with the oil company's arguments that the proposal is vague, repetitive and difficult to implement.

"We do not believe that Chevron may omit the proposal from its proxy material," the SEC said of the proposal, presented by shareholders including the New York City Employees' Retirement System, the New York City Police Pension Fund and Amnesty International of the USA.

The proposal calls for the board to prepare the report on "policies and procedures" that "guide Chevron's assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company's reputation."

The Amazon Defense Coalition, an NGO that supports the plaintiff's case against Chevron and is the named financial beneficiary of the lawsuit, hailed the SEC decision.

"We applaud the SEC for rejecting Chevron's attempt to deny shareholder democracy," according to the NGO's statement on what it calls the "resolution" on the "Ecuador environmental case."

Chevron, however, pointed out that the proposal uses Ecuador as a proof point but does not call for a study on Ecuador given that the company does not operate in the South American country.

"We had three years of Ecuador-specific stockholder proposals on the proxy; all of them were defeated on a nine-to-one margin," media relations advisor Kent Robertson told BNamericas, adding that SEC rules block shareholders from requesting that same study again.

"If the resolution were successful, it would have nothing to do with Ecuador," he said.

The plaintiffs disagree.

"The purpose of the resolution relates primarily to Ecuador, but also seeks a report to determine if similar substandard practices used by Texaco in Ecuador were used around the world by Chevron. But for Chevron's substandard practices and potential liability in Ecuador, this resolution would not have been proposed," attorney for the plaintiffs Steven Donziger said in an email.

Chevron believes the plaintiffs are trying to use shareholders to put pressure on the company in the trial. "If things are going so well for them as they claim things are, why do they need to be targeting stockholders and why do they need to be pressuring for a settlement?" Robertson said.

The case dates back decades to when Ecuador's state oil company Petroecuador led an E&P project with partner Texaco Petroleum (Texpet), which years later merged into Chevron. The Petroecuador-Texpet partnership resulted in total crude production of 1.7Mb, with Texpet - which stopped operating in the country in 1992 - taking 5% of the financial proceeds, according to Chevron figures.

Ecuador's government in 1999 enacted a new environmental statute that allows any Ecuadorian resident to file a collective suit for environmental reparations. As a result, plaintiffs filed suit against Chevron in 2003, alleging environmental damage from the Texpet project.

Plaintiffs allege Texpet did substandard work and made major decisions about project technology and methodology. Chevron denies the allegations and says it performed a US$40mn remediation project. Attorney Donziger says the remediation does not protect Chevron from claims in the lawsuit.

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