An Analysis of the Financial and Operational Risks to Chevron Corporation from Aguinda v. ChevronTexaco
An independent report commissioned by Oil Change International
By Simon Billenness, Strategy for Corporate Responsibility and Social Investment
This report asserts that Chevron's $18 billion Ecuador environmental liability poses a threat of "irreparable damage" to the oil major's global operations if the plaintiffs make good on their promise to launch legal actions to enforce the judgment in countries where Chevron has billions of dollars in assets. It also notes that the long-running case "is reaching its most risky phase" for Chevron after an appeals court in Ecuador upheld the judgment in January and rendered it immediately enforceable. The report notes that Chevron's defenses have been "severely compromised" because of a separate ruling by a New York federal appellate court that vacated a preliminary injunction purporting to bar worldwide enforcement of the judgment.
The report also notes that Chevron has yet to disclose in its public filings that its own comptroller, Rex Mitchell, quietly submitted a sworn affidavit to U.S. federal court that concluded any enforcement of the judgment will cause "irreparable damage" to the company. Chevron has been trying to downplay the risk posed by the judgment in its public filings and press releases, concluded Billenness in the report, titled An Analysis of the Financial and Operational Risks to the Chevron Corporation from Aguinda v. ChevronTexaco.
The report concludes "the enormous breadth of Chevron's global business operations makes the company particularly vulnerable to enforcement. There are many jurisdictions around the world in which the plaintiffs could seek court recognition and enforcement of the judgment, including many where Chevron has substantial reserves and that are of strategic importance."
Key findings include:
- The Ecuador judgment poses serious risks to Chevron's worldwide operations, with the possibility of asset attachments and loss of social license to operate in new areas and markets;
- Chevron's principal legal defenses against enforcement have either been severely compromised or have failed. These include the reversal of a preliminary injunction barring enforcement and the rejection by Ecuador's government of a private investment arbitration that tried to halt the litigation;
- Chevron's shareholders are stepping up calls for more transparent disclosure of the Ecuador liability, leading to increased pressure on management; and
- Chevron risks violating securities laws for withholding material information from shareholders.