Chevron in Ecuador
Texaco Petroleum (Texpet) was minority partner in an exploration and production venture with Petroecuador, Ecuador's state-owned oil company. The production operation took place primarily on government lands and was conducted in compliance with Ecuadorian laws and regulations. Roughly 1.7 billion barrels of crude oil were produced, with the Government of Ecuador (GOE) receiving 95 percent of the total financial proceeds.
At the conclusion of the venture's twenty-year concession, the area and facilities of the former consortium were subjected to a government-supervised audit, which, together with other Government data, became the basis for a settlement agreement under which Texpet was required to conduct environmental remediation with respect to sites in proportion to its one third interest in the venture. To that end, Texpet executed a $40 million remediation and public works program under close GOE supervision; Texpet's remediation was fully inspected, certified and approved by the GOE; and the GOE granted Texpet a full and complete release of all further claims, liabilities and obligations associated with Texpet's operations in Ecuador.
The release documents were signed by GOE's Minister of Mines & Energy, the President of Petroecuador, and the General Manager of Petroproducción--the operational division of Petroecuador. Texpet has had no role whatsoever in exploration and production operations in Ecuador since 1992.
Petroecuador, on the other hand, the operator and sole owner of the oil fields for 15 years, never fulfilled its responsibility to remediate its share of the venture's production sites and, since Texpet's exit from Ecuador, has compiled an atrocious and well-documented record of environmental neglect and misconduct. The environmental degradation present in Ecuador today is the result of Petroecuador's poor operations and the Ecuadorian government's unwillingness to fund adequate remediation.
Texaco has been embroiled in a long-standing legal dispute lead by U.S. based contingency-fee trial lawyers working in partnership with NGOs and local activists whose goal is to extort a large financial windfall from Chevron. These lawyers' efforts to bring these cases in U.S. courts have resulted in a string of dismissals, most recently in a case where the court found that these lawyers had fabricated their clients' health claims. The court in that case described the lawsuit as part of a broader scheme against the company. The current controversy, however, involves a suit that these same lawyers commenced in Ecuador.
In 1999, seven years after Texpet ceased to have any involvement in the operations in Ecuador, the government of Ecuador enacted a new environmental statute - the 1999 Environmental Management Act ( EMA)- that purports to allow any Ecuadorian resident to file suit for environmental reparations on behalf of the collectivity. While the 1999 EMA created new substantive rights that did not previously exist, the new law cannot be used to challenge pre-1999 conduct,as per Article 7 of the Civil Code of Ecuador, which expressly prohibits retroactive application of Ecuadorian substantive law. Nevertheless, in 2003 the very same U.S. lawyers who have waging this campaign since 1993, filed suit against Chevron in Ecuador using that same 1999 law.
The litigation in Ecuador has followed the typical pattern for such suits. The lawyers retained a consultant to devise an astronomical estimate of financial liability, which the plaintiffs have attempted to use to frighten the company into a settlement. The expert in question made only a cursory examination of a small handful of sites and did not seek to distinguish between damage caused by the Texpet/Petroecuador consortium and damage caused by Petroecuador over the 15 years since Texpet left Ecuador. Simultaneously, the plaintiffs have mounted a continuous assault on the Company's reputation - including media campaigns, shareholder proposals, etc. - with the stated goal to pressure the company into a settlement, while at the same time, refusing to acknowledge Petroecuador ongoing record of environmental mismanagement and clean up obligations.
To their credit, the courts in Ecuador initially observed the rule of law, insisting upon a rigorous process of evidence collection and analysis. The court ordered the judicially supervised inspections of 122 sites, with evidentiary submissions by both parties to be evaluated and reconciled by to a panel of five "settling experts" appointed by the court (47 judicial inspections have been conducted to date). These evidentiary submissions, including the reports of the court's settling experts, were to form the basis of a second round of expert analysis by the same court-appointed experts to determine the extent and cause of any environmental damage proven by the plaintiffs.
The initial evidentiary phase of the litigation in Ecuador went disastrously wrong for the plaintiffs. Of the 172 drinking water samples taken at sites Texpet remediated, 99% met Ecuadorian, US EPA and World Health Organization standards. Similarly, more than 99% of all soil samples collected from Texpet-remediated areas confirm that the remediation met the standards set by the GOE. These findings demonstrated that Texpet's remediation was done properly and that there was no significant impact to the environment or to the health of the local people. Of significant interest, high levels of bacterial contamination from human or animal waste were found in 90% of drinking water samples indicating widespread microbial contamination of the water sources.
The judicial site inspection process came to a head, with the production of the first and only report submitted by the five independent court-appointed settling experts for the Sacha-53 site. The experts concluded that Texpet's remediation was conducted in accordance with the required parameters and that there is low health risk to humans from oil at that site. That event marked a tuning point in the case and changed the course of the litigation.
Thereafter, the plaintiffs began an intense campaign to abort the evidentiary process and increase the circus of protests designed to bring pressure on the court. They ceased paying their share of court ordered settling expert fees, bringing their work to a standstill. They "waived" the inspection of the remaining 64 sites, while contending that they should still be allowed to claim damages from these un-inspected sites, without first substantiating their claims with proof. And, most importantly, they demanded that the court proceed directly to a liability determination phase and that it appoint a single expert of their choice - not the same settling experts initially appointed by the court - to perform the entire assessment.
With the election of a new government in Ecuador and the appointment of a new judge, plaintiffs' wishes have come true. Having completely abandoned the evidentiary process required under Ecuadorian law and observed by the court through over three years of litigation, the new judge terminated the evidentiary phase and assigned a single Ecuadorian mining engineer to assess all of the alleged environmental damage.. Moreover, the new executive branch of the Ecuadorian government now has abandoned even facial adherence to the rule of law, having formed an open working partnership with the plaintiffs to use the full force of the Ecuadorian government to hold Chevron responsible for the 17 years of environmental damage caused by its own state oil company, Petroecuador. Senior members of the GOE have spoken on-record through official GOE channels and even taken high visibility trips to the region to exhort the court to find Chevron liable.
In short, this case has now descended into a judicial farce. Chevron is left with no alternative other than to speak openly about the denial of justice that is occurring in Ecuador. In our view, this proceeding no longer has any legal validity, and our company will fight this embarrassing display of hometown injustice in every conceivable forum.
Chevron is fully aware of the challenges faced by the residents of this region and is sympathetic to their plight. However, Chevron firmly rejects the notion that it should be held accountable for addressing the overall problems of the region, caused because the government and the state oil company who are unwilling or unable to shoulder their responsibility.
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