CSR in the Oil and Gas Sector: What We Should Learn from Chevron/Texaco-Ecuador

Lessons Learned From the Oil & Gas Sector

What Chevron’s $19 Billion Judgment in Ecuador Should Teach the World About Corporate Social Responsibility

On September 30, we posted a press release from CSRWire, “Chevron Fights $19 Billion Environmental Judgment from Ecuador,” that put forth some serious claims against Chevron Corporation’s ethics in response to a legal injunction.

According to Chevron (NYSE: CVX), the company paid $89.4 million in environmental fines and settlements during 2011, representing 3.32% of Chevron’s total environmental expenditures.

After 19 years of litigation, however, the judgment by Ecuadorian appellate court against Chevron is internationally binding and the second largest in history (BP’s 2010 Gulf of Mexico oil spill has the highest outlay to date). The plaintiffs’ lawyers are attempting to enforce the judgment by seizing Chevron’s key assets in Latin America, which includes tankers, oilfields, and refineries.

A briefing paper issued by Clean Up Ecuador Campaign cites the following impacts of Chevron Corporation, including Texaco, which was acquired by Chevron in 2001.

  • Thousands of Chevron’s own contamination samples demonstrate oil contamination in the rainforest of northeastern Ecuador over the past 3 decades, estimating that Texaco spilled or deliberately dumped the equivalent of 345 million gallons of crude in the region.
  • Chevron dumped at least 18.5 billion gallons of toxic wastewater and sludge into rainforest waterways used by local Ecuadorians.
  • Independent, peer-reviewed health studies confirm elevated cancer rates in the impacted region, with nearly 1,500 deaths attributed to Chevron’s contamination.
  • Hundreds of waste pits abandoned by Chevron continue to leach dangerous toxins into the water and soil of local community farms and residences.
  • Five indigenous cultures are affected by oil operations in their previously ancestral lands.

Chevron disputes these claims, citing the case as illegitimate and plaintiffs strategy of fraud. Allegations of Chevron’s negligence in Ecuador may surmount its commitments to indigenous tribes in neighboring Columbia. For 35 years, Chevron has worked with the Wayúu communities in Columbia.

Chevron in South America

Chevron first stepped foot on Columbian soil in the 1920s, but didn’t discover oil and natural gas in Columbia until the 1960s.

Area inhabited by the Wayuus, between Colombia...

Chevron has supported various social investment programs for the Wayúu indigenous people and their territories, including construction of six health clinics, helping to create 22 farms through a local pilot program, and a program for fishermen in La Guajira in northern Columbia- 600 families now participate in La Guajira’s program where Chevron operates offshore and onshore natural gas fields.

Today, Chevron provides 4 million households in La Guajira with natural gas, and approximately 65% of Columbia’s total natural gas supply, but reserves are in decline. In 2010, Chevron collaborated with the national government to begin exploration for new natural gas resources along 233 miles between La Guajira shoreline and deep ocean. Chevron’s seismic and drilling gas project was completed in 2011 without injury or incident.

Chevron Leads by Example

Chevron was simultaneously exploring on the other side of South America. Drilling activity at the Moccasin prospect in the US Gulf of Mexico began in March 2010. One month later, BP’s Deepwater Horizon oil spill led to a moratorium on deep-water drilling in the Gulf in June 2010, bringing Chevron’s drilling to a halt.

In March 2011, we were issued a deep-water permit by the U.S. Bureau of Ocean Energy Management, Regulation and Enforcement to resume drilling the Moccasin exploration well. In September, we announced a new oil discovery at the prospect. Since the BP Macondo well incident, we have reviewed our processes, procedures and well-control contingency plans at our drilling operations worldwide to confirm our ability to operate safely and respond to any unforeseen incidents. Chevron is one of the sponsor companies of the Marine Well Containment Co. (MWCC), a nonprofit, independent organization committed to improving response capabilities for containing deep-water well-control incidents in the U.S. Gulf of Mexico. MWCC developed an interim oil spill containment system that became available for use in February 2011.

Off the tail of the United Nations Rio+20 Conference on Sustainable Development (June 20-22, 2012), Chevron responded quickly and responsibly to the Gulf moratorium. Incidentally, Chevron pledged $50 million at the Rio+20 to improve living standards in the Niger Delta, a region wrought with trouble from Exxon’s recurring oil spills, but litigation continues to track the company’s global footholds in oil and gas.

Chevron in Brazil

On September 27, 2012 Chevron paid $17.3 million in fines to Brazil’s petroleum regulator, National Petroleum Agency (ANP), following injunctions filed against Chevron Corporation and Transocean, Ltd., the world’s largest drill-rig operator, for their role in a 3,700 barrel offshore oil spill in Brazil last November. Both companies face civil lawsuits seeking nearly $20 billion in damages. Prosecutors have also filed criminal charges against the two companies and 17 of their employees and executives that carry jail terms of up to 31 years.

Both parties deny the charges and plan to appeal the injunctions. Chevron ceased production at the Frade field in March after traces of oil were discovered in the area. Both Chevron and the ANP say that the oil found there was not from the Frade field. However, Chevron’s decision to pay the fine and not contest the ANP’s findings is a sign the company wants to move quickly to fix problems at Frade and return to production as soon as possible. Frade, which reached peak production of more than 70,000 barrels of oil just before the spill, is in the middle of Brazil’s Campos basin, the country’s most productive oil region. According to the ANP:

Chevron received a 30% discount on the (BRL) 35.1 million reais charge because it paid promptly and did not challenge the 24 violations found the ANP, in its operations in the Frade Field northeast of Rio de Janeiro.

The discount, allowed under Brazilian law, would reduce Chevron’s bill to about 24.6 million reais [1 Brazilian real (BRL) = 0.4931 US dollars (USD), as of 9/30/2012].

On Friday, September 28, 2012 the Brazilian state-run energy company Petroleo Brasiliero, or Petrobras, joined the legal efforts in Rio de Janiero to overturn the injunction. The court decision also could throw a wrench into Brazil’s plans to develop recently discovered ultra-deepwater oil fields known as the subsalt, which are expected to more than double Petrobras’s current crude oil output to 4.2 million barrels a day by 2020.

All Eyes on Ecuador

Meanwhile, Chevron continued its nearly twenty-year legal battle over exploration in Ecuador. From the early 1960s to the early 1990s, Texaco operated 300 oil wells in a large strip of Ecuador’s northern Amazon region and southern Columbia’s border. In Texaco’s wake, much of the area is now terribly polluted, devastating local wildlife, natural resources and indigenous people that made their home in the formerly pristine rainforests of the Amazon River.

A brief filed by the plaintiffs said: “It deliberately dumped many billions of gallons of waste byproduct from oil drilling directly into the rivers and streams of the rainforest covering an area the size of Rhode Island. It gouged more than 900 unlined waste pits out of the jungle floor — pits which to this day leach toxic waste into soils and groundwater. It burned hundreds of millions of cubic feet of gas and waste oil into the atmosphere, poisoning the air and creating ‘black rain’ which inundated the area during tropical thunderstorms.”

Texaco in Ecuador

Exploration began in Ecuador in 1964, with the forming of the Consortium (50% Texas Petroleum, 50% Gulf Ecuatoriana). The Trans-Ecuadorian pipeline was completed in 1972. Petroecuador acquired a 25% share of the Consortium in 1974, and later acquired Gulf Ecuatoriana’s share in 1976, giving Petroecuador 62.5% majority interest. Petroecuador and Texaco Petroleum, “TexPet” had full regulatory and supervisory authority over all of the Consortium’s operations in Ecuador from 1976-1992.

Petroecuador acquired 100% ownership of the Trans-Ecuadorian pipeline in 1986, and 100% ownership of the Consortium in 1992. Delicate ecosystems here are forever changed because of the Consortium’s thirty-year presence. Chevron, however, didn’t acquire Texaco until 2001, nearly a decade after the thirty-year pillage. The parent company argues that it shouldn’t be held liable for any of Texaco’s sins. A plausible argument, to be sure, but who is responsible?

The Chevron-Texaco Merger

The Chevron-Ecuador judgment totals nearly $19 billion cash. In 2001, Chevron purchased Texaco for $36 billion in stock, making it the second largest oil company in the US (behind Exxon-Mobile) and the world’s fourth largest oil concern. When Texaco shareholders were bought out by Chevron, they received payment in the form of Chevron stock (0.77 shares CVX for each TX share held). In October 2001, Chevron stock was trading at around $44 per share. While Chevron may not be responsible for Texaco’s mess in Ecuador, due diligence during the merger would have discovered outstanding litigation as a result of Petroecuador’s acquisition of Texaco’s share in the Consortium. Today, Chevron’s trading around $116 per share.

This week, Forbes reported on ETF Channel announcement that Chevron Corporation is the “#2 broker pick, on average, out of the 30 stocks making up the Dow Jones Industrial Average.” Chevron ranks 29th in the S&P 500 index, according to analyst picks.

Exxon Fails to Lead by Example

That was before Chevron’s competition, Exxon Mobile, abandoned cleanup of the latest August 2012 oil spill off the coast of Niger’s Ibom coast. Akwa Ibom is a part of the Niger Delta region. A 2010 U.N. report states the Niger Delta will require 30 years and around $1 billion to at least partially recover from environmental damage caused by major oil companies. At the Rio+20, Chevron endowed the Niger Delta Partnership Initiative (NDPI) Foundation with $50 million over a five-year period from 2010 to 2014. NDPI will seek to augment its funds with donor partner funding to develop a project portfolio totaling $100 million for the region.

As litigation surmounts the impacts of its CSR initiatives, Chevron is investing millions in public relations and media buys to salvage its corporate goodwill. In May 2012, Chevron Corporation released its 2011 Corporate Social Responsibility Report. According to the report, “Chevron placed in the Top 10 in Fortune magazine’s March 2012 list of companies most admired for social responsibility, and first among its peers in the petroleum refining industry.”

Chevron in America

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IMG_7881 (Photo credit: Alex Tafla)

At the end of 2011, Chevron employed 57,376 employees globally (excluding 3,813 service station employees) and 11.2% are represented by unions; 26,525 (46.5%) of those employed are in North America and 4.1% in South America. Chevron has seen a 1.5% decrease in employment from 2010.

In August of this year, a fire erupted at Chevron’s oil refinery in Richmond, California dispelling mass amounts of black smoke into the air. Investigations are still underway to determine the cause of the blaze at the 110-year-old refinery. The US Environmental Protection Agency was already conducting a separate investigation on a pipe that allowed emissions to bypass pollution control equipment. Last week, over 200 Richmond residents gathered to ask questions of the various regulatory bodies investigating the fire.

California Senator Loni Hancock addressed the Richmond group at the meeting.

“Whether inadvertent or deliberate, there’s got to be a way to ensure that never happens again.”

Chevron’s CSR

The “We agree” campaign aims to demonstrate the common ground that individuals share with Chevron on key energy issues. Chevron Corporation’s commitment to corporate responsibility as a global citizen is commendable, not just in the Americas but all over the world. Further, Chevron’s acquisition of Texaco may have been the tourniquet to the hemorrhaging of negligence by one oil and gas company’s reckless abandon. Sunshine is the best disinfectant, and the twenty-year Ecuador lawsuit may bring more of Petroecuador’s culpability into the light.

Inheriting Texaco’s legal troubles is unfortunate. Nineteen billion dollars is a significant sum, even for an S&P oil and gas darling like Chevron. However, the devastating effects that oil and gas exploration has had on the Amazon River basin and rainforests, on the Gulf of Mexico, or the Nigerian Delta are permanent. Exxon Valdez and BP’s Deepwater Horizon demonstrated how entire ecosystems are forever altered in the world’s insatiable quest for and consumption of oil and gas.

The Verdict

All oil companies have a shared responsibility in the way product is brought to market, and the collateral impacts of oil and gas on people and the planet. While CSR initiatives may be admirable, they’re also unavoidable. Oil and gas is a messy business, and cleaning up that mess shouldn’t be entrusted to a conglomerate’s own volition to do the right thing. Twenty years later, Texaco shareholders who have stuck it out are doing pretty well with Chevron stock, as are Exxon’s investors. But the indigenous people of Ecuador’s Amazon basin and Niger’s Delta region have a different story to tell.

So, who is responsible for cleaning up the mess in Ecuador? The real question is who should be held accountable. This case stands to set a legal precedent for accountability for the entire oil and gas industry, an industry that has operated unchecked since the Carter Administration. Regardless of where you stand on the Chevron-Ecuador judgment, or whether you believe Chevron Corporation honors its commitments to social responsibility, it’s hard to deny that renewable energy sources are the answer to the consequences of the oil and gas sector.

As Chevron states in its campaign, “Protecting the planet is everyone’s job.” Yep. We agree.

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