In what can only be interpreted as an ominous development for Chevron in its 17-year odyssey to escape liability for dumping billions of gallons of toxic waste in Ecuador's Amazon, The Economist reported this week that BP faces complete liability for the Deepwater Horizon disaster and that the event has already reduced the capitalization of the company by $30 billion, or roughly 16% of its market value.
Specifically, the magazine reported that:
The costs fall to BP because, as the majority shareholder in the consortium leasing the Deepwater Horizon (the junior partners are America's Anadarko and Japan's Mitsui) and the project's operator, it is liable under American law for the costs of cleaning up.
(Under U.S. law either being the majority shareholder OR being the operator is sufficient to make a company liable for the costs of cleaning up).
Why is this ominous for Chevron? Because one its main excuses to avoid a potential $27.3 billion liability in Ecuador is that it doesn't currently own the oil fields where it contaminated, even though it operated them alone for 25 years from 1965 to 1990.
Nice try, John Watson (Chevron CEO) and Hew Pate (Chevron General Counsel).
What Watson and Pate try to hide from the public markets is what the Economist recognizes: under the law, the operator of the oil fields is 100% responsible for any pollution caused under its watch, regardless of the overall ownership structure.
So as BP is responsible for the damage caused in the Deepwater Horizon disaster, it is setting a harrowing precedent for Chevron – one that must have the lawyers and executives in the company casting a wary eye at the company's toxic legacy in Ecuador. A damages assessment in the trial there (taking place in Ecuador at Chevron's request) places the cost of clean-up at roughly $27 billion, with a final decision expected later this year.
Chevron has refused to fully disclose this potential liability in its SEC filings. Stay tuned.