Top Latin America Analyst Says $19B Ecuador Judgment Will Be Enforced Against Chevron

Chevron's stock price appears to be down in recent weeks in large part due to the company's $19 billion Ecuador liability.

An influential Latin America investor analyst this week concluded that the $19 billion Ecuador judgment “will be enforced” and only “risk tolerant investors” with a long-term investment plans should buy Chevron’s stock.  The title of the report: Chevron, A Dividend Champion In Trouble.

Included in the analysis is a chart that shows how the value of Chevron’s stock has dropped considerably in recent weeks as the oil giant has suffered multiple courtroom setbacks in the Ecuador case, including a devastating defeat when the U.S. Supreme Court declined to hear the oil giant’s appeal. See chart here.

Expressing concerns shared by some large Chevron shareholders, the analyst observed that “surprisingly” Chevron’s Chairman and CEO John Watson and other company executives have been “reluctant to recognize the financial impact” of the litigation.  The lawsuit was first filed in 1993 in New York by indigenous and farmer communities from Ecuador against Texaco, which was bought by Chevron in 2001.

During the past few years, shareholders have complained that Watson has been withholding information from investors and have demanded he be more transparent. One U.S. Congresswoman asked that the SEC investigate the company to determine if it is lying to shareholders about the Ecuador risk.

An analyst with the Colombian-based independent investment firm, Caiman Valores, has joined a growing chorus of Wall Street analysts in questioning Chevron’s management of the historic litigation. See here.

Writing on the influential Seeking Alpha web site, the analyst said: “Chevron … is certainly experiencing some rough going…. (i)t is appearing more likely … the judgment … will be enforced. While it is difficult to predict the outcome, it is certain that this matter will continue to run for many years and at great cost to Chevron….”

The analyst also made observations about the controversial role of Watson, who was a key Chevron official who vetted the Texaco purchase:  “It certainly raises questions as to why Chevron's due diligence of Texaco was not more thorough, before purchasing the company, and why management has consistently downplayed the impact of the case,” he said.

Confronted publicly last week about the growing risk posed by the Ecuador liability, the embattled Watson – in conduct most unbefitting a CEO -- called the Ecuadorians and their lawyers “criminals”.  Yet Chevron is the party that has been found by multiple courts to have committed severe environmental abuses that some believe rise to the level of criminality. For a partial summary of the devastating charges against Chevron, see these claims filed against the oil giant by a New York lawyer who has been the target of Chevron’s corporate espionage and vicious personal attacks. See here.

As a result of Chevron’s refusal to pay the Ecuador judgment, the Ecuadorians have been forced to file asset seizure actions in Canada, Brazil and Argentina.  Chevron stripped all but a few residual assets from Ecuador.

The Caiman Valores analyst cited not only the Ecuador litigation but also growing legal problems facing Chevron in Brazil, where the oil giant’s offshore drilling practices resulted in a spill earlier this year. Prosecutors in Brazil have brought a $22 billion lawsuit against Chevron for trying to mislead officials about that spill.

Meanwhile, news accounts surfaced recently about yet another explosion at a Chevron refinery in California.  This is just one more example of the company’s shoddy standards and unsafe culture, which has led to an ongoing criminal investigation by the Environmental Protection Agency.  See here for additional background.

In the blog, the analyst offered different scenarios on the impact of the liability on the company’s stock price.

One investor writing in the comment section of the blog concluded that full payment of the $19 billion judgment would cost Chevron roughly $10 per share.   He said: “Hence if CVX [Chevron] pays out $19 billion, it should lower the stock by roughly $10 per share…. This implies that Mr. Market now puts the probability at around 80% that CVX will pay the full amount eventually.”

Seeking Alpha makes four important points about the Ecuador case:

1) The 1995 remediation agreement between the Government of Ecuador and Chevron did not release the private claims in the lawsuit. This is Chevron’s key defense in ongoing litigation in the U.S. and in the countries where the Ecuadorian communities have filed seizure lawsuits.

2) The Government of Ecuador filed an amicus brief in support of Chevron when the lawsuit was first filed in the U.S. in 1993, citing economic concerns should the company be sued successfully. Today, one of Chevron’s main defenses is that Ecuador’s government has committed fraud and has pressured the courts to rule against the company, even though Chevron submitted 14 affidavits to a U.S. court arguing it could get a fair trial in Ecuador. The court agreed and sent the lawsuit to Ecuador, where it was re-filed in 2003.

3) Before the court allowed the trial to be moved to Ecuador, it required Chevron to submit to Ecuadorian jurisdiction and Chevron agreed. The analyst wrote: “Since the judgment was issued, Chevron has not in any way complied with the judgment and has sought to prevent its enforcement.”

4) Chevron was the sole designer and operator of the substandard oil production system in Ecuador that was built to dump waste into the environment to save money. Chevron now wants to blame the state-owned oil company for the pollution, but PetroEcuador did not operate the system until after the lawsuit was filed.

Seeking Alpha argues that Argentina -- where a court already has frozen Chevron assets because of its Ecuador liability -- offers the “greatest opportunity” to enforce the judgment because of a treaty between Argentina and Ecuador that “reduc(es) the burden” on the Ecuadorians to have the judgment recognized and enforced.

Brazil is probably the least likely country to allow enforcement because it may want to recover the $22 billion in its own lawsuit, according to the blog. If successful in Canada, though, the blog observed that “it is highly likely that it be recognized and become enforceable in countries such as Australia, where Chevron has considerable assets.”

For an earlier summary of Wall Street’s increasingly critical view of Chevron’s stock because of the Ecuador matter, see here.

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Chevron Ignores Safety Standards At California Refinery Where 19 Fires, Spills & Explosions Have Occurred Since 1989

About 4,800 Richmond, California residents have sued Chevron for negligence at an oil refinery and putting them at risk by not issuing public health warnings immediately after a recent explosion, the 19th disaster to have occurred at the refinery since 1989. The explosion, resulting from a corroded pipe, exposed them to toxic fumes that brought on respiratory, gastrointestinal and other serious health problems.

Chevron's refusal to adhere to state and federal safety regulations is another example of the oil giant's disrespect for environmental laws both in the United States and abroad.

See this Huffington Post blog and this recent story about the refinery.

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Can't Define Irony? Then, Read Chevron's "Ethics" Complaint.

Grist blogger Philip Bump hits the nail on the head in his blog today about Chevron's "ethics" complaint against New York State Comptroller Tom DiNapoli, who has been one of only a handful of elected officials willing to stand up to Chevron's thuggery and own unethical misconduct in Ecuador. In a blog entitled, "Chevron is newly concerned about politicians being influenced by money," the Grist blogger writes:

"We now have an example of irony that will stand the test of time. An example of irony that is so obvious and appreciable that when, several millennia from now, people are arguing about Alanis Morissette, the debate will be curtailed when someone notes this news story.

"For you see, Chevron has filed a complaint against the comptroller of New York, suggesting that he was unduly influenced to criticize the company due to campaign contributions he received. Chevron. Complained about how campaign contributions influenced an elected official.

Can. You. *&$##!!. Imagine.

Read the entire blog here.

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A Race For Time? Chevron Desperate to Extort Its Way Out of Paying $19 Billion Ecuador Judgment

An Argentine newspaper La Nacion reported that Chevron is in a "race for time" to convince a court in Argentina to lift a freeze of its assets as payment of the $19 billion judgment for oil contamination in the Ecuador rainforest. Chevron is trying to scare Argentina government officials by saying its subsidiaries there will go bankrupt and, as a result, have to close down its operations unless, of course, the government pressures the courts to unfreeze their assets. Or, in other words, extortion: If you don't tell your courts how to rule, we'll shut down our investments.

Meanwhile, back in the United States, Chevron has filed an ethics complaint against New York State Comptroller Tom DiNapoli, who has had the courage to stand up to Chevron and question its misconduct in Ecuador and its use of shareholder funds in regard to the historic, long-running lawsuit. 

Interestingly, Chevron is filing the complaint more than two years after obtaining emails that the oil giant falsely bases its complaint on. Why did Chevron wait so long? If it's so concerned about ethics, why not two years ago? Or one year ago? Do you think it might have anything to do with Argentina, Brazil and Canada, where lawsuits have recently been filed to seize company assets as payment for the judgment?

They have tried and failed to get U.S. courts to stop enforcement of the judgment.

They have tired and failed to get negative press coverage in these three countries to pressure their governments and courts to stop enforcement.

Maybe the Albany, NY press corps will come to Chevron's defense.

But, wait, this article basically says the complaint against DiNapoli is a lot of nothing.

Read the press release below for more details about Argentina:

Chevron Threatens to Shut Down Argentina Operations Over Ecuador Lawsuit

Buenos Aires, Argentina – In a clear effort to apply political pressure to judges, Chevron is threatening to bankrupt the company’s subsidiaries in Argentina unless an asset freeze order issued against $2 billion of the oil giant’s assets is lifted, according to news reports. 

The order was imposed last week because Chevron refuses to pay a $19 billion judgment in Ecuador for systematically dumping toxic waste into the streams and rivers of the rainforest, decimating indigenous groups and causing an outbreak of cancer. 

For background on the overwhelming evidence against Chevron in Ecuador, see HERE; a video on the case can be seen HERE.

La Nacion, a leading newspaper in Argentina, is reporting  that desperate Chevron executives are giving Argentina’s national government until December to force a court to reverse the freeze order before facing “operational problems” that could shut down two subsidiaries that produce an estimated $600 million in revenue annually for the parent company.

The newspaper reported that “a host of Chevron lawyers and executives in Miami were analyzing alternatives in a race against time” given that they expect funds to run out in several weeks – a prospect that the plaintiffs in the case call a “manufactured scare tactic” designed to apply pressure to Argentina’s courts.

Representatives of indigenous rainforest villagers in Ecuador had little sympathy for the company, calling Chevron’s threats another example of “improper political pressure” used to avoid being held accountable under the law.

“Chevron has been running from the law for years in Ecuador, where out of pure greed it deliberately created what is probably the world’s worst oil contamination,” said Graham Erion, a Canadian lawyer advising the rainforest communities.  “It is not surprising that the company’s illegal behavior is finally catching up to it.

“The pollution Chevron intentionally caused in Ecuador is an assault on all of Latin America,” he added. “Chevron would never commit such atrocities in its own country.”

The Argentina embargo prohibits Chevron from disposing of any interests in concessions, pipelines, or other projects without the court’s consent and diverts 40 per cent of the company’s annual revenue to an escrow account controlled by the court.  The court chose to garnish less than half of the revenue to allow Chevron’s subsidiaries to operate with flexibility, said Erion.

Chevron also was planning to invest $1.8 billion over the next three years in Argentina to build 120 new oil wells, and was exploring an investment in a huge oil shale project called Vaca Muerta.

“The threat by Chevron CEO John Watson to pull out of Argentina endangers the company’s interests in a country that should be a key driver of future growth in the region,” said Karen Hinton, U.S. spokesperson for the rainforest communities in Ecuador. “This is not in the interests of Chevron shareholders.”

Chevron’s woes in Argentina were compounded this week when Spain’s Repsol oil company sued the oil giant in Spain on the grounds that  it was trying to profit from operations that had been expropriated by Argentina’s government.

Reports out of Argentina were quick to show that Chevron has already begun to lobby furiously for an extra-judicial solution. 

La Nacion reported that the governor of the oil rich province of Neuquén publicly stated that he hopes Chevron succeeds in fighting the embargo, which was imposed pursuant to an international treaty in Latin America that allows for the reciprocal recognition of foreign judgments. 

Chevron’s attempts to enlist political allies in Argentina are directly out of the oil giant’s playbook, with documented  attempts to bribe Ecuadorian government officials, use the U.S. embassy in Quito to undermine the case, and lobby the U.S. government to cut Ecuador’s trade preferences for refusing to intervene in the case.  

Pablo Fajardo, the lead Ecuadorian lawyer for the affected communities, told La Nacion that Chevron is trying to “extort” Argentina.

“Chevron has options,” he said. “You can pay the judgment or offer bail in Argentina bail to replace the embargo. It seems that Chevron intends to act outside the law and is choosing to attempt to extort Argentina. If the company suspended its operation, it is demonstrating that it is only interested in working when it has impunity."

One of the consequences of the freeze order is that any future investments Chevron makes in Argentina will also be subject to seizure, up to the full amount of the $19 billion Ecuador judgment.

Chevron also faces asset seizure actions over the Ecuador judgment in Brazil , Canada, and Ecuador. 

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Gibson Dunn, Chevron Suffer Another Devastating Setback In $19 Billion Ecuador Case

The U.S. law firm Gibson Dunn & Crutcher is getting hit with a new round of hurt because of its bungling of Chevron’s Ecuador environmental case.

The recent order in Argentine to freeze roughly $2 billion in Chevron assets to help pay for the $19 billion Ecuador judgment is a monumental failure for Gibson Dunn’s defense strategy and a personal setback for its self-described “dream team” of litigators.   These lawyers -- Randy Mastro, Ted Boutrous, Scott Edelman, and Andrea Neuman – prematurely tried (in a stunning display of arrogance) to create an entire practice group off the Ecuador case.

The freeze order in Argentina is a potent setback, not just in one country but throughout Latin America and maybe beyond.  Company officials are ever closer to having to write checks to the very indigenous groups they decimated with their reckless, criminal, and even racist operational practices in the rainforest.

Gibson Dunn probably did not know that International treaties in the region allow for the reciprocal enforcement of foreign judgments.  The Ecuadorians already have seizure actions pending against Chevron in Brazil and are planning to file one soon in Colombia, said Pablo Fajardo, their lead counsel.  Venezuela and Panama are also potential targets.  In Ecuador, Fajardo’s team is in the process of seizing an estimated $200 million in Chevron assets. 

The recovered Ecuador assets can be used to fund even more seizure actions against Chevron around the world, including in Asia, Africa, and Europe.   Chevron thus faces the prospect of a far more constricted reality where its global investment opportunities begin to choke off, little by little.  Countries where Chevron should be considering investments on equal footing with its peers are falling off the map because of the added risk created by Gibson Dunn’s utter failure to contain the Ecuador liability.

In Canada, a key strategic country in the oil industry where the Ecuadorians have an enforcement action pending, Chevron may have as much as $12 billion in assets.  The same goes for Argentina.  In that country, Chevron produces roughly 30,000 barrels of crude daily but has plans to invest another $1.8 billion to drill 120 new wells over the next three years, according to Platt’s Oilgram News.

Ecuador is clearly off the map to Chevron while other international companies vie to buy the drilling rights to numerous oil fields in the Amazon.

This downward Chevron trend line could be a case study in how a top U.S. law firm can lose sight of the big picture while it obsesses over minute details of a satellite (and baseless) “fraud” case in New York. Gibson Dunn keeps billing huge fees to landscape Chevron’s front yard without realizing the house is on fire.

Gibson Dunn has now lost at least 10 major legal actions since entering the case in 2009, including before the U.S. Supreme Court in an appeal headed by none other than Ted Olson, the former Solicitor General of the United States. Olson has probably won more U.S. Supreme Court arguments than any person alive.  But not even he could figure out a way to put lipstick on Chevron’s pig. 

Chevron hired Mastro and the GDC dream team in 2009 to “rescue” it from the impending liability in Ecuador.  Two years later, the Ecuador court – despite eleventh-hour efforts by Chevron to bribe and threaten judges – found the oil giant liable and imposed a $19 billion damages award.  It was based on overwhelming evidence that Chevron deliberately dumped billions of gallons of toxic waste into the environment, poisoning the water supply of indigenous groups and causing an outbreak of cancer and other oil-related health problems.

Courts also found Mastro and his colleagues committed ethical violations on behalf of Chevron, including using lawsuits as weapons of intimidation designed to suppress the First Amendment rights of the company’s critics.

Evidence also emerged that Chevron might be deceiving shareholders about the degree of risk it faces over the Ecuador liability, as documented in great detail in a report by Canadian securities lawyer Graham Erion.  A U.S. Congresswoman and a group of institutional investors have called on the SEC to investigate the company.

This blog by Kevin Koenig of Amazon Watch clearly explains the misrepresentations and hypocrisy radiating out of Chevron’s corporate headquarters in San Ramon.  Even some analysts, most of whom are still in the thrall of the industry, are catching on to the extent of Chevron’s problems in the Ecuador case.  

Gibson Dunn is of course reaping a financial windfall to help Chevron evade responsibility for the destruction it has caused.  Mastro recently trooped into U.S. federal court in New York with 11 lawyers in tow for a minor hearing at which one person spoke.  He has admitted to using more than 60 lawyers from his firm on the Chevron case.   The firm’s profits rose by 20% the year after Chevron hired it.

The Gibson Dunn/Chevron losing streak in Ecuador highlights Chevron’s utter lack of corporate governance. Chevron General Counsel R. Hewitt Pate, for example, was given an obscene 75% raise last year (to $7.8 million) after he lost the Ecuador case. In granting the raise, Chevron’s Board actually praised his handling of the matter.  Taking care of insiders -- that’s how aging dictators act as the winds of change start to sweep over the palace.

Pate and notoriously short-fused Chevron CEO John Watson need independent oversight, but none exists.  The conflicted Watson is both Chairman of the Board and CEO, making him his own boss.  He was also the main Chevron executive who vetted the purchase of Texaco in 2001 and at the time failed to account for the massive Ecuador liability.  By all accounts, he is emotional and unrepentant when talking about the Ecuador case – telltale signs of a man who suffers from an acute conflict of interest.

There will be more international enforcement actions filed against Chevron soon.  The company’s investment map will get smaller.  In the meantime, expect more delusion, denial, and deceit as long as Watson and Pate are leading the company.

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