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$8 billion fine against Chevron in Ecuador

A court in Ecuador's Amazon jungle has ordered Chevron to pay $8 billion in a closely-watched environmental lawsuit, but the U.S. oil company rejected the ruling as "illegitimate".
To match Feature ECUADOR-CHEVRON/
Ecuadorean oil workers clean up a contaminated crude oil pit. Guillermo Granja / Reuters
/ Source: Reuters

A court in Ecuador's Amazon told Chevron Corp Monday to pay more than $8 billion in environmental damages, the plaintiffs' lawyer said, but the U.S. oil giant will fight on in a suit seen as a global test case.

Chevron vowed to appeal, meaning the long-running case -- which dates from drilling in the Andean nation during the 1970s and 1980s and has spawned accusations of dirty tricks and bribery -- could drag on for years more.

Activists portray the case as a fight for justice against rich polluters but Chevron says it is more to do with opportunism and greedy trial lawyers. It has triggered related legal action in U.S. courts and international arbitration.

"In many moments of this long, difficult and costly battle, it appeared impossible to make the dream a reality ... apparently this story is beginning to change," Pablo Fajardo, a lawyer for the plaintiffs, said in an emailed statement.

"First, (the judge) has found that Chevron is responsible and guilty for the existing environmental damage in the Amazon. Second, it has ordered Chevron to pay the sum of more than $8 billion to repair the environmental damage."

Chevron, however, has no assets in Ecuador, plans to appeal, and believes it is unlikely ever to pay.

Its shares traded 1.3 percent higher to close at $96.95 Monday as investors shrugged off news of the court ruling. The stock had been lifted by gains in crude oil, and analysts said a final verdict in the court case was likely years away.

The plaintiffs, who originally demanded $27 billion in the lawsuit, had said they would try to grab Chevron assets around the world once armed with a favorable judgment from the Lago Agrio court.

But their case is complicated by a ruling last week from international arbitrators ordering Ecuador to suspend enforcement of any judgment.

The saga is being monitored by the oil industry for precedents that could lead to other large claims against oil companies around the world that have been accused of contaminating the countries where they operate.

Judge Nicolas Zambrano issued the 187-page ruling from Sucumbios provincial court in the hardscrabble Amazon town of Lago Agrio. His courtroom is on the fourth story of a run-down building which houses a ground floor casino called The Mirage.

Chevron did not give a figure from the ruling, but said it was "illegitimate" and "unenforceable in any court that observes the rule of law."

The California-based company had revenue of $198 billion and net profit of $19 billion in 2010.

The case highlights the risks of doing business in Ecuador, where leftist President Rafael Correa often feuds with the private sector and has publicly sided with the plaintiffs.

Residents of Ecuador's Amazon region have said faulty drilling practices by Texaco, which was bought by Chevron in 2001, caused damage to wide areas of jungle and harmed indigenous people in the 1970s and 1980s.

"This ruling is an intermediate step. The appeals could go on for many years," said John van Schaik, oil analyst at Medley Global Advisors in New York.

"But the fact that the Lago Agrio court ruled in favor of the plaintiffs sends a signal to oil companies that, more than ever, they need to be good corporate citizens," he added.

"The ruling shows that times have changed, and companies need to take environmental concerns seriously."

Texaco first struck oil in Ecuador in 1967 and started pumping in 1972 as part of a consortium with the state. The company operated in Ecuador until 1990. Soon after, it turned its share of the consortium over to the Ecuadorean government.

State oil company Petroecuador has continued drilling in the area over the 20 years since Texaco pulled out.

"If you look at the Exxon-Valdez case, that took 20 years to settle," said Allen Good, oil analyst at Morningstar in Chicago. "I think there were expectations that the initial judgments would go against Chevron and I think the case is going to play out over a very long time."

Chevron says it cleaned up all the pits it was responsible for. But the dirt just under the surface around some former waste pools still has a black sheen and carries the eye-watering stench of oil.

Farmers say they cannot raise crops or livestock in these areas due to the contamination.

One oil analyst, Fadel Gheit of New York-based Oil & Gas Research Oppenheimer & Co, said he had spoken to Chevron Chairman and CEO John Watson recently about the case.

He "was exceptionally combative and absolutely adamant. He said 'This is not going to happen on my watch. There is no way I am going to pay this kind of money,"' Gheit told Reuters.