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April 08, 2005
Oil Spread Upon the Waters of Ecuador May Return Harm for ChevronTexaco Shareholders
    by William Baue

A shareholder delegation surveys the environmental and social impact of oil operations, assessing potential risk from a twelve-year old lawsuit in its judicial inspection phase (part one of a multi-part article).

The surface of the Rio Shushufindi, headwaters of the Amazon, glimmers with an iridescent sheen in patches while children splash in the shallows, bathing as a break from their daily journey hitchhiking from school back home. What refracts the light into the colors of the rainbow is the same thing passing through (and sometimes leaking from) the pipelines crossing the river over the kids' heads: Oriente crude, the oil named after the region of northeast Ecuador from which it is extracted.

ChevronTexaco Faces Class-Action Lawsuit in Ecuador Over Environmental Damage Oil Spread upon
the Waters of Ecuador May Return Harm for ChevronTexaco Shareholders
Photo by Leslie Lowe
"The oil precipitates and falls to the bottom, so it then works its way into the bed of the river," said Leslie Lowe, a lawyer and the energy and environment program director for Interfaith Center on Corporate Responsibility (ICCR), a New York-based consortium of 275 faith-based institutional investors with $110 billion in assets. "And when you kick your heel into the sand of the riverbed, you expose a layer of dense, tar-like petroleum substance."

In early March 2005, Ms. Lowe visited Ecuador as a member of a delegation of ChevronTexaco (ticker: CVX) and Burlington Resources (BR) shareholders on a fact-finding mission to gain first-hand understanding of the social and environmental impacts of oil extraction in the country. Focalizing this concern is the Maria Aguinda Salazar et al. v. ChevronTexaco class-action lawsuit filed in Lago Agrio, Ecuador in May 2003 by 88 Ecuadorians representing 30,000 indigenous community members and settlers, which is currently on trial.

The original case spent a decade in US courts before the Second Circuit Court of Appeals ruled in August 2002 that Ecuador represents the proper jurisdiction for trying the case, and that any financial penalties levied there will be honored here, with no recourse to US courts for appeal. Judge Efrain Novillo of the Ecuadorian Superior Court of Justice in Neuva Loja is now inspecting up to 122 pits where Texaco subsidiary Texaco Petroleum (TexPet) dumped waste from more than twenty years of oil operations.

The pits served as repositories of "produced water," a byproduct separated from oil after drilling that retains large amounts of dissolved salts, hydrocarbons, trace metals, and radionuclides. Radionuclides emit "ionizing radiation," a known human carcinogen, when they radioactively decay. Texas, the company's namesake state, passed a statute in 1919 prohibiting discharge into the environment of "water of formation" (another term for produced water), and other states followed suit--for example, Louisiana passed a similar statute in 1953. The federal government passed a nationwide ban on surface disposal of produced water (with a few exceptions) in 1979.

Replacing the practice of disposing produced water on the surface was the environmentally preferable (but much more expensive) process of re-injecting the produced water deep into the ground. However, surface disposal continued to be the method of choice until TexPet ended its Ecuador operations in 1992 (and beyond, as its partner, the state oil company PetroEcuador, inherited the concession as well as TexPet's infrastructure and methods.)

"[Texaco] should have followed the same standards they were following in the United States, but the authorities were not demanding it," said Pedro Espin, president of PetroEcuador and a former Texaco employee, in a November 2003 interview with The Los Angeles Times. "Texaco did what the authorities asked, the minimum required."

Texaco may have done even less than the minimum required. After TexPet's 1992 departure, Texaco contracted for two independent audits of environmental impact by AGRA Earth & Environmental Ltd. and Fugro-McClelland that both gave the environmental impact of the operations a passing grade. However, one of the audits noted that "some activities were potentially noncompliant with Ecuadorian law."

The audits set the framework for a 1995 remediation agreement between the Ecuadorian government and Texaco committing the company to pay $40 million to cover its share for cleanup of, among other things, some 160 of the 600-odd waste pits created. After TexPet completed remediation in 1998, Texaco, PetroEcuador, and the Ecuadorian government signed a final agreement indemnifying Texaco.

ChevronTexaco's case relies heavily on this agreement, in which the Ecuadorian government released the company from responsibility for future claims by third parties. However, no third parties themselves indemnified the company, the plaintiffs point out. So the agreement between the company and the government does not immunize the company from claims filed by private citizens, such as the 30,000 men, women, and children living in the region affected by TexPet operations.

Part two of this multi-part article addresses question of whether the contamination found at the inspection sites poses human health or environmental risks.

Part three examines implications of the Ecuadorian Attorney General's opinion of the Constitutional invality of the remediation agreement.


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