Report Finds Chevron Downplaying Shareholder Risk and Liability from $18 Billion Ecuador Judgment

An Analysis of the Financial and Operational Risks to Chevron Corporation from Aguinda v. ChevronTexaco, finds that Chevron’s multi-billion liability in Ecuador poses serious financial and operational risk to the company and its shareholders. The report finds that Chevron’s strategy in the Ecuador litigation could depress stock price, and increase enforcement and raise costs for oil companies. The report was released at the CERES business conference in Oakland, CA. 

In February, Chevron was found guilty of massive environmental contamination by an Ecuadorian provincial court and ordered to pay more than $18 billion in compensatory and punitive damages for widespread oil contamination. This is a historically high judgment that is comparable in size only to BP’s promised $20 billion fund to compensate victims of the 2010 Gulf of Mexico oil spill.

 “In sworn legal statements, Chevron has admitted that the company faces ‘irreparable injury to [its] business reputation and business relationships’ from potential enforcement of the Ecuadorian court judgment. However, Chevron has consistently failed to fully characterize these risks to its shareholders,” said Simon Billenness of Strategy for Corporate Responsibility and Social Investment who co-authored the report. “Shareholders should question the adequacy of Chevron’s public statements and disclosures, and whether the board and management are fulfilling their fiduciary duties to properly manage the significant risk posed to the company’s business and value.”

Key Findings of the report include:

1. The multi-billion liability in Ecuador poses serious risk to Chevron’s worldwide operations, with the possibility of asset seizures and loss of social license to operate.
2. Chevron’s principal legal defense against enforcement of the $18 billion liability is to obtain a preliminary injunction from U.S. District Court. It is not clear that such an injunction will protect Chevron from worldwide enforcement efforts.
3. Chevron’s legal liability could impact its stock. Stock research company Trefis predicted a decline in its estimate of Chevron’s stock valuation of approximately 5 percent based on the company paying only the $9.5 billion compensatory damages ordered by the Ecuadorian court.

Some institutional shareholders are already asking the Chevron to reevaluate its current strategy in regard to the Ecuador case. Boston-based Trillium Asset Management and the New York State Common Retirement Fund are circulating an investor sign-on statement ahead of the company’s annual shareholder meeting to take place on May 25^th at the company’s headquarters in San Ramon, CA.

The co-signors are calling on the company to, “reevaluate whether endless litigation is the best strategy for the company and its shareholders, or whether a more productive approach, such as reaching a settlement, could be employed to begin to provide for a proper remediation for past environmental damages. In so doing, Chevron can once and for all put this controversy behind it.”

The report is based upon public filings with the Securities and Exchange Commission, public domain legal filings in the United States and Ecuador, and interviews with legal experts. The report was written by Simon Billenness of Strategy for Corporate Responsibility and Social Investment and Sanford Lewis of Strategic Counsel on Corporate Accountability, and commissioned by Amazon Watch and Rainforest Action Network. The groups are distributing the report to California lawmakers, stock analysts, public pension funds, university endowments, institutional investors, and other public interest organizations nationwide.

The full report can be found at:

http://www.chevrontoxico.com/news-and-multimedia/chevron-ecuador-risk-analysis-report.html