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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).
SocialFunds.com --
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.
 | | 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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