Two cases of Big Oil in South America

An Ecuadorean appeals court has upheld a ruling that Chevron should pay damages totalling $18.2bn (£11.5bn) over Amazon oil pollution.

Chevron said the judgement was “illegitimate” and “a fraud”.

Texaco, which merged with Chevron in 2001, was accused of dumping toxic materials in the Ecuadorean Amazon.

The original ruling ordered Chevron to pay $8.6bn in damages, which was more than doubled after the company failed to make a public apology.

“We ratify the ruling of February 14 2011 in all its parts, including the sentence for moral reparation,” the court in the Amazonian city of Lago Agrio said in its ruling, according to Reuters.

Long-running battle

In a statement released in response, Chevron said the decision was a “glaring example of the politicization and corruption of Ecuador’s judiciary”. It said it would continue to seek recourse through proceedings outside Ecuador.

The decision is the latest twist in a long-running legal battle between Chevron and the Ecuadorean plaintiffs.

The lawsuit was brought on behalf of 30,000 Ecuadoreans, in a case which has dragged on for years.

Ecuadorean indigenous groups said Texaco dumped more than 18bn gallons (68bn litres) of toxic materials into unlined pits and rivers between 1972 and 1992.

But Chevron says Texaco spent $40m cleaning up the area during the 1990s, and signed an agreement with Ecuador in 1998 absolving it of any further responsibility.

In September, a US appeals court overturned a decision to block the collection of the fine from the company.

Plaintiffs, who had agreed not to attempt to collect the damages until the appeals process was completed in Ecuador, welcomed Tuesday’s ruling.

“This [ruling] confirms and ratifies that the company polluted and affected the Amazon,” they said in a statement.

“It is necessary to clarify that no amount will be enough to repair all the crime they did in our area, nor will it be enough to bring the dead back to life.”

Ecuador’s President Rafael Correa described the dispute as a “David and Goliath” battle.

“I think justice has been done,” he said after the ruling was announced.

“The harm that Chevron caused to the Amazon cannot be denied.”

Chevron has challenged the fine, arguing that lawyers and supporters of the indigenous groups who brought the case conspired to fabricate evidence.

In a previous separate case, international arbitrators ordered the Ecuadorean government to pay $96m to Chevron because Ecuador’s courts had violated international law as a result of delays in resolving commercial disputes involving Texaco.

Meanwhile in Venezuela…

Venezuela has said it will pay Exxon Mobil $255m (£164m) in compensation for assets nationalised in 2007 – less than a third of what an arbitration panel awarded the oil giant.

The International Chamber of Commerce (ICC) in Paris had ruled that PDVSA, Venezuela’s state oil company, was required to compensate the US firm.

It said PDVSA should pay Exxon $908m.

But PDVSA said that debts owed by Exxon and court action meant the amount it would actually pay would be much less.

Exxon said the ICC award gave the company “$907.6m of real financial benefit in the form of debt relief and cash”.

PDVSA said Exxon had previously used international courts to freeze $300m in Venezuela’s US accounts, and added that Exxon owed $191m relating to the financing of an oil project in Venezuela, as well as $160m that the arbitration tribunal said was due.

Exxon had reportedly sought $10bn in compensation for the nationalisation of its heavy crude upgrading project in Venezuela’s oil rich Orinoco belt.

“After four years of arbitration, the real amount determined by the ICC tribunal indeed represents less than the exorbitant sum initially demanded,” PDVSA said in the statement.

The Venezuelan government said in September it had offered Exxon $1bn to settle the case.

Future cases

It is one of many arbitration cases currently under consideration after Venezuelan President Hugo Chavez ordered the nationalisation of the assets of some oil companies including Exxon and Conoco Phillips.

“They must be elated that they got off so cheap. It’s certainly a happy new year for Venezuela,” said Russ Dallen at Caracas Capital Markets after the ICC announced its ruling.

The decision was made by an arbitration tribunal at the ICC. Under the rules of the arbitration, its decisions are binding.

Exxon will hope for a better result in the next case concerning the nationalisation of its Cerro Negro heavy oil project, which is being heard by a different arbitration panel.

An Exxon spokesman said: “The larger ICSID (International Centre for Settlement of Investment Disputes) arbitration against the government of Venezuela is ongoing and is expected to be argued in February for the fair market value of the project.

“We recognise Venezuela’s legal right to expropriate assets subject to compensation at fair market value.”

Much of Venezuela’s so far untapped reserves are harder-to-process heavy oil, and the Venezuelan government has been keen to increase state revenues from these reserves.

Analysts have said the country’s aggressive nationalisation strategy may have deterred foreign investors and limited oil production.

But despite the moves, which saw Exxon and Conoco Philips leave the country, other oil firms have continued to invest.

In 2010, US firm Chevron and Spain’s Repsol signed investment deals to exploit resources in the country’s Orinoco belt.

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