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Chevron ordered to pay $8 billion by Ecuador court

February 14, 2011|Reuters

A court in Ecuador's Amazon jungle ordered Chevron Corp. to pay more than $8 billion in damages Monday in a closely watched environmental suit.

But the U.S. oil company vowed to appeal, meaning the long-running case dating from drilling in the South American nation during the 1970s and 1980s could last for years more.

The case, which activists portray as a fight for justice against rich polluters but Chevron says has more to do with opportunism, has triggered related legal action in U.S. courts and international arbitration.

It is being monitored by the oil industry for precedents that could lead to other large claims. Chevron had expected to lose the case in the Ecuadorean court.

In a statement Monday, Chevron said the ruling by the court in Lago Agrio was "illegitimate" and "unenforceable in any court that observes the rule of law."

It said the United States and international tribunals had already taken steps to bar enforcement of the ruling.

Pablo Fajardo, a lawyer for the plaintiffs, said the court had ordered Chevron to pay more than $8 billion in damages.

The lawsuit had originally demanded $27 billion.

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.

Investors are watching the case closely to see what precedent could be set for other mega-lawsuits.

"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 last 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 shares rose $1.22, or 1.3%, to $96.95.

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