Chevron's Ecuador Soap Opera Drags On

Todd Shriber
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If you have not been keeping up with Chevron and the contentious lawsuit brought against the second-largest U.S. oil company by a group of Ecuadorean plaintiffs, I strongly encourage you to do so. Not only does this imbroglio make for entertaining reading, it is a stark reminder of the perils faced by Western oil majors when they do business in less-than-hospitable international locations. There is probably also room for lawyer joke or two, but I will leave that to the professional comedians.

What is going on here is amounts to nothing more than a money grab as lawyers for the plaintiffs are seeking a whopping $18 billion in damages from Chevron. Put $18 billion into context when it comes to Chevron. It is a bit less than 10% of the company's $200 billion market cap, give or take a few billion. Based on a current dividend payment of $3.12 a share per year and 2.01 billion shares outstanding, $18 billion covers nearly three years worth of dividend payments by Chevron (CVX).

In other words, Chevron, as it should be, is doggedly fighting this judgment and it is highly unlikely the company will ever be writing a check in the amount of $18 billion to anyone in Ecuador, the smallest OPEC member and a country in which Chevron currently has no operations.

The judgment was delivered by an Ecuadorean court earlier this year for which the term ''kangaroo court'' can be applied. Seriously. Since President Rafael Correa took power in 2007, Ecuador's legal system has been deemed one of the most corrupt in the world by a number of respected media outlets. Translation: Lawyers for the plaintiffs are going to have a pretty hard time getting a legitimate court anywhere in the world to enforce the $18 billion judgment.

The plaintiffs claim that Texaco polluted Ecuador's Amazon region when it operated in the country prior to Chevron acquiring the company over a decade ago. The plaintiffs also seem to forget that Texaco previously reached a settlement with Ecuador on this matter and it should be noted they are not suing PetroEcuador, the country's state-run oil producer, which is probably responsible for some pollution somewhere in the country.

Really what is going on here amounts to nothing more than the oil industry equivalent of an ambulance chase. Deep down, the plaintiffs know they are never going to see $18 billion, but they do not want to go away empty-handed. That probably explains retaining Patton Boggs, the well-heeled D.C. law firm, to get Chevron to come to the settlement table, as Forbes reports.

In fairness, it should be noted that some Chevron shareholders have chastised the company over the Ecuador situation. My unsolicited two cents is that anyone that is long Chevron probably is not happy about this lawsuit, but at the same time, if I am long Chevron (I am not), I want the company to fight this, right? If any company acquiesces to this type of lawsuit, does it not just open the door for more of the same?

As it stands right now, the only winners are the lawyers.

Todd Shriber