When, during the trial over Chevron's massive oil contamination in Ecuador, a court-appointed expert said the company should pay up to $27 billion in damages, lawyers and executives for the oil giant were apoplectic.
The figure shocked analysts and shareholders and sent shockwaves through the industry.
But that probably had more to do with the long history of impunity that multinational oil companies have enjoyed. And in Chevron's case, it certainly had a lot to do with the fact that the Board of Directors have been asleep at the wheel for years, while senior management and the legal team have deceived investors, shareholders, and the public about the scope of its liability in Ecuador.
But really, $27 billion? That's an inconceivable amount of money to almost everyone. But don't forget, we're talking about a company that took home $24 billion in profits in 2008 alone.
To put it all in perspective, I point you to yesterday's 'Dealbook' column in The New York Times. In an article entitled 'Imagining the Worst in BP’s Future', wunderkind financial reporter and author Andrew Ross Sorkin takes a look at the potential liability BP could face in the wake of its massive oil spill in the Gulf of Mexico
And in comparison, suddenly, the $27 billion damages estimate for Chevron in Ecuador looks pretty damn low.
BP’s costs for the cleanup could run as high as $23 billion, according to Credit Suisse. On top of that, BP could face an additional $14 billion in claims from gulf fisherman and the tourism industry. So while conservative estimates put the bill at $15 billion, something approaching $40 billion is not out of the question. After all, little about this spill has turned out as expected.Sorkin goes on to say that while this scenario may seem "far-fetched" right now, there's actually a term Wall Street bankers use to describe such a possibility: "The Texaco Scenario." No, actually, they don't mean the potential liability Chevron faces for the deliberate damage done by its wholly-owned subsidiary during its decades of operations in Ecuador's Amazon rainforest. They are referring to when Texas oil giant Texaco filed for Chapter 11 bankruptcy protection in 1987 because it didn't have enough money to pay a $1 billion jury award after it was sued by Pennzoil (more on that case here).
The company has about $12 billion in cash and short-term investments, but there is already a debate about whether it should cut its dividend out of fear that it could run out of money. Of course, it could sell assets or seek loans, which in this environment is still not that easy.
But all those numbers don’t account for the greatest possible threat: a jury verdict against BP. Such a verdict might push the cost of the spill into the hundreds of billions. If that happened, even BP might buckle.
Sorkin spoke to a number of financial analysts and bankers who suggest that BP is at serious risk of bankruptcy or being taken over by a competitor.
In a press release from the Amazon Defense Coalition yesterday, Pablo Fajardo, lead attorney for the affected communities in Ecuador said, "We believe the damages estimate in Ecuador is glaringly low in light of the latest assessments of BP’s liability by Wall Street analysts,”
To quote the release at length:
The Ecuador disaster is still considered the world’s largest oil-related catastrophe, though it often is not “ranked” because it was the product of deliberate planning to cut costs rather than a spectacular accident, according to representatives of the plaintiffs. “Chevron dumped more than 18.5 billion gallons of toxic waste -- about 4 million gallons per day for more than two decades -- and the world paid almost no attention,” said Mitch Anderson, an American organizer who works with the affected Amazonian communities.
Experts have concluded that Chevron discharged at least 345 million gallons of pure crude into the Amazon as part of its illegal dumping – far more than both the 11 million gallons spilled in the Exxon Valdez and the enormous amounts of crude spewing out of the BP well in the Gulf.
The Chevron Ecuador disaster poisoned an ecosystem roughly the size of Rhode Island that is even more sensitive to its indigenous inhabitants than the coastal marshes of Louisiana are to local fishermen, according to Luis Villacrecis, an environmental consultant who works with the plaintiffs.
“We have long said that the $27 billion damages number for Chevron in Ecuador is too low because it does not take into account the true restoration of the rainforest,” said Villacrecis.
“Because this is far away from the United States, and because the victims are mostly indigenous, Chevron believes it can receive a discount on the actual damages,” he added. “Whether that is true remains to be seen.”
Is Chevron in the same boat as BP? Could the company be facing imminent bankruptcy or takeover after mishandling the liability for years? After 17 years of litigation, the oil giant continues to fight tooth and nail to evade responsibility for an oil-related disaster more devastating than the BP Gulf spill.
But as they have all these years, Chevron still has a choice. It can do the right thing by cleaning up the toxic mess it made in Ecuador, and compensate the communities it devastated. Or it can continue to fight until its liability is unimaginable and sinks the company like a ruptured tanker.
I hope for the former but if it's going to be the latter, let us pray they don't have too much oil on board.
Han Shan is Coordinator of Amazon Watch's Clean Up Ecuador Campaign