Chevron awarded $96M in Ecuador shakedown arbitration

We’ve been bringing you periodic coverage of the Chevron Ecuador shakedown since early this year. As you may recall, certain groups from both Ecuador and the United States have been attempting to pick Chevron’s deep pockets to the tune of billions of dollars over supposed environmental damage to lands where Chevron’s subsidiary, Texaco, hasn’t extracted a single barrel of oil in decades. (Meanwhile, the government of Ecuador has been drilling non-stop right through to this day.) The government’s case has been shown to be rife with corruption, and several aspects of it have been turned over to international courts for review.

Well, the next round has drawn to a close and it’s the government of Ecuador, not Chevron, who may wind up laying out some cash.

Chevron Corp. (CVX), the second-largest U.S. energy company, said it won a $96 million judgment against Ecuador in an international arbitration case stemming from a 1990s oil-export dispute with the Latin American nation.

The ruling by the Permanent Court of Arbitration in The Hague resolved seven commercial claims over crude sales by the Ecuadorian government from 1991 to 1993 from wells operated by Texaco Inc., Kent Robertson, a spokesman for the San Ramon, California-based company, said today in a telephone interview.

Ecuador overstated domestic crude demand to boost its share of production from the Texaco-operated wells, and then sold the oil on the international market, depriving Texaco of profits, Robertson said. Texaco was acquired by Chevron in 2001.

This is the smaller bite from the apple, since we are still awaiting a decision on the appeal of the $18B judgement which the government of Ecuador effectively awarded itself from Chevron back in February. But this part of the case is relevant, as it exposes the corrupt practices taking place and the dishonest way in which Ecuador has been dealing with foreign energy developers for decades.

For their part, Ecuador was quite happy to hold out their hands expecting a check from Chevron for nearly twenty billion dollars, but their response to this judgment is a bit different. They don’t plan to pay.

“Ecuador rejects the final sentence given by the arbitration court and considers that it has no legal validity and represents a grave injustice,” Diego Garcia, Ecuador’s attorney general, said today to reporters in Quito.

Garcia said the panel didn’t have jurisdiction to decide the case because a bilateral investment treaty between the U.S. and Ecuador wasn’t in effect when Texaco quit the country.

Ecuador plans to ask a district court in the Netherlands within 90 days to invalidate the arbitration ruling, Garcia said. Ecuador is prepared to appeal the case all the way to the Netherlands’s highest court, he said.

Expect this to drag on for a while longer, but we should credit Chevron for doing the right thing and working through proper legal channels for a lasting, valid resolution. We’ll let you know when the next round is concluded.